Budgeting Managing Your Debt Find Out How Much Debt Is Too Much By LaToya Irby LaToya Irby Facebook Twitter LaToya Irby is a credit expert who has been covering credit and debt management for The Balance for more than a dozen years. She's been quoted in USA Today, The Chicago Tribune, and the Associated Press, and her work has been cited in several books. learn about our editorial policies Updated on September 21, 2021 Reviewed by Pamela Rodriguez Reviewed by Pamela Rodriguez Instagram Pamela Rodriguez is a Certified Financial Planner®, Series 7 and 66 license holder, with 10 years of experience in Financial Planning and Retirement Planning. She is the founder and CEO of Fulfilled Finances LLC, the Social Security Presenter for AARP, and the Treasurer for the Financial Planning Association of NorCal. learn about our financial review board Share Tweet Pin Email Photo: DjelicS / Getty Images Most people have some kind of debt. It might be a mortgage, an auto loan, a student loan, or even a credit card balance. Carrying debt means you've promised a certain amount of your future income to repay a balance and for the convenience, you'll also pay interest. Certain levels of debt may be manageable and may not put a major strain on your budget. On the other hand, having too much debt can cause an unhealthy financial life. Even if you can afford the monthly payments, your debt may still affect your ability to meet other financial and life goals. If you fear you might have too much debt, there's a way to see exactly where you stand. Do You Have Too Much Debt? You might have already felt the effects of having too much debt. For example, you may have too much debt if you have to use your credit card to pay for ordinary expenses, you frequently run out of money before your next paycheck, or you don't have enough money to build an emergency fund or save for retirement. These are signs that you're spending too much of your income on debt payments. Rather than guessing, you can calculate your level of indebtedness relative to your income. One of the easiest ways to calculate your debt load is by figuring out your debt-to-income ratio. This number compares your monthly debt payments to your monthly income. You can calculate your debt-to-income ratio in two different ways. You can include all your debt or only your non-mortgage debt. Leaving out your mortgage allows you to measure only the amount of consumer debt you're carrying. Carrying high amounts of consumer debt, like credit cards, personal loans, auto loans, and medical bills causes more financial problems if you fall behind. On the other hand, if you want a total picture of your debt, include all your debt including your mortgage. Note The Federal Reserve Board considers consumer debt to include most types of non-real estate types of credit that's extended to consumers. Calculating Debt Overload Let’s say you want to measure the amount of consumer debt you're carrying. Simply total the amount you spend each month on credit cards and loans (not your mortgage), then divide that amount by your total monthly income. Multiply the result by 100 to get a percentage. The result is your debt-to-income ratio. Note Regular monthly bills like utilities, cell phone, subscriptions, and insurance aren't considered debt and shouldn't be included in your debt-to-income ratio. For example, assume your monthly income is $3,000. Let's also say you spend $300 on credit card payments and $450 on an auto loan. Your ratio calculation would be $750 / $3,000 = 0.25. Then multiply by 100 for a debt-income-ratio of 25%. In this example, you spend a quarter of your income on consumer debt. Consider it this way: for every $1 you earn, you're spending 25 cents on debt, leaving you with 75 cents for savings, non-debt expenses, and other financial goals. Understanding Your Total Debt There will be times when you want to evaluate your total debt picture, particularly if you're a homeowner. The debt-to-income ratio calculation is the same, the only difference is that you include all your monthly debt payments, including your mortgage. To calculate your total debt-to-income ratio, add up your total monthly debt expenses. This includes payments for credit cards, student loans, mortgage or rent, child support or alimony, and other loans or credit cards. Next total your monthly income, including take-home pay, alimony or child support, bonuses, or dividends. Divide your total debt payments by your total income (don’t forget to multiply by 100) for your debt-to-income ratio. Note The Consumer Financial Protection Bureau recommends a debt-to-income ratio of 36% or less for homeowners and 15-20% or less for renters. Carrying higher levels of debt have a potential financial disaster. If you determine that you have too much debt, you can put together a plan to lower your debt. Not only will that make your finances easier to manage, it will improve your credit too. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Wells Fargo. "Calculate Your Debt-to-Income Ratio." Board of Governors of the Federal Reserve System. "Consumer Credit - G.19." Consumer Financial Protection Bureau. "Debt-to-Income Ratio Calculator," Page 2.