Acceptable Level of Debt

Many people feel like they're drowning in debt, and it may be difficult to know if you are, indeed, in over your head. For those paying a high percentage of their income to debt each month, it may quickly become impossible to enjoy the things you really want to do. To keep yourself from getting buried by your debt, it's vital to look carefully at whether you're living within a healthy range of monthly debt obligations.

Credit Cards

One of the key factors in calculating your credit score is your debt utilization ratio. This figure indicates how much of a balance you're carrying in relationship to your credit limit. According to the Better Business Bureau, keeping your debt utilization ratio between 25 and 30 percent of your credit limit is acceptable; anything beyond that may hurt your credit score.

Debt-to-Income Ratio

Your debt-to-income ratio is the proportion of debt you're paying each month in relationship to the amount of money you're bringing in. The more income you make, the more debt you may assume. The typical American household has debt obligations including a mortgage, an auto loan, student loans and four to five credit cards. According to the budgeting website Say Planning, you should aim to spend no more than 25 to 28 percent of your income on housing debt (including taxes and insurance), and 10 to 15 percent on other credit obligations (including credit cards, auto loans and student loans). Your total debt obligations should be within the range of 36 to 40 percent of your income each month.

Debt Ratio Ranges

The more of your income that is dedicated to your debt each month, the more important it becomes to either make more money or take corrective action. Say Planning indicates that those paying between 37 to 42 percent of their income to debt each month should consider paying off or consolidating some of their debt to bring their total debt to income ratio below 36 percent. Those paying between 43 to 50 percent are within the danger zone and must immediately reign in their debt to avoid losing control. Those with debt payments over 50 percent of their monthly income must seriously consider their options for eliminating as much debt as possible and should contact a reputable credit counseling service.

Considerations

If you feel like your debt is out of control, you may consider working with a credit counselor. Reputable credit counseling services will help you to figure out the root of your financial troubles and guide you through the process of creating a budget so that once you're out of debt, you'll stay out of debt. Credit counselors may recommend participating in a debt management program if you're having trouble making minimum monthly payments or if you have defaulted on your payments. The credit counselor and credit then negotiate lower interest rates or payoff balances so that you may pay off your balances over a set period of time. The Federal Trade Commission recommends using a credit counseling service recommended by the National Foundation for Credit Counseling.