While the baseline for having 'too much debt' can vary from person to person based on their income and expenses, there are a number of general guidelines that you can follow in order to determine whether or not you have too much debt.
First, what does your income to debt ratio look like? This is one of the clearest indicators of whether or not a person has amassed an unsafe or dangerous amount of debt in their life. For most people, it can be helpful to look at this ratio at least once a month to not be caught unaware by debt. In order to calculate this ratio or percentage, take the total amount of debt or debt payments that you have each month and divide this number by the amount of income that you make each month. A decimal number will result, and you will need to multiply this number by one hundred (100) in order to get a percentage. Is your percentage under forty (40) percent? If not, you are likely involved in more debt than you should be.
It can also be dangerous if you find yourself making higher and higher minimum debt payments. This means that you are continuing to spend money, even as you become more immersed in debt. You may also be in danger if you are unsure of how much debt you actually owe to one or more debt collection agencies. Individuals need to be aware of this amount on a consistent basis; out of sight, out of mind is not a mantra that works well with debt. Keep in mind that debt collection agencies can include credit card companies since, in general, you are paying these companies back for their upfront coverage of purchases. You are indebted to them and you need to know that they qualify as debt collectors. Remember that making more-than-minimum payments can help you get out of debt faster. Take note if you are entirely unable to pay more than the minimum amounts due. Also keep in mind, month-to-month necessities, such as groceries, should not need to be paid with a credit card. They are necessities every month and your budget should allow for them without the implementation of credit cards. Also be careful if you are near the maximum spending limit on one or all of your available credit cards.
When your credit card becomes declined, this is a big hint for people that they are in too much debt. Credit limits are set for a reason. Companies look at what you can afford and what, beyond that amount, would result in a liability for the company. If you attempt to make a purchase and are declined, you are likely in too much debt. At the same time, if you begin to get phone calls from companies that you are involved with or collection agencies, you are not making payments as you should be. This can begin to affect the sleep and relaxation practices of many people, understandable so, and by first recognizing that they are in too much debt and then by beginning to pay these debts off, the individuals can improve the overall quality of their lives.
If you have lost your savings due to trying to pay off debt, this is another red flag. No matter your debt, you should still be able to keep your savings safe. The same is true for emergency funds. Those funds should still be available should the individual experience emergency situations.
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