How to know when a little debt is too much debt

How do you know when a little “acceptable” debt becomes a potentially dangerous situation? For some, the crisis is as clear as being faced with a decision between taking on more debt or letting their families go hungry. For most, the clues are more subtle. As a general rule, no more than 20 percent of your disposable income should go toward debt payments (not including your mortgage). In addition, a “yes” to any of these questions should give a pause for thought. 

  • Is an increasing percentage of your income going to pay off debts?
  • Is your savings cushion inadequate or nonexistent?
  • Are you near or at the limit of your lines of credit?
  • Can you only make the minimum payments on your revolving charge accounts?
  • Are you extending repayment schedules – paying in 60 or 90 day bills once paid in 30?
  • Are you chronically late in paying your bills?
  • Are you paying bills with money earmarked for something else?
  • Are you borrowing money to pay for items you used to buy with cash?
  • If you lost your job, would you be in immediate financial difficulty?
  • Are you unsure about how much you owe?
  • Are you threatened with repossession of your car or credit cards, or other legal action?

While a single red flag is not a sign of impending doom, it is an indication that you need to make a change.  

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.