If you are like most Americans, you carry debt. Determining if you have too much debt depends on your debt to income ratio, as well as other factors such as your financial goals and future plans. Use this calculator to figure out your debt to income ratio and help you gauge your total debt level and what steps might need to be taken to improve your situation.
How Much Is Too Much Debt?
Surprisingly, having some debt is not the worst thing in the world — in fact, it can actually help you reach your goals. Having the right balance of debt can help you pay for college, a home and other important purchases. You can also improve your credit score if you pay on time. So, having some debt can be somewhat healthy over the long-term.
However, having too much debt is dangerous. It makes you more vulnerable if you’re ever injured, ill or unable to work for some reason. It can deprive you of your earning power, make it harder for you to take out more financing when you need it and make it a challenge to set aside money for your future.
Here are some signs you have too much debt:
- You’re turned down for new loans
- You live paycheck to paycheck
- You have no emergency fund
- You sometimes can’t make the payments on your loans
- You’re paying only the minimum monthly payment on your loans each month
- Your debt load isn’t decreasing — in fact, it may be increasing
- You’re using credit cards to pay for basic living expenses or for cash advances
You can use a tax and home pay calculator to determine how much after-tax income you have, which is part of finding your debt to income ratio.
If the ratio of your consumer debt — such as credit cards, payday loans, personal loans and similar higher-interest debt — to your income is 15 percent or more, you may want to reduce your debt. If your ratio is more than 50 percent, you should immediately take steps to lower your debt, because you are at high risk.
How to Lower Your Debt
If your bank account and financial behavior is showing signs you have too much debt, there are several things you can do to address the situation:
- Create and Stick With a Budget: This lets you see where your money goes and lets you find ways to save, so you have more dollars to put toward your debt. Money Help Center has free and unbiased calculators to help you create a budget and find ways to save.
- Consider Refinancing Some of Your Debt: Money Help Center has calculators to help you find out how much you can save with consolidation or refinancing. By changing how your loans are structured, you can save money on interest, which helps you pay off what you owe faster.
- Take on Extra Work: Taking on extra hours at work or getting a second job on the weekends helps you generate more income. If you put all that income toward paying off your loans, you may be able to get out of debt faster.
Use our free calculators to find out if you have too much debt and then this will help you address your budget and start living your best financial life!