How Much Debt Is Too Much?

debt relief

How Much Debt Is Too Much?

Most people have some kind of debt. Whether it’s student loans, credit card debt, auto loan debts, a mortgage or something else, you likely have a source of debt that is causing you some stress each month as you work to make payments on it. A certain amount of debt may be manageable, but debt can easily become a strain on your budget and day-to-day life if you have too much of it. If you have too much debt, you may want to consider debt relief options. Read on to find out if you have more debt than you can handle. 

How do you know if you have too much debt?

You may have too much debt if you have to use your credit card to pay for ordinary expenses, you find yourself running out of money and living paycheck to paycheck, or you don’t have enough money to build an emergency fund or save for retirement. These are signs that you’re spending too much of your income on debt payments.

Debt-to-income Ratio

Calculating your debt-to-income ratio can help you to measure your level of indebtedness in relation to your income. Using a debt-to-income ratio calculator, which compares your monthly debt payments to your monthly income. When calculating your debt-to-income ratio, you can choose to include all of your debt, including your consumer debt and mortgage for a toal picture of your debt, or you can measure only your consumer debt. 

High amounts of consumer debt, such as credit cards, personal loans, medical bills, and auto loans, can cause serious financial problems if you fall behind on payments. The Consumer Financial Protection Bureau recommends a debt-to-income ratio of 36% or less for homeowners and 15-20% or less for renters. If your debt-to-income ratio is higher than the recommended percentage, you may have too much debt. However, there are also other ways to determine whether or not you have too much debt.


More Signs You May Have Too Much Debt


  • Your debt balance is not going down despite making regular payments.


  • You’re living paycheck to paycheck, with no money at the end of the month.


  • You’re not contributing to your retirement plan because you need the money.


  • You’re unable to build an emergency fund to buffer against unexpected financial burdens.


  • You’re using credit cards to pay for day-to-day expenses.


  • You can only afford your minimum payments.


  • Your credit cards are maxed out. 


  • Your debt-to-income ratio is above 36%.


  • Your interest fees exceed 20% of your income.


Psychological Impacts of Having Too Much Debt 

1. You Don’t Know How Much You Owe

Debt may make you want to run and hide and ignore its existence. However, hiding from your debt won’t make it go away. Find your most recent account statements from your creditors and make a list of your accounts and their balances to calculate the exact amount you owe.

2. You’re Dodging Phone Calls From Debt Collectors

By the time debt collectors start calling you, your debts have become delinquent. While avoiding debt collector phone calls may seem like a good idea, your creditors and debt collectors may try to sue you for the amount you owe. Losing this lawsuit could result in the court’s permission to garnish your wages or levy your bank account.


3. Stress About Debt is Affecting All Aspects of Your Life

If you find yourself struggling to sleep at night because of how worried you are about your debts, or your stress over debt is causing you to fall behind at work, you likely have too much debt. Debt related stress can lead to other medical problems, and your debt should not be so stressful that it prevents you from getting a good night’s sleep. If your financial situation is affecting your work performance, it’s time to make a change. The last thing you want is to lose your job because of debt-related stress.

Debt Relief With Pivotal Wealth 

At Pivotal Wealth, our mission is to provide the resources and services to achieve your financial goals, to not only aid in the changing of your situation, but to provide the necessary education for you to maintain new habits and skills that contribute to your continuous financial progression long after we finish our work. Let us help you on your journey to becoming debt free. Contact us today. 

+ posts

Matt Lovelady is a co-founder and managing vice president of Pivotal Wealth. He has launched multiple businesses in the financial services space and is passionate about helping people become debt-free, build their wealth, and plan effectively for their retirement.