Personal Debt – How Much Is Too Much?

Personal debt is a big topic in the financial world. How much is too much? Can it be avoided all together? What is important to know about debt? Those are just some of the questions people often think. Than there are those who find themselves in personal debt and it feels too late. Than maybe the questions are more scary. Am I going to make it? Will I lose my home? Will my family be okay?

Good Debt Vs. Bad Debt – Personal Debt

First of all, there are revered opinions on both sides of this. Most people would define bad debt as charging vacations and restaurants on your credit card. The opposite, good debt, may be considered a home or a loan on a gently used car you need to get to work. Student loans may also fall into this category. For those who are debt adverse, it may all seem like bad debt. However, experts such as Suze Orman, argue that some debt should be expected and should be considered positive. She recommends debt as a reasonable tool toward your goals. Examples of this would be a 20% down conventional mortgage on a home with a payment no more than 25% of your monthly take home pay. However, a variable rate mortgage with interest-only payments may not qualify. Charging a suit to interview for jobs in your field? Reasonable. Charging a new wardrobe at Macy’s? Not so much.

How To Manage Debt – Personal Debt

A very important first step to managing debt is knowing exactly what you owe and what the payments are. I like to track this information in a spreadsheet. An additional option is the many apps for that these days. When taking out credit of any kind…house, car, credit cards…remember to look at the total amount you need to repay, including interest. We live in a culture of “can I afford the payment?” and that can be detrimental. Make smart and informed decisions about the debt you take on. Also, make sure to shop around. Many financial institutions offer similar products at a VERY different cost. Lastly, cash is still KING. If you can pay cash, it is often a good idea. In conclusion, remember to manage your debt, and not let your debt manage you!

So, how much debt is too much? That is something you need to decide for yourself. There is SO MUCH information available out there. Many expert recommend reasonable spending thresholds for every area of personal expense. YOU need to take control and make the most informed decisions for your life. Are you on an upward trajectory in your career? When would you like to retire? Do you plan to save for your kid’s college and have you started? All of these factors (and many, many more) impact how much debt you should carry and how you use credit in your everyday life.

 

*It is important to point out, that much of the information above is a personal opinion