How Much Debt Is Too Much?

Here are some helpful methods and observations from the University of Wisconsin-Extension that may help you decide if you have too much debt.

1.	Calculate your Debt to Income Ratio. Divide your debt by your gross annual income. A person making $50,000 per year with $25,000 of outstanding debt has a 50% DTI Ratio. If you have a ratio of 30% or lower it indicates you have enough gross income to make debt payments easily and implies financial strength. Some lenders will perceive you to be a bit overextended if your DTI Ratio is 45% or higher.
2.	If your credit card balance is $8,000 and you make the minimum monthly payment at 18% interest, it will take you 25 years and 7 months to pay the debt off. In this example you will pay $15,432 in interest charges (almost twice the balance) bringing your total to $23,432. That's correct…$23,432 to pay off an $8,000 balance.
3.	There are many kinds of debt...mortgage loans, credit card and educational loans. You may feel differently about different kinds of debt. Try to identify what kind of debt and how much debt creates stress for you. If debt is causing stress it could be attached to the size of the debt, what it is costing you to have this debt, or the time it is taking to pay it off.
4.	Debt is not a simple issue. Being judgmental about your own or other's debt, or debt management, is a simplistic response to a complex issue. It seems more respectful to decide that debt is a part of this culture, certainly demonstrated by our government and our economy. Then discern your own personal comfort level with the amount and kind of debt you have in your life, and spend accordingly. Having debt that is acceptable to you will increase your personal power around your finances and decrease money related stress.