Which financial ratio helps assess a consumer's ability to pay back debt?

The debt-to-income ratio is a crucial financial metric that evaluates a consumer's ability to manage and repay their debt obligations. This ratio specifically measures the percentage of a consumer's gross monthly income that goes towards paying their existing debt. A lower debt-to-income ratio indicates that a consumer has a manageable level of debt relative to their income, suggesting a higher likelihood of being able to repay their debts.

In contrast, while other ratios like the loan-to-value ratio and current ratio provide useful insights into different aspects of financial health—such as the relationship between a loan and the value of the collateral or a company's short-term liquidity—they do not directly measure an individual's capacity to repay debt based on income levels. The interest coverage ratio is primarily used to evaluate a company's ability to service its debt through earnings and is less applicable to individual consumers. Thus, the debt-to-income ratio stands out as the most relevant measure for assessing a consumer's debt repayment ability.