If you’re like most Americans, you have debt. For many people, some debt is fine — even healthy when it’s connected to a financial goal such as owning a home or earning a degree. But how much debt is too much?
Your debt-to-income ratio — or how your debt stacks up to your income — can help you determine whether you have too much debt to tackle on your own. For example, debt loads (excluding a mortgage and student loans) greater than 40% of your annual income may be overwhelming.
If your debt is causing you stress or sleepless nights, then it’s likely time to assess what you owe and pay off your debt.
Figure out your debt-to-income ratio
Use the calculator below to tease out your debt-to-income ratio and whether your debt is problematic. The calculator will also offer recommendations for what to do next.
Enter your various debts — such as credit card payments and medical bills — and your income into this calculator. Student loans and mortgages tend to be less problematic forms of debt, so set those aside for now.
Look at your debt-to-income ratio for these riskier categories of debt:
- If it’s less than 15%, your debt load is within the range considered affordable compared with your earnings; look into DIY methods like debt snowball or debt avalanche
- If it’s 15% to 39%, take action to reduce your debt load; consulting a nonprofit credit counseling agency may be helpful
- If it’s 40% or more, your debt load is high risk; consider getting advice from a bankruptcy attorney
Think of those guidelines as a general rule of thumb. “There is no one rule for debt,” says David Nash, a certified financial planner at Magister Wealth in San Antonio, Texas. However, he adds, “If your debt level is increasing as a percentage of your income, that indicates some tougher tradeoffs need to be considered.”
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Distinguish between good debt and bad debt
A first step in assessing your debt is separating the good, the bad and the toxic. A mortgage with an annual percentage rate of 3.5%, for example, can be weighed differently than a credit card with a 20% APR.
What’s good debt?
When the interest rate is low and fixed, and the loan is used to buy something that grows in value, like a house, business or college education. It’s also good if the interest is tax-deductible, like most mortgage and student loan interest.
What’s bad debt?
Loans with high or variable interest rates that are used to buy things that lose value or get used up. Examples include high-interest personal loans for discretionary purchases like vacations, auto loans stretching five years or longer, or high-interest credit cards with increasing balances.
What’s toxic debt?
No-credit-check and payday loans with APRs above 36%, loans so long you end up paying more than the item is worth, or loans requiring collateral you can’t afford to lose, like your car.
Bad debt has crushing interest costs and limits your cash flow, savings and ability to borrow for goals like buying a home, says Erika Safran, a certified financial planner with Safran Wealth Advisors in New York City.
But a low-interest mortgage that you can comfortably afford shouldn’t keep you up at night.
Common warning signs of problem debt
- Your debt balance is not going down despite regular payments
- You’re living paycheck to paycheck, with no money at the end of the month
- You’re not contributing to an employer-sponsored retirement plan because you need the money
- You’re unable to build an emergency fund of at least $500 to buffer against financial shocks
- You’re using credit cards for cash advances
See how your debt compares
Over three-quarters (77.1%) of American families have debt, according to a September 2017 report from the Federal Reserve. Families with debt had a median balance of $59,800. The report breaks down the percentage of families that carry different types of debt, shown in the table below.
| All households | % with debt | Median balance |
|---|---|---|
| Any debt | 77.1% | $59,800 |
| Mortgage (primary) | 40.0% | $114,000 |
| HELOC | 4.4% | $31,000 |
| Student loans | 22.3% | $19,000 |
| Auto loans | 33.8% | $12,800 |
| Other installment loans | 11.3% | $3,400 |
| Credit cards | 43.9% | $2,300 |
| Under 35 | % with debt | Median balance |
|---|---|---|
| Any debt | 80.9% | $39,000 |
| Mortgage (primary) | 28.2% | $119,600 |
| HELOC | No data | No data |
| Student loans | 44.8% | $18,500 |
| Auto loans | 38.7% | $13,000 |
| Other installment loans | 15.6% | $2,500 |
| Credit cards | 45.4% | $1,400 |
| 35-44 | % with debt | Median balance |
|---|---|---|
| Any debt | 86.2% | $93,700 |
| Mortgage (primary) | 49.6% | $140,000 |
| HELOC | 2.9% | $25,000 |
| Student loans | 34.3% | $20,100 |
| Auto loans | 44.3% | $14,000 |
| Other installment loans | 14.8% | $3,700 |
| Credit cards | 49.1% | $2,500 |
| 45-54 | % with debt | Median balance |
|---|---|---|
| Any debt | 86.6% | $90,000 |
| Mortgage (primary) | 52.2% | $125,000 |
| HELOC | 5.4% | $41,000 |
| Student loans | 23.7% | $20,000 |
| Auto loans | 37.8% | $14,000 |
| Other installment loans | 11.4% | $4,000 |
| Credit cards | 52.3% | $2,800 |
| 55-64 | % with debt | Median balance |
|---|---|---|
| Any debt | 77.1% | $69,000 |
| Mortgage (primary) | 45.8% | $100,000 |
| HELOC | 7.5% | $21,000 |
| Student loans | 12.9% | $18,000 |
| Auto loans | 32.4% | $12,000 |
| Other installment loans | 8.8% | $4,000 |
| Credit cards | 41.4% | $2,800 |
| 65-74 | % with debt | Median balance |
|---|---|---|
| Any debt | 70.1% | $41,600 |
| Mortgage (primary) | 35.2% | $80,000 |
| HELOC | 6.5% | $40,000 |
| Student loans | 3.4% | $17,000 |
| Auto loans | 27.2% | $12,000 |
| Other installment loans | 7.3% | $4,700 |
| Credit cards | 42.1% | $2,500 |
| Over 75 | % with debt | Median balance |
|---|---|---|
| Any debt | 49.8% | $20,900 |
| Mortgage (primary) | 23.2% | $57,000 |
| HELOC | 4.8% | $28,000 |
| Student loans | No data | No data |
| Auto loans | 13.7% | $10,000 |
| Other installment loans | 7.0% | $4,300 |
| Credit cards | 26.2% | $2,100 |
Are my other types of debt a problem?
The following guidelines give you an idea of how much is too much in these debt categories and what to do if you’re overloaded: