How Much Debt Is Too Much Debt?
Find out how much debt is too much using the debt-to-income ratio, plus warning signs and practical steps when debt feels out of control.
The 36% Rule Explained
Financial advisors use a concept called the debt-to-income ratio, or DTI, to measure how much of your monthly income goes toward debt payments. The commonly recommended ceiling is 36%. That means if you earn $5,000 a month before taxes, your total monthly debt payments — including your mortgage or rent, car payments, student loans, credit cards, and personal loans — should not exceed $1,800.
Many lenders will approve mortgages up to a 43% DTI, and some go higher. But just because a lender will approve you does not mean you are in a comfortable place. The difference between 36% and 43% DTI is the difference between having breathing room in your budget and feeling squeezed every month.
To calculate your DTI right now, add up every minimum monthly debt payment you make. Divide that total by your gross monthly income (before taxes). Multiply by 100 to get your percentage. If that number is above 36%, your debt load is heavier than ideal.
Types of Debt That Matter Most
Not all debt is equally dangerous. A mortgage on a home you can realistically afford is generally considered manageable, especially if the property may appreciate over time. Student loan debt, while often large, usually comes with income-based repayment options and relatively low interest rates compared to consumer debt.
Credit card debt is the type that causes the most financial damage for most people. The average credit card charges between 20% and 27% APR, meaning balances that are not paid in full each month grow surprisingly fast. A $3,000 balance at 24% APR costs roughly $720 in interest per year if you only make minimum payments.
High-interest personal loans and payday loans are the most harmful forms of debt. Payday loans in particular can carry effective annual rates of 300% or more. If you have any of these, they should be your top priority to eliminate before anything else.
Warning Signs You Have Too Much Debt
You are living paycheck to paycheck with nothing left after bills. You use credit cards to cover everyday expenses like groceries and utilities because cash runs out before the end of the month. You have stopped opening certain envelopes or checking certain accounts because the numbers feel too stressful to face.
You are missing payments or paying only minimums on multiple accounts. You have borrowed from one source to pay another — for example, using a cash advance on one card to make the minimum payment on a different card. Any of these situations signals that debt has become unmanageable.
A less obvious sign is that your credit score is dropping even though you are trying to keep up. Late payments, high credit utilization, and collections activity all pull your score down. If your score has fallen more than 50 points in the past year, your debt situation deserves serious attention.
Steps to Take When Debt Feels Overwhelming
Start by writing down every debt you owe. Include the lender name, current balance, interest rate, and minimum payment. Seeing everything in one place is uncomfortable, but it is the only way to make a real plan. Ignoring the list does not make the debts go away.
Next, stop adding new debt. Cut up the cards if you need to, or at least put them somewhere inconvenient. Every new charge makes the hole deeper. Then prioritize your highest-interest debts for extra payments while keeping up minimums on everything else. This approach, called the debt avalanche, saves the most money over time.
If you genuinely cannot make minimum payments, call your creditors directly. Many have hardship programs that can temporarily reduce your interest rate or minimum payment. Nonprofit credit counseling agencies can also help you negotiate a debt management plan. Bankruptcy is a legal option of last resort, but it exists for exactly the situations where debt has become truly impossible to manage.