Debt is that dreaded four-letter word. Yet, most Americans are in it for something -- to secure a home, vehicle, student loan or run a business.
Americans held over 10 trillion dollars of mortgage debt in 2021, averaging $208,000 of debt for the average homeowner. By comparison, the average student loan debt is over $37,000. So how much is too much debt?
A reliable benchmark of determining if your share of debt is out of control is to calculate your debt-to-income (DTI) ratio. Add up all monthly debt payments and divide by your gross monthly income.
The Consumer Financial Protection Bureau indicates that borrowers with a DTI ratio over 20% run a greater risk of default. Most mortgage lenders use a maximum 43% DTI ratio for borrowers. Other dangers of too much debt affect your ability to receive the best interest rates on loans and can ding your credit score.
So, what can you do if you have too much debt?
Start by reviewing your expenses and eliminate unnecessary waste. Then figure out how to increase your income, whether that means taking a second job for a while or asking for that overdue raise. Take advantage of zero percent balance transfers if you're paying high credit card interest rates.
If you are upside down and over your head in debt, let one of our dedicated debt counselors get you started on the road to financial freedom!
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