How much debt is too much debt? (2024)

How can you determine if you are getting into too much debt? A good benchmark to use is your debt-to-income ratio (DTI). This ratio compares the amount of money you pay toward debt and the amount of money in your take-home pay. Learn how to calculate this ratio and see how much debt you can safely handle.

How to calculate your debt-to-income ratio

Start by calculating your monthly household debt payments. Remember that debt is only the payments you make to repay a lender for money that you've borrowed. Examples include credit card debt, auto loans, student loans, medical bills, or any other debt you are making a monthly payment on. Your home mortgage payment is not included in your debt-to-income ratio.

Next, calculate your monthly take-home pay (this is your net income). Then divide the total debt payments per month by your monthly net income. You will likely get an answer that equals less than one (such as 0.35 or 0.23). Now, multiply this number by 100 to see the percentage of your take-home pay that goes to pay down debt (for example, .35 x 100= 35%).

Ideally, financial experts like to see a DTI of no more than 15 to 20 percent of your net income. For example, a family with a $250 car payment and $100 of monthly credit card payments, and $2,500 net income per month would have a DTI of 14 percent ($350/$2,500 = 0.14 or 14%). The $350 of debt is 14 percent of the $2,500 monthly income.

How to use your debt-to-income ratio

The DTI helps you understand how much debt you currently have and how much more you can safely take on. Use this formula before deciding whether to make a new purchase using credit. For example, if you estimate that an extra $50 in monthly credit card payments will increase your DTI above 20 percent, you may want to wait to buy that new item until your net income goes up or your total monthly debt payment goes down.

Remember, not all debt is bad! Some debt, such as student loans are necessary. Understanding your DTI assists you in being a smart borrower so you can be an informed borrower and not have too much debt.

Consumer Financial Protection Bureau. (2019). What is a debt-to-income ratio?

National Endowment for Financial Education. (2010). The money you borrow. In Your spending, your savings, your future: A beginner’s guide to financial readiness.

Revised by Sharon Powell, Extension educator in family resiliency

Reviewed in 2023

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How much debt is too much debt? (2024)

FAQs

How much debt is too much debt? ›

Now that we've defined debt-to-income ratio, let's figure out what yours means. Generally speaking, a good debt-to-income ratio is anything less than or equal to 36%. Meanwhile, any ratio above 43% is considered too high.

How much debt is too much for a person? ›

Generally, 36% is considered a good debt-to-income ratio and a manageable level of debt, as no more than 36% of your gross monthly income goes toward debt payments. If your DTI ratio is higher, it may be too much debt to handle.

What is an OK amount of debt? ›

Ideally, financial experts like to see a DTI of no more than 15 to 20 percent of your net income. For example, a family with a $250 car payment and $100 of monthly credit card payments, and $2,500 net income per month would have a DTI of 14 percent ($350/$2,500 = 0.14 or 14%).

How much debt is too risky? ›

If you cannot afford to pay your minimum debt payments, your debt amount is unreasonable. The 28/36 rule states that no more than 28% of a household's gross income should be spent on housing and no more than 36% on housing plus other debt.

Is 20k in debt a lot? ›

“That's because the best balance transfer and personal loan terms are reserved for people with strong credit scores. $20,000 is a lot of credit card debt and it sounds like you're having trouble making progress,” says Rossman.

Is $5000 in debt a lot? ›

$5,000 in credit card debt can be quite costly in the long run. That's especially the case if you only make minimum payments each month.

Is 30K in debt a lot? ›

The average amount is almost $30K. Some have more, while others have less, but it's a sobering number. There are actions you can take if you're a Millennial and you're carrying this much debt.

What is unmanageable debt? ›

Personal debt can be considered to be unmanageable when the level of required repayments cannot be met through normal income streams. This would usually occur over a sustained period of time, causing overall debt levels to increase to a level beyond which somebody is able to pay.

Is 10k a lot of debt? ›

There's no specific definition of “a lot of debt” — $10,000 might be a high amount of debt to one person, for example, but a very manageable debt for someone else. Calculating your debt-to-income (DTI) ratio gives you a rough idea.

Is 80K in debt a lot? ›

The average student loan debt owed per borrower is $28,950, so $80K is a larger-than-average sum. However, paying off your balance is possible. Since payments on an $80,000 balance can be high, extending the repayment term to lower monthly payments may be tempting.

Is $50,000 in debt bad? ›

At that level of debt, you're likely paying hundreds each month -- if not a thousand dollars or more -- just to meet interest payments. And that's not even putting money toward the principal, the heart that's generating more debt. Big debts call for big measures.

What is the 50 30 20 rule? ›

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings.

How much debt is normal for your age? ›

How much debt is 'normal' for your age?
Age GroupAverage DebtDelinquency Rate
18-25$8,0911.47%
26-35$17,1911.49%
36-45$26,0481.11%
46-55$32,5080.83%
3 more rows
Jun 14, 2023

How much debt is the average person in? ›

The average American owed $103,358 in consumer debt in the second quarter of 2023, the latest data available, according to credit bureau Experian.

Is 15k a lot of debt? ›

$15,000 can be an intimidating total when you see it on credit card statements, but you don't have to be in debt forever. If you're struggling to make your minimum payments every month and you don't see light at the end of the tunnel, sign up for a debt management program to get out of debt fast.

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