How Much Debt Is Considered Too Much?

Short Answer: No set number of “too much” debt. It will depend on your income and financial goals. 

Student loans, auto loans, credit card debt, mortgages—from the moment we reach adulthood, many of us feel forced to take on debt. Graduating from college with tens or hundreds of thousands in debt can be overwhelming. While you are better off avoiding certain types of debt entirely—credit card debt being the prime culprit—some debt can be necessary to buy a house, get an education, or build a business. How much debt is too much? Read on to understand the answer for your situation. 

Assessing Your Debt — Is It Too Much?

How much debt is too much depends on the type of debt and the ratio of that debt to your total income. It might not be too much if you make $50,000 monthly and carry $10,000 in monthly debt payments. On the other hand, even if you make a high monthly salary of $15,000, that debt could swallow your financial health. To answer the question of how much debt is too much, let's look at credit card debt, average debt, and DTI.

How Much Credit Card Debt is Too Much?

Any credit card debt that you're paying interest on is too much. Generally, you won't have to pay interest if you charge a credit card and pay off the full balance before it's due. Using a credit card in that way could help you build a positive credit history and earn miles for cash back, rewards, and more. 

However, carrying credit card debt is one of the most expensive types of debt. Credit card APRs range from 18.80% to 24.71% or more. That means that for every $100 in credit card debt you carry for a year, you could pay $24 or more in interest. If you currently have credit card debt, create a plan to pay it off as quickly as possible. 

How Much Debt Does The Average American Have?

The average American household has $104,215 in debt (as of 2023). That includes mortgage loans, home equity lines of credit, auto loans, credit card debt, student loan debt, personal loans, and other debt. Of course, that's the average, and younger professionals could have significantly more debt. 

Here are the average balances by debt category:

• Mortgage debt: $244,498
• HELOCs: $42,139
• Auto loans: $23,792
• Credit card debt: $6,501
• Student loans: $38,787

And here's the average credit card debt by generation (as of 2023):

• Generation Z (18-25): $3,148
• Millennials (26-41): $6,274
• Generation X (42-57): $8,870
• Baby boomers (58-76): $6,601
• Silent Generation (77+): $3,434

Debt-to-Income Ratio

Your debt-to-income (DTI) ratio is the ratio of your total monthly debt payments to your monthly income. For example, if you have $4,000 in monthly debt payments—including credit card debt, student loans, mortgage payments, and auto loans—and an income of $10,000 monthly, your DTI is 40%. 

Note that DTI can be calculated for individuals or couples. If you and your partner have $4,000 in total debt and make $10,000 monthly, your DTI would also be 40%. Lenders generally look for a DTI below 43% and, ideally, below 36%. 

Signs You Have Too Much Debt

You Have a DTI over 50%

A DTI of over 50% can make it difficult to pay for basic everyday expenses or deal with emergencies as they arise. If your DTI is over 50%, consider where you can cut back or how to earn extra income. 

You Keep Adding Debt

If you already have a mortgage, auto loan, or student loan and keep adding debt, that can indicate you're overleveraging yourself. Carefully weigh your total debt before taking on additional debt. 

You're Making Minimum Payments

If you're making only the minimum payments on credit card debt or other revolving lines of credit, it indicates that you've taken on more debt than you can afford. Consider getting a side hustle to pay off debt faster or setting a budget to prioritize reducing debt. 

You Need Credit Cards for Essential Purchases

Using credit cards for everyday purchases can help you earn more points or miles. But if you don't have the cash to pay off those purchases, it can indicate that you're relying too heavily on debt. 

You're Not Saving for Retirement

If 100% of your income goes to basic expenses or debt repayment and you cannot save for retirement, you have too much debt or too many expenses. Consider setting a budget and working to save 10% to 20% of your income for long-term savings after you've paid off high-interest debt. Also, check that you have enough disposable income to save for a vacation or other short-term goals. 

Do You Have Too Much Debt?

Not all debt is bad debt. Debt can help you buy a house, launch a business, or produce income. However, too much debt can jeopardize your financial health, adding unnecessary stress and risk of financial ruin. Look at your total income, DTI, and purposes of the debt to determine your priorities. If you have too much debt, work to pay it off through budgeting. Also, consider selling extra items you don't need or other options to earn extra income and pay off debt faster. 

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