How Much Debt is Too Much?

Taking on debt can be a great way to build credit and make big purchases you couldn’t otherwise afford. The key is to position yourself to successfully manage the payments and keep your debt-to-income ratio (DTI) in the green. The DTI ratio compares your monthly debt payments to your monthly pre-tax income, or equity, expressed as a percentage. For example, if your total debt payments are $3,600 and your pre-tax monthly income is $10,000, your DTI ratio would be 36%.
Generally, 36% is considered a reasonable debt-to-income ratio. If your DTI ratio is higher, it may be too much debt to handle and you should consider taking steps to get it down, including budgeting more toward debt payments, avoiding taking on more debt, finding additional sources of income and re-negotiating interest rates.

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