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)


How much debt is too much debt? ›

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.

What amount of debt is too much? ›

Most lenders say a DTI of 36% is acceptable, but they want to lend you money, so they're willing to cut some slack. Many financial advisors say a DTI higher than 35% means you have too much debt. Others stretch the boundaries up to the 49% mark.

How much debt do you think is too much? ›

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 considered bad debt? ›

"Bad debt" can be any debt you're unable to repay.

How much is too much debt-to-income? ›

A general rule of thumb is to keep your overall debt-to-income ratio at or below 43%. This is seen as a wise target because it's the maximum debt-to-income ratio at which you're eligible for a Qualified Mortgage —a type of home loan designed to be stable and borrower-friendly.

How much debt is normal? ›

The average debt an American owes is $104,215 across mortgage loans, home equity lines of credit, auto loans, credit card debt, student loan debt, and other debts like personal loans. Data from Experian breaks down the average debt a consumer holds based on type, age, credit score, and state.

Is $2,000 dollar debt bad? ›

Is $2,000 too much credit card debt? $2,000 in credit card debt is manageable if you can pay more than the minimum each month. If it's hard to keep up with the payments, then you'll need to make some financial changes, such as tightening up your spending or refinancing your 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 1000 dollars a lot of debt? ›

While that certainly isn't a small amount of money, it's not as catastrophic as the amount of debt some people have. In fact, a $1,000 balance may not hurt your credit score all that much. And if you manage to pay it off quickly, you may not even accrue that much interest against it.

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. The savings category also includes money you will need to realize your future goals.

Is 5k a lot of debt? ›

$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. However, you don't have to accept decades of credit card debt.

Is all debt bad? ›

Debt can be considered “good” if it has the potential to increase your net worth or significantly enhance your life. A student loan may be considered good debt if it helps you on your career track. Bad debt is money borrowed to purchase rapidly depreciating assets or assets for consumption.

How much credit card debt is ok? ›

The general rule of thumb is that you shouldn't spend more than 10 percent of your take-home income on credit card debt.

Is rent considered debt? ›

Rent is an expense of living which is normally paid monthly on the first day of the month. If you haven't paid your rent by the second day of the month, it would be considered a debt.

Does your credit go up if you pay collections? ›

For some credit scoring models, paying off collection accounts may improve credit scores. FICO® Score 9, FICO Score 10, VantageScore® 3.0 and VantageScore 4.0 credit scoring models penalize unpaid collection accounts. Paying off collection accounts may help improve these scores.

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.

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.

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