Are you wondering how much debt is too much? If yes, you should check out our useful guide here on the key things to understand.
How much debt do you have, or don’t you even know?
If you don’t know, is it because you’re avoiding looking at your statements? If you’ve reached the point where you do not even open your mail for fear of seeing your balances, you may have too much debt.
So, how much debt is too much to have, you might wonder? Well, it depends.
If this is a question you have, continue reading this guide that will help you learn how much debt is too much to have.
The Two Factors That Affect How Much Debt You Can Afford
Two main factors that affect the answer to how much debt is too much, which are your income and expenses.
When you receive your paychecks each month, can you comfortably pay off every expense you have? When you pay your bills, do you have enough money left for everything else?
Analyzing these questions is one of the best ways to determine if your debt load is too high. If you have no problems paying your bills and expenses, you probably don’t have too much debt.
Here are some signs that you may have too much debt, though:
- You make minimum payments on debts
- You skip paying some of your bills sometimes
- You transfer money from card to card to make the payments
- You have no cash left after paying your bills
- You pay for everything you need with credit cards
If you are experiencing these things, you probably owe too much money.
Your Debt-to-Income Ratio Helps You See How Much Debt Is Too Much
You can analyze your financial situation by using a popular ratio. A debt-to-income (DTI) ratio is a prevalent tool in the financial world, but it is something you can calculate to learn more about your financial situation.
To use this ratio, add up every debt payment you have for a typical month. Next, divide this amount by your gross monthly income. If the answer is over 43%, you have too much debt. If it’s under 43%, you probably don’t have too much.
Learn the Difference Between Good and Bad Debt
Finally, you should learn the difference between good debt and bad debt. Good debt is the debt you can afford, and that has meaning, such as a car loan or mortgage.
Bad debt is money you owe through credit cards or high-interest loans. It is the debt you have that you might not even know what it is for.
If you have a lot of bad debt, look up a legit debt consolidation program to use. Using a program like this may help a lot.
Take Your Next Step
So, how much debt is too much? You can see that the answer depends on a lot of different things. If you are having trouble paying your debts, you probably have too much.
If you feel that you cannot get out of debt yourself, start looking into debt-relief options. As you do this, you’ll see that there are methods you can use to find relief from your debt.
You can check out our blog if you want to learn more about this subject.