Define "total debt service ratio" (TDS).

The total debt service ratio (TDS) is defined as the ratio of total monthly debt obligations to gross monthly income. This measure is a critical factor in assessing an individual's or household's ability to manage debt. Lenders utilize the TDS to evaluate the risk involved in extending credit, as it provides insight into how much of a person's income is allocated to servicing debt, including mortgage payments, car loans, credit card payments, and other debt obligations.

For borrowers, a lower TDS indicates greater financial flexibility and less risk, as it suggests that they have more disposable income available after meeting their debt obligations. In contrast, a higher TDS can signal potential financial strain, which may raise red flags for lenders when considering loan approvals.

Understanding TDS is essential for financial assessments in lending practices, as it helps determine whether a borrower can comfortably handle their expenses while maintaining their debt payments.