Call Us Today!
See your savings in just five minutes! Get debt help today!

How Much Debt Is Too Much?

For most consumers, debt doesn’t usually just happen out of the blue. Instead, it is a gradual, insidious process that can spiral out of control before you even realize it. This is why it’s so important to recognize when you have too much debt. Understanding when you’ve crossed the line can help you avoid making the situation worse and take action to reduce your debt immediately. In this post, we’ll provide a list of questions you can ask yourself in order to determine if you have too much debt.

  • Do your debt payments take up more than 40% of your gross income? This is how the Federal Reserve defines too much debt. In other words, your credit card, auto loan, mortgage, and any other debt payments should not consume more than 40% of your pre-tax earnings. If you devote more than 40% of your income to debt, you could be oversubscribed financially.
  • What kinds of debt do you have? Having a $50,000 outstanding balance on a mortgage and $50,000 of credit card debt are obviously two very different things. With a mortgage, you get to deduct the interest expense, and the loan is relatively low-interest to begin with. By contrast, credit card debt has exorbitant interest rates and offers no tax breaks. For this reason, the kind of debt you have matters. Home and car loans are better kinds of debt to have than credit card debt, for example. If you have an excessive amount of high-interest debt, you might be in over your head.
  • Are you using more than 30% of your credit limit? A major determinant of your credit score is the percentage of your credit limit that you are currently utilizing. To avoid damaging your score, you should keep the balance on any given credit card below 30% of the total credit limit. If you are using more than this amount, your score will suffer, and you probably have too much debt.
  • What kind of payments do you make? Do you pay your credit card balances off in full each month or do you struggle just to make the minimum payment? If you carry a revolving balance, chances are that you are spending more money than you have, which is a red flag. Carrying a revolving balance doesn’t necessarily mean that you have too much debt as long as you are making substantially more than the minimum required payment every month. Making only the minimum payment is a surefire sign that you have too much debt.
  • Do you struggle to pay other bills? After you pay your debts, do you seem to have little left over for other expenses? If so, you have too much debt. Your primary living expenses should come first, and you should have enough of a cushion to be able to save money as well. If you are devoting such a large chunk of your income to debt that you can’t pay your living expenses, you need to seek professional debt assistance.
Tell Us About Your Current Debt...
Type of Service:
First Name:
Last Name:
Debt Consolidation Tools
Learn the basics of debt consolidation, negotiaion, and debt management.
[click here...]
Information about additional ways to lock down your finances while consolidating.
[click here...]
Get back in control of your day-to-day spending with this handy budgeting guide.
[click here...]