How Much is Too Much?
Imagine working for five days and only getting paid for four. That is the equivalent of owing 20% of what you earn. Unfortunately, it is the typical consumer credit situation for an American household. Easily available credit and slick advertising has made living beyond one's means very tempting.
The problems of debt management are predominately
due to poor control of consumer credit. Two common financial errors are
not obtaining the best credit terms available and carrying a debt balance
on a permanent basis.
How much debt is too much? The amount of credit you can handle comfortably depends on your income, your living expenses, and your current debt obligations. The size and lifecycle stage of people in the household will also influence your profile.
To get a quick look at how you're doing, first evaluate your current status by calculating your Consumer Debt ratio. List all loans and credit card balances; find the total sum. Use "How Much Do You Owe?" table.
For a safe level of credit outstanding, it is recommended that individuals or families commit no more than 10%-15% (excluding home mortgages) of monthly take-home income to credit payments. If your ratio is higher, you need to:
Stop making new debts
