How much debt is okay?

How much debt is okay?

Some argue that any debt is too much. Others say that you should have only good debt (for investing) and no bad debt (for spending).  In reality though, debt is simply a financial tool that you should use wisely to avoid getting in over your head.

There are several measures you can use to determine whether you’re carrying too much debt.  One we rely on is known as the total debt service(TDS) ratio. As a general guideline, no more than  40% of your monthly gross (before deduction/taxes) income should go toward mortgage loan payments and other monthly debt obligations.

English: Mortgage debt
English: Mortgage debt (Photo credit: Wikipedia)

Realistically, the amount of credit you can afford depends on your personal situation.  If your current employment is not secure, you will probably want to take on less credit than the recommended guidelines. On the other hand, if you have no other obligations, such as a mortgage, and your source of income is reliable, you may want to take on more credit, depending on your goals.

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