How Much Debt Is Too Much? Understanding Your Debt-to-Income Ratio

By Aaron Sarentino Reviewed by Nima Vahdat Updated Aug 16, 2023
How Much Debt Is Too Much? Understanding Your Debt-to-Income Ratio

Recognize the warning signs of having too much debt, and get debt relief when your debt becomes unmanageable.

When it comes to personal finance, it’s crucial to recognize the tipping point when debt becomes overwhelming. Determining how much debt is too much can be a daunting task. 

However, by assessing your debt-to-income ratio, you can gain valuable insights that could help your financial situation. 


  • There are almost a dozen warning signs of having too much debt, and if you notice them then it is time to take immediate action. 
  • The widely accepted “36 Percent Rule” states that your total monthly debt should not exceed 36% of your gross monthly income, but a more conservative approach is for it to not exceed 36% of your net monthly income.
  • If you have too much debt and it has become unmanageable, it’s important to know that you are not alone. There are resources available to help you understand your rights and explore debt relief options. 

Below, we’ll explore the concept of the debt-to-income ratio, its significance, how to determine if you have taken on excessive debt, and what to do if your debt has become unmanageable.

Watch For The Warning Signs Of Too Much Debt

Before we explore the specifics of debt-to-income ratio, let’s highlight some red flags that may indicate an excessive debt burden. 

Avoiding credit card statements or concealing them from your partner is a clear sign of having too many outstanding debts, especially when you consider that disagreements about finances are often the biggest cause for fights among couples.

Relying on a home equity line of credit or high-interest credit cards to meet monthly expenses is another indication of financial strain. At this point, one’s regular income isn’t enough to pay monthly bills, and increasing debt can quickly spiral out of control. 

Making only minimum payments on credit cards or consistently missing payment due dates, leading to late fees, should raise concerns as well.

Other warning signs include: a declining credit score, being categorized as someone with bad credit, missing mortgage or car payments, or quickly abandoning debt repayment plans. 

You’ll also know if you have too much debt if you feel constantly plagued by debt-induced anxiety and financial stress, and seek to escape it with avoidant behavior.

If your debt has become unmanageable and you have difficulty making your debt payments each month, then you consider seeking debt relief or negotiating a debt settlement and a payment plan that suits your budget.

Is The U.S. A Nation With Too Much Debt?

According to the Federal Reserve, total household debt for Americans surpassed $17 trillion in spring of 2023. 

While mortgage debt accounted for the largest portion, credit card debt has now eclipsed $1 trillion. This is a record amount of credit card debt, and it doesn’t look like it will be getting better anytime soon. 

Based on data from the Federal Reserve Bank of New York and the U.S. Census Bureau, it can be calculated that each American household carries an average of $7,951 in credit card debt, as reported by USA Today.

And while having that much credit card debt may be overwhelming for some, for wealthy individuals, that may not be much debt at all. 

Here is a way to make an objective debt assessment, regardless how great or little your income, the debt-to-income ratio.

The 36 Percent Rule… And Is That Still Too Much Debt?

The widely accepted “36 Percent Rule” in the financial industry states that your total monthly debt, including housing-related and consumer debt such as credit cards and student loans, should not exceed 36 percent of your gross monthly income. 

For example, if your gross monthly income is $5,000, your monthly debt-related expenses should not exceed $1,800.

Financial institutions often employ the 36 percent debt-to-income ratio as one of the metrics to determine eligibility for a home loan. However, it’s important to note that these ratios are based on gross income and do not account for taxes, which can significantly impact your bill-paying capacity.

As a result, you should consider adopting a more conservative approach by applying the 36 Percent Rule to your net income or take-home pay. 

This adjustment provides a more realistic assessment of your ability to meet monthly obligations while maintaining a comfortable standard of living.

Considering Total Debt vs. Net Worth

Another perspective to evaluate your financial situation is by comparing your total debt to your net worth. Begin by calculating your net worth, which involves subtracting your total debts from your total assets.

Net Worth = Total Assets – Total Debts

Include all assets, such as home equity, checking and savings account balances, investment accounts, retirement funds, and valuable possessions. 

Subtract your mortgage balance, credit card debt, student loans, and any other outstanding debts from the total.

Next, calculate your debt-to-net worth ratio:

Debt-to-Net Worth Ratio = Total Debts / Net Worth

For example, if your total debt amounts to $250,000 and your assets are valued at $500,000, your debt-to-net worth ratio would be 50 percent.

Ideally, a lower ratio indicates a minimal debt burden relative to your overall wealth. It is important to note that younger households may have higher ratios due to lower incomes early in their careers and significant purchases, such as homes or cars, accompanied by substantial monthly payments. 

On the other hand, older individuals with substantial 401(k) balances and paid-off mortgages tend to have lower debt-to-net worth ratios.

The Role of Credit Scores: How Much Debt is Too Much?

A sinking credit score is another indication of excessive debt, often leading to classification as a subprime borrower by banks and lenders. A subprime borrower is viewed as less likely to make timely loan payments or fully repay loans. 

According to Equifax, a well-known credit reporting agency, a credit score of 670-739 is considered to be good. 

Borrowers with excellent scores (above 800) often have many options, including the ability to qualify for zero percent financing on cars and for credit cards with zero percent introductory interest rates.

Assess Your Debt Burden And Seek Debt Relief If Needed

The higher your debts and monthly expenses, the greater the strain on your cash flow and available funds for debt repayment. It is crucial to ensure that your income is sufficient to cover your debt obligations.

If you have too much debt and it has become unmanageable, it’s important to know that you are not alone. There are resources available to help you understand your rights and explore debt relief options. 

By proactively addressing your financial situation, working with debt specialists, and seeking legal advice when needed, you can regain control over your finances.

If you are struggling with having too much debt, we encourage you to seek guidance from certified Debt Specialists, such as those at Americor, who can provide personalized advice tailored to your specific needs.

By taking proactive steps, you can put an end to your financial stress and work towards a brighter financial future. Remember, there is always hope for debt relief, and our team of experienced professionals are ready to guide you on your journey to regaining control of your finances.

For more information on Americor’s debt relief services, contact us today to see how we can help you pay off your debts, and get on the fast-track to becoming completely debt-free!


Aaron Sarentino

Aaron oversees executive, administrative and management functions for the firm. Aaron has a Bachelors in Business Administration from Pepperdine University. He is responsible for helping customers at every stage of the debt settlement process and focused on building loyalty to ensure long-term client retention by addressing customer issues. Aaron plays a pivotal role in the upliftment of the Americor team to ensure the best possible customer experience for clients.