How much debt is too much?

Practically everyone has debt.

From the day you first asked for an advance against next week’s allowance in order to buy a copy of the new M.C. Hammer album on cassette tape (…I’m speaking hypothetically, of course), you’ve lived with debt in your life. So there’s nothing strange or wrong or off about having debt.

But be honest now: how’s it going these days?

The truth is that we tend to get used to the way things are. Less than ideal situations start to seem normal as time goes by. If you blow a fuse every time you try to use your microwave and your coffeemaker simultaneously then you might train yourself to never use both at the same time – rather than say, getting a surge protector (…again…totally hypothetical).

Which is all to say that you might not even be aware that your relationship with debt is out of whack.

Thankfully, there are a few simple tools to help you determine where you stand with debt.

Debt-to-Income Ratio

A handy mathematical guide to where you stand with your finances is your debt-to-income ratio. As you might expect, it’s a measurement of your debt versus your income and a good way to determine if your debt is out of hand.

To determine the ratio you have to add up all of your debt and divide it by your income. Your debt, in this case, includes your mortgage/rent payments, your car payments, all loan payments (student, personal), your minimum credit card payments and any other court-ordered payments or garnishments (alimony/child support). Your income is just that – everything you make in a month (after taxes have been deducted).

The normal ratio is between 30 and 36 percent. If less than 30 percent of your income is going towards debt repayment that’s considered superb (especially by potential lenders). If your ratio is over 40 percent, however, that’s considered to be extremely high and a sure sign that your debt is potentially getting out of control.

The Debt Test

Take a minute and complete the Financial Wellness test found here.

Chances are good that if your financial situation isn’t what you want it to be you’ve been feeling it for a while now, even if you’ve thought things were okay.

Everyone worries about their debt from time to time, but if you find that you can’t enjoy your life – that you spend more time worrying about money than enjoying the things you can do with the money you work so hard for – than it’s a sure bet that your debt is overwhelming you.

So start over.

There’s never a bad time to break up with debt. There’s never a bad time to get yourself back on track.

If debt is overwhelming you contact Money Management International (MMI) today. We offer free credit counseling 24 hours a day, 7 days a week, by phone, by Internet and in-person. It’s a great first step towards bringing your finances back to the right ratios!


Jesse Campbell photo.

Jesse Campbell is the Content Manager at MMI, with over ten years of experience creating valuable educational materials that help families through everyday and extraordinary financial challenges.

  • Better Business Bureau A+ rating Better Business Bureau
    MMI is proud to have achieved an A+ rating from the Better Business Bureau (BBB), a nonprofit organization focused on promoting and improving marketplace trust. The BBB investigates charges of fraud against both consumers and businesses, sets standards for truthfulness in advertising, and evaluates the trustworthiness of businesses and charities, providing a score from A+ (highest) to F (lowest).
  • Financial Counseling Association of America Financial Counseling Association of America
    MMI is a proud member of the Financial Counseling Association of America (FCAA), a national association representing financial counseling companies that provide consumer credit counseling, housing counseling, student loan counseling, bankruptcy counseling, debt management, and various financial education services.
  • Trustpilot Trustpilot
    MMI is rated as “Excellent” (4.9/5) by reviewers on Trustpilot, a global, online consumer review platform dedicated to openness and transparency. Since 2007, Trustpilot has received over 116 million customer reviews for nearly 500,000 different websites and businesses. See what others are saying about the work we do.
  • Department of Housing and Urban Development - Equal Housing Opportunity Department of Housing and Urban Development
    MMI is certified by the U.S. Department of Housing and Urban Development (HUD) to provide consumer housing counseling. The mission of HUD is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD provides support services directly and through approved, local agencies like MMI.
  • Council on Accreditation Council On Accreditation
    MMI is proudly accredited by the Council on Accreditation (COA), an international, independent, nonprofit, human service accrediting organization. COA’s thorough, peer-reviewed accreditation process is designed to ensure that organizations like MMI are providing the highest standard of service and support for clients and employees alike.
  • National Foundation for Credit Counseling National Foundation for Credit Counseling
    MMI is a longstanding member of the National Foundation for Credit Counseling® (NFCC®), the nation’s largest nonprofit financial counseling organization. Founded in 1951, the NFCC’s mission is to promote financially responsible behavior and help member organizations like MMI deliver the highest-quality financial education and counseling services.