Debt Service Ratio

Monthly values

Debt Service Ratio — the last 8 quarters

Every quarter's reading, with the band the heatmap gives it. The chart above shows the same series in full.

Quarter	Value	Band
Q1 2026	11.16%	Within normal range
Q4 2025	11.32%	Within normal range
Q3 2025	11.23%	Within normal range
Q2 2025	11.12%	Within normal range
Q1 2025	11.11%	Within normal range
Q4 2024	11.12%	Within normal range

Quarter-end readings of the same series the chart shows, from debt_service_ratio. Values are the current record, not point-in-time: a month that has since been revised shows its revised value.

What is the Debt Service?

The debt service ratio (DSR) measures the share of household disposable income consumed by required debt payments — mortgage principal, interest, auto loans, student loans, and credit card minimums. When this ratio rises too high, consumers have less money to spend, which slows the economy. Ray Dalio of Bridgewater used a similar concept as a "depression gauge" — when debt payments exceed income capacity, deleveraging begins and recession follows. Note: the current FRED TDSP vintage begins 2005 after a methodology revision; earlier vintages are not splice-compatible (levels differ by about 2pp), so history before 2005 is deliberately not shown.

How We Color-Code the Debt Service

Our heatmap colors each indicator based on historically significant thresholds:

Below 9%

Households have plenty of income left after debt payments — strong spending capacity.

9%-10.5%

Healthy debt burden — households managing debt comfortably.

10.5%-12%

Moderate debt burden — within historical normal range.

12%-14%

Elevated debt burden — households squeezed, reduced spending capacity.

Above 14%

Heavy debt burden — historically associated with consumer stress and recession.

Historical Extremes — What Happened Next?

When this indicator reaches extreme levels, history shows consistent patterns:

Q4 2007Pre-GFC Peak

15.85%

Highest ever — unsustainable debt burden led to crisis.

Q2 2021Post-GFC Low

9.05%

Stimulus payments and debt forbearance drove to historic lows.

1980sHigh Rate Era

~12%

High mortgage rates drove elevated DSR despite lower home prices.

Investor Checklist — Current Reading

Based on the current Debt Service reading of 11.16% (Neutral):

ℹModerate debt burden — watch for further increases

⚠Rising interest rates could push DSR higher quickly

Frequently Asked Questions

What is the debt service ratio?

The debt service ratio measures total required household debt payments (mortgage, auto, student loans, credit cards) as a percentage of disposable personal income. A ratio of 10% means 10 cents of every dollar of after-tax income goes to debt payments.

Why is this called the Bridgewater depression gauge?

Ray Dalio and Bridgewater Associates identified that debt service burdens reaching unsustainable levels relative to income trigger deleveraging — a process where consumers cut spending to pay down debt, causing economic contraction. Their 2008 recession prediction was partly based on this concept.

How high did the DSR get before the 2008 crisis?

The DSR peaked at 13.2% in Q4 2007 just before the financial crisis. This extreme level meant over 13% of household income was consumed by debt payments, leaving little room for error when housing prices fell and unemployment rose.

How does rising interest rates affect DSR?

When interest rates rise, new borrowers face higher payments immediately. Existing borrowers with adjustable-rate mortgages or variable-rate debt also see payments rise. A 1% rate increase on a $400,000 mortgage adds $400/month to payments — a significant impact on DSR.

What caused DSR to drop to historic lows in 2021?

Three factors combined: stimulus checks boosted disposable income, mortgage forbearance allowed millions to pause payments, and low rates enabled refinancing. The DSR fell to 8.3% — the lowest ever. This buffer has since eroded as rates rose and stimulus ended.