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Is Your Debt Too Many Debts?

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Are You In Too Much Debt?

Take the sum of certain kinds of debt and compare the amount to income to see if it’s an issue and how you can proceed.

By NerdWallet Follow NerdWallet on social media to stay informed about updates

Aug 5, 2021

Written by Kathy Hinson Lead Assigning Editor Personal finances, credit scoring financial management and debt Kathy Hinson leads the core personal finance team at NerdWallet. Prior to joining NerdWallet, she worked for 18 years working at The Oregonian in Portland in positions such as copy desk chief and team director of design and editing. Previous experience included news and copy editing for various Southern California newspapers, including the Los Angeles Times. She earned a bachelor’s degree in journalism and mass communications in Iowa’s University of Iowa.

A majority of the products featured here come from our partners, who pay us. This influences which products we write about and where and how the product appears on the page. However, this does not influence our evaluations. Our views are our own. Here’s a list and .

Are you unsure if you are in excessive debt? Looking into your debt-to-income ratio can help answer your question. Add all your obligations for debt each month (things such as auto loans as well as housing and credit card debts) and divide it by your gross monthly income. If your debt load is greater than 36% of your DTI can be difficult to pay back and hinder your ability to obtain credit.

If you can’t keep up with your bills or are suffering from unrest or stress, then it’s likely time to make a plan to or look into .

Watch your debts dwindle

Register for an account and link your credit cards, loans and accounts to manage them all in one place.

Figure out your debt load

Utilize the calculator below to tease out whether is problematic. The calculator will also offer suggestions on what to do next.

Input all debts — for example, credit card bills and medical bills as well as your earnings to this tool. The student loans and mortgages are generally less troublesome forms of debt, therefore, set them aside for the moment.

Take a look at your score for these more risky kinds of debt in terms of possible solutions:

If it’s less than%, your debt load is considered reasonable based on your earnings.

If the number is between 36% and 42% , you should look into DIY methods like or

If your debt is between 43% and 50%, consider taking action to lessen the burden of debt and consult a professional who can be helpful. If it’s more than 50 your debt load is high risk; consider consulting with an attorney.

Take these suggestions as an overall guideline. “There is no set standard for the debt situation,” says David Nash, a certified financial planner at Magister Wealth in San Antonio, Texas. However, he adds “If your debt level is increasing in proportion to your income, that indicates some tougher tradeoffs need to be taken into consideration.”

Distinguish between good debt and bad debt

It is important to distinguish between the good, the bad and the toxic. A mortgage with an annual percentage rate of 3.5 percent, for example, can be weighed differently when compared to a credit card that has an APR of 20.

What’s a good loan?

If the interest rate is low and fixed it is also when the loan will be utilized to purchase something that appreciates in value, like the purchase of a home, business, or a college education. It’s also a good idea when the interest is tax-deductible like the majority of mortgage and student loan interest.

What’s a bad loan?

Loans with high or variable interest rates which are used to purchase things that lose value or get used up. Examples include high-interest personal loans to purchase items that are not essential, like holidays or auto loans that last 5 years or more, or high-interest with increasing balances.

What’s a toxic debt?

Credit-check-free and with APRs higher than 36%, loans so long you are paying more than the product is worth or loans with collateral that you simply cannot afford to lose, such as your vehicle.

The burden of bad debt is the high cost of interest and can limit your savings, cash flow and your ability to borrow money for goals like buying a home, says Erika Safran, a certified financial planner working with Safran Wealth Advisors in New York City.

However, a mortgage with low interest that you can comfortably afford should not keep you awake at late at night.

Common warning signs of problem credit

Your balance of debt isn’t going down despite regular payments.

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

You’re not contributing to an employer-sponsored retirement plan because you’re desperate for money.

You’re unable to build an at least $500 safeguard against financial shocks.

You’re using credit cards to make cash advances.

Are the other forms of debts a problem?

The following guidelines give you an idea of how much is enough in these categories of debt and what you should do if you’re overloaded:

Housing

Guidelines: When purchasing a home, limit your mortgage costs to . This calculator will help you understand .

How to handle an overwhelming situation: Think about , or consider downsizing and moving into a lower-cost area. If you’re refinancing or changing houses in your 40s or 50s, choose a , so you can be mortgage-free at retirement.

Student loans

Guideline: Don’t borrow more for a degree than what you’re expecting to earn in your first year in the workforce. If you anticipate a starting salary of $40,000, for example, make sure you limit the amount of loans to $10,000 per year for a four-year college degree. is a major regret for student loan recipients, according to NerdWallet research.

How do you handle an overflow: Look into your alternatives, including income-driven repayment programs and refinancing.

Car loans

Guidelines: Experts suggest that your auto expenses (including — should be borne out of your home pay. Car loans should be for at least four years, and, ideally, coupled with a 20% down payment. This way, you won’t end up spending years paying more than the value of your car.

How to handle an overload If you are experiencing an overload look at trading your car in for a less expensive one.

Medical debt

Guidelines: Medical debt is a particular circumstance because medical costs are usually beyond the consumers’ control. The type of debt that is referred to as medical debt generally has no interest charges, but the amounts involved can make it unmanageable.

How to handle an overload: Try negotiating with the billing office to reduce the amount due or set up an inexpensive payment program. on your own if possible however, you might need to research .

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