Most residents of the United States have some form of debt, be it credit card debt, a mortgage or a car loan. In many cases, taking on debt can be a healthy method of purchasing things that a person lacks the current resources to afford. However, when the debt becomes too large, it can be considered unmanageable.
Definition
Unmanageable debt can be defined in several ways. Debt can be quantified numerically using a number of measurements, including negative net worth and debt-to-income ratio. However, debt can also be measured according to its effects on the borrower. If the amount of debt a person is repaying becomes so large as to prevent her from making basic expenditures, the debt can be considered unmanageable. Similarly, if the debt continues to grow larger, with no foreseeable means of repaying it, it is unmanageable.
Measurements
There are a number of different ways in which to numerically quantify debt. The ratio of an individual's debt to his income, usually expressed as a percentage, measures how much he is making compared to how much he is taking in. According to the debt relief service organization Care One Credit, an individual with a debt-to-income ratio of more than 36 percent will have difficulty receiving loans at reasonable interest rates, putting him at further risk.
Effects
Another way of determining if a debt is unmanageable is if the debt is causing the individual to cut back on necessities. For example, if the debt load has become so large that the person is forced to go without basic necessities or is late in paying off certain bills, such as for rent, the debt might be considered unmanageable.
Multiplying Debt
Unmanageable debt can also be defined as debt that is so large that borrowers must take out additional debts to service their current debts. In some cases, such as with credit card debt, the debt may multiply due to increases in the interest rate on the loans. If the debt keeps growing, with no foreseeable means of paying it down, it is unmanageable.
Expert Insight
According to a study by the Project on Student Debt, manageable debt for people paying off students loan was calculated as monthly payments that totaled less than 8 percent of their monthly income. However, this number derived from outdated requirements to receive a mortgage. The study concluded that there is no absolute measure that can be used to determine if student debt is unmanageable. However, those making less than the median income for their age group should not reasonably be expected to pay off their debt without significant hardship.
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