How Much Debt is Too Much in USA? Stay Away from these 17 Debt Traps

Ankita Kamat

“How much debt is too much in USA?” – Is this question constantly hitting your mind? Well, you can lead a better financial life if you have no debt or minimum debt.

There is no particular rule to define how much debt is too much in USA but there are some warning signs. You should understand those warning signs and must not opt for too much debt.

In simple words, if your income is less and debt is excessive then this is a sign of too much debt. Let me explain some factors that tell you about how much debt is too much.

How Much Debt is Too Much in USA?

How Much Debt is Too Much in USA? – STAY AWAY FROM DEBT TRAPS

If you are taking loans beyond your repayment capacity then that is too much debt for you. You should analyze many factors before opting for a debt.

17 Signs of TOO MUCH DEBT in the USA – BE CAREFUL

If you are thinking about taking loans or already carrying loans then analyze these 17 factors. These are all important factors that will help you to know how much debt is too much for you in the USA.

1. Imbalance of DTI ratio will result in TOO MUCH DEBT

DTI (debt-to-income) ratio calculation is very important and necessary. This is a simple calculation of your debt ratio. The formula to calculate DTI is recurring monthly debt divided by gross monthly income. If this results in more than 35% of then your debt is too much.

So always make sure that you maintain the ratio very carefully. Your DTI ratio should not cross 35 percent. That means either you should reduce your debt or you should try to increase your income to maintain this ratio.

2. Too much CREDIT CARD Debt will ruin your future

If you ask me how much credit card debt is too much then I would say having more than or credit card is too much. I feel that one credit card is enough.

And if you can not pay off the whole credit card debt within 12 months then you are having too much debt. Well, you do not need to make any purchases just because you are having a credit card. Think twice before swiping your card.

3. Know what is the capacity of a STUDENT to carry EDUCATIONAL LOAN

Planning a career is very important in student life. And you must know in the beginning only about your future opportunities and your career before applying for a loan for your education. According to research, borrowing of student loans increased from the 1990s.

One can’t predict salaries and earning in the future days, but right now you should calculate it roughly so that you should repay your debt in the future days. You should pay off your loan with your first year’s salary. If you are not able to pay off with your first year’s salary this student loan is too much debt for you.

4. Be Careful of VEHICLE LOAN

I’ve seen many people carrying car loans or bike loans. Most people like to have their own vehicle even if they can’t afford. This ends up in applying for vehicle loans.

You should remember that if you can’t pay at least 20%-25% down payment then you can’t afford this debt. And if you can afford then your monthly repayment should not be more than 10% of your income. Also, you should be able to pay off the full amount in less than 5 years.

5. If you can’t save $1000 quickly, you are having too much debt

Saving money is really necessary and important. You should always contribute some part of your salary for an emergency fund. If you are living in countries like the US then you should have a $1000 emergency fund.

If you do not have this emergency fund and even if you can not save 1000 dollars within the next 3 months then you are having too much debt. Yes, if you are not able to build this minimum emergency fund that means your most part of income is being used only for repayment of loans.

6. MORTGAGE LOAN is too much if you CROSS the certain LIMIT

If you have a plan of buying a house then it is always good to check that cost should not be more than 2.5 times your annual income. And here also you should be able to pay a 20% down payment.

Make sure your monthly payment should not exceed 28% of your monthly income from all the sources. If it is more than 28% that means your debt is too much.

7. Using PAYDAY LOAN will be dangerous for your financial health

A payday loan is a small amount of loan that is actually less than your monthly salary. And you promise to pay off this loan immediately after receiving your next salary. If you are opting for payday loans, this is the sign of too much debt.

You are having a lot of debts and you are not able to save money even for essentials till the next salary day. I feel this is actually too much loan because you may require a payday loan every month to handle your monthly expenses.

8. Pockets are always empty to pay MONTHLY BILLS

No matter whether you have a student loan or any other debts, too much debt is really stressful. If you are not able to pay your bills and not able to manage money for monthly essentials you are having too much debt.

Every month if you pay off your debt and at the end of the month if you struggle to pay a grocery bill or utility bill then you are carrying too much debt.

9. Credit Card Scores are defined your CREDIT STATUS

Credit card scores define your credit status. If you use a credit card too much and do not pay off on time then your credit scores will be low. This is the sign of too much debt.

You should pay attention to your credit scores by being aware of your expenses. Maintaining good credit scores have their own advantages. So do not opt for too much debt through your credit cards.

