Debt Burden Ratio: What It Is & How to Calculate It

DBR Meaning & What is the Maximum Limit as per CBUAE?

Debt burden ratio (DBR) is the percentage of your monthly income that goes towards your current debt obligations. As per the Central Bank of the UAE, the maximum DBR limit is 50% of your gross monthly salary. 

The debt burden ratio limit includes all types of debt, including mortgages, credit cards, personal loans, and car loans. A lower DBR increases your chances of credit approval and helps you get better interest rates.  

How Do Credit Cards Count Towards the Debt Burden Ratio in UAE?

Your credit cards are a major active liability factored into your DBR calculation. They are based on your overall credit limit rather than what you actually owe or spend.

• Even if your credit card balance is 0, the banks assume a monthly obligation of 5% of the total credit limit.
• Lenders often view your total credit limit as potential debt that you could use any time. Thus, carrying a high credit limit directly reduces the borrowing limit. 

How to Calculate Your Debt Burden Ratio?

It is easy to calculate your debt burden ratio. The basic formula to calculate the DBR is:

DBR = Total Monthly Debt Payments /Gross Monthly Income x 100

The monthly debt payments include:

• Existing loan payments (personal loans, mortgages, and car loans)
• New mortgage loan instalment
• Other fixed debt obligations
• 5% of your total credit card limit

Here’s an example:

• Personal Loan Monthly Instalment: AED 3,500
• Mortgage Monthly Instalment: AED 5,000
• Gross Monthly Salary: AED 40,000
• Total Credit Limit: AED 80,000 (5% assumed monthly repayment = AED 4,000)

Total Monthly Debt Payments = 3,500+5,000+4,000 = AED 12,500

DBR = 12,500/40,000 x 100 = 31.25%

Since the debt burden ratio is below 50%, you can get approved for the loan or credit card you apply for. 

You can also use a DBR calculator in UAE to calculate the ratio digitally, without complex, manual calculations.

Does Reducing or Closing a Credit Card Improve Debt Burden Ratio?

You can reduce your DBR by managing your credit cards, especially if you plan to apply for a major loan or a new card. Here’s how reducing or closing a credit card improves your DBR. 

• If you completely close the credit card, the credit limit gets removed from the calculation, freeing up 5% of that limit from your monthly debt obligation.
• You can reduce the credit limit. This lowers the baseline, which reduces the DBR in turn.

How to Lower Your DBR Before Applying for a Credit Card?

To lower your debt burden ratio below the 50% threshold laid by the CBUAE, reduce monthly debt obligations or increase your verifiable gross monthly income. 

• Reduce Inactive Credit Limits: Close old or spare credit cards with high limits to reduce the 5% assumed liability. You can also request your bank to reduce the credit limit on active cards.
• Pay Off High-cost Debt: Completely settle your minor personal loans or cash instalments. Also repay any outstanding revolving credit card balances. 
• Consolidate Existing Loans: Combine multiple high-interest loans into a single debt consolidation loan. You can also extend loan tenure to lower the monthly instalment amounts. 
• Document Additional Income: Submit proof of increment, allowances, or bonuses to the primary bank. 

Frequently Asked Questions