What is “Too Much Debt”?


What is “Too Much Debt”?

Just about everyone you know has some amount of financial debt. It may be a few bucks to a friend or thousands to a creditor. The debt may be in the form of a credit card balance, medical bill, or car loan. Debt isn’t always a bad thing, it can help you receive products or services you may not have been able to afford or needed before you could save up enough money.

However, when the debt starts taking over your lift, it becomes a problem. Consumer Credit of the Quad Cities can help you determine if you have too much debt and what you can do to change that.

do you have too much debt?

Calculate Your Debt Load

So, how do you figure out if you have too much debt? The easiest way is to calculate your debt-to-income ratio.  This ration is the percentage of your monthly income that goes towards paying off your debt. You can figure out this percentage with the following formula:

DTI=Monthly Debt/Monthly Income

First, you need to figure out how much spend on your debt each month. Add up all the monthly debt payments. This includes rent/mortgage, child support/alimony, credit card payments, and loans. You only need to add things that would show up on your credit report, so don’t figure in utility bills, insurance, and other expenses.

Next, calculate your monthly income. Add up the amount you receive from jobs, alimony/child support, and other sources of income. Make sure the amount is for a month, so, for example, if you are paid bi-weekly, multiply it by two. If you have an annual salary, divide it by 12.

Now that you have these two amounts, you can plug them into the debt-to-income formula. Divide your monthly debt payments by your monthly income and then multiply the result by 100 to get the percentage.

Example: Joe has debt payments of $1350 and an income of $5000 each month, so $1350 / $5000 = .270 x 100 = 27.0%

What Does Your Ratio Mean?

Now that you have your percentage, what does that number mean to you?

According to several financial experts, the percentages can be broken down this way:

  • <36%: The best debt load for most families. If you go above this percentage, you may have trouble getting a mortgage.
  • 37%-42%: Not bad, but could be better. It should be an easy process to begin reducing your debt.
  • 43%-49%: This indicates that you may be in financial trouble. You will have to aggressively pay your debts to get them down to a manageable level.
  • >50%: A percentage above 50% is in the Danger Zone. More than half of your income is going towards debt payments each month, leaving you with very little for emergencies or other needs.

There’s never a bad time to get help with debt, but if you are in either of the last two categories, you shouldn’t wait much longer to contact us. An increase in your debt or a decrease in your income can become a big problem. We can help you get your debt to a manageable amount.

Don’t Let Debt Take Over Your Life

There are several ways you can reach out to us and let us help you control your debt. Our certified counselors will assess your personal finances, help you set up a budget, and review your spending plan. We can assist you with a self-pay plan, debt refinancing, bankruptcy referral, or a Debt Management Plan. Apply online or give us a call today learn more about what we can do to help keep debt from taking over your life.

We look forward to helping you get back on your feet!