10. Creditors calls are disturbing you a lot

If you find your creditors’ name in your phone call list often rather than your best friend’s name then you have too much debt!

Usually, credit agencies call often when the due date is over. So make sure you pay off all the debt timely. If you are not able to pay off monthly payment and getting calls from your creditors that means you are in too much debt.

11. Planning to BORROW new loans to PAY OFF old debt

In my real life also I’ve seen some youngsters who opt for new debts to clear old debts. If you are also doing so, this is the clear sign of too much debt.

Well, there are many other ways to pay off debt quickly by earning extra money. So I suggest not to opt for new debts to pay off old debts. This will result in still more debts in your life. And you may not be able to come out of debt easily if you go on opting for new debts.

12. You are not able to make more than a MINIMUM PAYMENT

Minimum payment means usually paying off the monthly interest on your debt. If you are hardly paying off only minimum payment and not able to pay off a part of the principle then you are carrying a huge debt.

So you must always be careful before choosing debt for you. You should calculate how you will pay off your debt quickly. If you are not able to pay off more than minimum payment this reflects that you are having too much debt.

13. Net Worth should not be less than ZERO

Balance your assets and liabilities. In simple words, your debts should not be more than your assets. That means your net worth should not be negative.

If your net worth is less than zero then without any doubt you are having too much debt. And this situation actually dangerous. So you should pay attention to your all the debts.

14. Getting charged ‘over-the-limit fee’ on credit cards

There are some rules to use your credit cards. So if you are overusing and using more than the limits then you will have to bear the extra fees.

And if you are frequently paying fees for over-the-limit, you have too much credit card debt. So you should set your own limits to avoid too much debt. Use your credit cards carefully and never opt for too much debt. If you have a credit card that does not mean that you have to use it every time.

15. Credit card PAYMENT is MORE than the mortgage

Usually, the mortgage loan amount is higher than credit card payments. But if you are paying off more credit card payment than a mortgage that means your debt is too much.

So if your overall credit card payment is more than your mortgage then now it’s time to be serious about your debt. I say never ever create such a situation where your credit card payment is too much.

16. You are NOT SAVING MONEY even if you get advance salary

If you ask for advance salaries and even if you are not able to save money every month, you are having too much debt.

That means, you are paying off debt with your advance salary but still, you struggle to come out of debt. This type of life includes a lot of financial stress. You feel like you will never have financial freedom in life. So do not walk on the path of debts that closes all the doors of financial freedom.

17. If You are SKIPPING YOUR PAYMENT, You Have Too Much Debt

When you start to skip your monthly payment of a debt that means you are not able to handle that debt. You are having too much debt.

So always live below your means by being frugal and try not to skip any debt payment. If you do so, then you will have to pay extra interest and your debt will go on increasing.

Excessive Debt will Harm your Financial Health

No matter how much you earn but always you can save money and secure your future. But if you spend your all the earning then you start to think of ain’t loans. Once you start to take loans you will start to pay off the interest.

So whenever you think of taking loans, you can think of earning money instead. You don’t need to take loans quickly whenever you need it. You can think of how to increase your income.

How to come out of too much debt?

Well, prevention is always better but if you have stuck with too much debt then prepare a kickass strategy to come out of it. There are some effective ways to pay off debt even with less income.

But at the same time, you should figure out the ways to earn more money to pay off your debt fast. You should first pay off the debt that has a high-interest rate. And follow the rule one debt at a time while paying off debt. Don’t try to pay off all types of debts at a time.

A debt-free life is a happy life

A debt-free life is a peaceful and happy life. When you carry too much debt you have too much financial stress. So you should try to avoid taking loans as much as possible.

Your life may not be luxurious but you will have a peaceful mind and stress-free life if you avoid taking loans.

In my 20s, I’m living a debt-free life. Even I have not taken any education loans. I feel that one should not opt for debt until it’s not necessary. You should not rush to take loans immediately, first, you should look for other options to increase your income.

Now after analyzing these 17 signs you may have got clarity about how much debt is too much in USA. Now you should be careful about your debt. Always try to live below your means and lead a happy debt-free life.

Ankita Kamat

I'm Ankita Kamat, the creator of Frugal Beat, a blog dedicated to frugal living. Join me in exploring practical ways to save money, reduce waste and live a purposeful life. Let's embrace frugality as a lifestyle together.