HOW MUCH DEBT IS TOO MUCH?
Almost everyone carries some kind of debt, whether it`s a mortgage loan, a car loan, a college loan, or credit cards. Most people need to borrow because we can't pay cash for jumbo purchases. But as you know, there can be too much to debt in your life. It doesn't matter how much debt your neighbors, your friends, or your relatives have. What matters is how much you have, and whether or not you're able to meet your obligations.
How much is too much? There is no specific number. But if you're barely able to meet the minimum payments on your credit card, you have too much debt. If you`re missing payments and defaulting on loans, you have too much debt. And if you're unable to save any money for long-term goals, you have too much debt.
Many financial professionals use a simple formula, called a debt ratio, to see if you have too much debt. They like to see a ratio of assets to debt no smaller than 2:1. That is, that is you should have twice as much liquid assets as you have debt. For example, for every $1,000 of credit card debt you have, you should have $2,000 of cash in the bank.