Sign up for your free Credit.com account    Sign Up Now
From the Experts at Credit.com

How Much Debt is Too Much?

by Lucy Lazarony

How Much Debt is Too Much?

Borrowing money can be a useful financial and credit-building tool. It can allow us to attain financial goals, including going to college and buying a home or a car. It can also be very convenient and cost-effective to pay for various expenses on a low-interest rate credit card. But how much debt is too much debt?

Before you read this article, you should check out Credit.com’s Free Credit Report Card tool for a breakdown of all of your debt. See how you compare to others and set up a personalized action plan to help pay down your debt and increase your credit score.

Credit Cards

If you are having trouble making the minimum payments on your credit cards each month, there is a good chance you’ve borrowed well beyond your capacity to pay off your debt in a timely manner.

Reaching out to a nonprofit credit counselor for a free counseling session is a good place to start. A credit counselor will review your budget and look for ways to free up more of your money to apply to high-interest credit card debt. A debt management plan from a credit counselor is another option to consider when you feel as if you are drowning in too much credit card debt.

Student Loans

Many college graduates have the same, familiar woe: too much student loan debt.

According to the Project on Student Debt, seven in 10 college students graduate with student loan debt with an average of $29,400 per borrower.

With good-paying jobs hard to find, staying current with student loan payments can be a struggle. Using income-driven repayment plans for federal student loans such as Pay as You Earn is one way to keep student loan payments a bit more manageable.

Mortgages

If you’ve borrowed too much for a home loan and are struggling to pay your mortgage, it’s a good idea to reach out to your lender for assistance before you fall behind on your payments. Debt help is available but you’ll need to ask for it.

Auto Loans

If you owe more on an auto loan than a car is worth, you’ve borrowed too much for your car. And you’ll want to squeeze out those car payments any way you can for a couple of years, since selling your car would likely mean rolling your old debt into a new auto loan.

To avoid getting caught “upside down” and owing more on a car loan than a car is worth, make a down payment of 20% (or more) and limit your auto loan terms to four years or less.

With any kind of debt, falling behind on your payments can hurt your credit. It’s important to check your credit reports and monitor your credit scores each month for free to see how your debt and your payment history affects your credit.


  • Joe

    Too bad we’re all not as well off or as savvy as you Clayton!

  • maveric43

    Healthcare costs, which includes insurance premiums are a very significant part of the “cost structure” of an average family.

    About 1/2 of the US working population have a yearly income/salary which falls at or below $50-$60 thousand per year.

    Because many citizens receive Healthcare coverage thru their employer they are not aware of the costs that are in effect “suctioned” out of their compensation package to cover the cost of premiums. The Health Insurance industry has done a great job convincing the public that the “best” and “highest quality” coverage is low or no deductible high premium coverage. This type of high premium coverage are among the most profitable products sold.

    True insurance ought to provide protection to the beneficiary from infrequent events that have high costs. People who want protection from relatively frequent high probability relatively low cost events must be prepared to pay considerably more in yearly premium coverage. Whether they or their employer pay the premiums, the cost difference between the two different types of policies can be as much as $6,000-$10,000 per year.

    For an average family of 4 with two parents between the ages of 40 and 50 with a combined income of $60,000 per year working with their employer on a “shared ” deductible product ( where the employer and employee share the cost of the deductible ) could feasibly translate into an additional family income of $10,000 per year.

    Imagine the economic benefit to society in returning $10,000 per year to about 50 million families ? That income would feasibly be recycled into purchases outside the insurance sector such as automobiles, clothing, electronics, housing, recreation……yes even reduction of debt !

    It can occur….but the public must understand the impact and aggressively seek health insurance products with high deductibles and low premiums. By example, policies for those citizens under the age of 40 shouldn’t cost more than $100/month with a $6,000 yearly deductible. Between 40 and 50……$150/month and those over 50 $300/month. If your employer is sharing the cost the premium costs could be cut in half !


Sign up for your free Credit.com account. Learn More
  • Meet Our Expert

    lucy_lazarony GravatarLucy Lazarony is a freelance personal finance writer. Her articles have been featured on Bankrate, MoneyRates, MSN Money, and The National Endowment for Financial Education. Prior to freelancing, she worked as a staff writer for Bankrate for seven years. She earned a bachelor's degree in journalism from the University of Florida and spent a summer as an international intern at Richmond, The American International University in London. She lives in South Florida.
  • Stay Connected to Our Experts

    Please submit your email address to get credit & money tips & advice
    from our team of 30+ experts, delivered weekly to your inbox.
X

Start Maximizing Your Credit Today

Managing DebtGet a FREE personalized credit check-up today.

Get Started – It’s Free!