Debt: How Much Is Too Much?

Whether it’s mortgage, a car note, credit card debt, a student loan, or all of the above, pretty much every adult has some level of debt. Debt has a negative connotation, but it can be a useful tool when used responsibly. The question becomes: what is a reasonable amount of debt? At what point should I be concerned that my debt has gotten beyond my means to manage it?

There are a few ways to answer this question, so let’s begin with the mathematical answer, and look at debt to income ratios. You can calculate your debt to income ratio by dividing your monthly debt amount by your monthly gross income. The “acceptable” ranges will vary a little depending on who you ask, but generally speaking:

less than 36% – good

36-43% – time to make some changes

Greater than 43% – you in danger, girl

Another way experts look at debt levels is the 50/20/30 method that says 50% of your income should be for living expenses and essentials, 20% debt and savings, and 30% for discretionary expenses. If you are exceeding those percentages, or getting really close to that number, it is probably time to dig into your budget and make some changes.

Now, math isn’t everyone’s favorite way to look at things, so here are some other signs that you may be getting in over your head:

You can only make minimum payments on your credit cards

Speaking of credit cards, they may be maxed out or close to it

You aren’t able to contribute to any savings account

You avoid looking at your bills and / or you avoid the total amount of your debt

Your credit score is dropping

If the numbers and signs are pointing to the fact that you need some help (or even if they say you’re fine and you still feel uneasy), we have plenty of resources to help. Go to linktr.ee/missoulabookkeeper for:

Podcast Episode: Debt Negotiation with Marie Megge

Get a copy of your credit report

Strategies for reducing your spending

Opt out of preapproved cards