How Much Debt Is Too Much?
Don’t underestimate the power of your debt! It’s been known to increase your stress levels, destroy relationships, and contribute to anxiety. While it may seem normal to have thousands’ worth of debt, it’s terrible for your finances. Please look at how much debt is too much and when it’s time to hire a debt settlement attorney.
Give It to Me Straight – How Much Debt Is Too Much?
It’s not a secret that everyone wants their debt to be as low as possible and that having a little debt is perfectly fine for your financial health. However, when you’re struggling to make monthly payments, you’ve hit your debt ceiling. Most financial experts will say you should keep your debt-to-income ratio below 43% so that you can remain financially flexible.
When It’s Time to Hire Help: You can’t make your monthly payments, and you don’t have enough funds for emergencies or to save for your future goals.
What Is Debt-to-Income Ratio?
Your debt-to-income ratio is how you and financial institutions can figure out how much your total monthly debt affects your income. Here are the expenditures included when you’re calculating your debt-income-ratio:
- Alimony
- Child support
- Loan payments – including auto loans, personal loans, and student loans
- Monthly credit card payments
- Monthly rent or mortgage
However, not all of your monthly expenses are included in calculations. Check out what’s not included in your debt-to-income ratio:
- Cable
- Cell Phone
- Groceries
- Insurance
- Monthly subscriptions
- Utilities
How to Calculate Your Debt-to-Income Ratio: Take your total monthly debt and divide it by your income. For instance, if you make $3,000 a month and have $1,000 in monthly debt, your debt-to-income ratio is 33%.
Are There Good Debts and Bad Debts?
There are outstanding debts and bad debts, and which one you have more affects your financial health. Good debt increases your net worth over time and has a lasting value. For instance, purchasing a house is considered good debt because quality homes are usually appreciated over time.
Bad debts don’t provide any value and usually include things you have to finance. A great example of bad debt is financing new furniture. While it makes your home extra comfortable, it doesn’t have lasting value and doesn’t increase your net worth.
What to Do With Bad Debt: Think about taking a hard look at your finances and creating a realistic budget. If you can’t come up with a plan to pay your bills and still enjoy life, then consider debt settlement.
So, What Are the Signs of Having Too Much Debt?
When you’re sitting too close to your finances, it’s hard to see when debt becomes a problem. If you see any of these red flags, you might have too much debt:
- Credit cards are the only way to make simple purchases
- Debt remains the same despite making regular payments
- Monthly payments on your debt take more than half your income
- You don’t have an emergency fund and can’t save for retirement
- You’re living paycheck to paycheck
How Does Get Help With Overwhelming Debt?
When you have too much debt, the first thing to do is take a deep breath. Even though debt can feel overwhelming, most Americans face the same problem. So, remember you’re not alone. There’s even better news! You have several options to take down debt for good:
Debt Consolidation Loan
This is where you discuss your financial goals with an expert and take out a loan to cover the cost of all your debts. This eliminates multiple monthly payments and could lower your prices overall. Remember that you need to find a financial institution you trust when you consider a debt consolidation loan.
Credit Counseling
Sometimes, it isn’t easy to come up with a realistic budget. That’s where professional credit counseling comes in. You can either hire a professional credit counseling service or seek help through nonprofits or your local church.
Debt Settlement Program
Depending on your debts’ total amount and types, you might qualify for a debt settlement program. This is a good option if you’re thinking about bankruptcy. Finding an experienced attorney can help reduce your total debt or eliminate it.
How to Choose the Right Method: The only way to know which method to pay off your debt honestly is suitable for you is by meticulously going through your finances and seeking the advice of a professional. In general, choose the method that pays off your debt the quickest and doesn’t interrupt your well-being.
So, What’s the Bottom Line?
If your debt is out of control and affecting your daily life, it’s time to get help. Don’t let life pass you by because you’re too worried about finances; it’s too short to live with debilitating debt. It’s time to take action and manage your financial future!
