Too much credit card debt

Average household debt, what your debt-to-income ratio says about you and signs you have too much credit card debt.

Contents

More About Assessing Your Debt Amount

Forget Mount McKinley at 20,320 feet. By far the highest peak in America is Debt Mountain and millions of American’s are making it taller every day.

How much of that debt can you afford to call your own?

To find the answer, you first need to know just what the mountain is made of.

There is secured debt like mortgages and automobile loans. They are backed by collateral (or security), so the lender can repossess your house or car if you default.

There is unsecured debt like credit card debt and student loans, which are backed only by the borrower’s promise to pay. That can be very unsecure.

Secured debt has a better reputation because so much of it is in mortgages and your house generally increases in value. Those chrome-plated tire rims you just bought with a Visa card do not.

But shiny rims can’t automatically be lumped into the “bad debt” pile. When it comes to the question of how much debt is too much, there are as many answers as there are people.

There are formulas to help you figure it out, and we’ll get to those in a second. But the basic answer is it all depends on what you can afford.

So, how much debt can you afford?

If you’re Bill Gates, you don’t worry about maxing out that $18,000 limit on your credit card. Unfortunately, most of us aren’t worth $90 billion. But whether you make $30,000 a year or $30,000 an hour, there is a standard formula lenders use to determine when debt can become a problem.

It’s called debt-to-income ratio (DTI) and the math is pretty simple: Recurring monthly debt ÷ gross monthly income = debt-to-income ratio. It is expressed as a percentage.

Your recurring monthly debt are things you must pay every month like mortgage (or rent); car payment; credit cards; student loans; auto loans and any other loans bills that are due every month.

Gross monthly income is how much you make every month before taxes, insurance, Social Security, etc. are taken out of your paycheck.

For example, say you pay $1,000 a month on your mortgage, $500 on your car loan; $1,000 on credit cards and $500 on student loans. So, you’re total recurring debt is $3,000 a month.

The first conclusion is that you drive a pretty nice car, but that’s not important to this discussion. What is important is your gross monthly income, which is $6,000. Now let’s do the math.

Recurring debt ($3,000) ÷ gross monthly income ($6,000) = 0.50 or 50%, which is not good.

If your DTI is higher than 43%, you’ll have a hard time getting a mortgage. Most lenders say a DTI of 36% is acceptable, but they want to loan you money so they’re willing to cut some slack.

Many financial advisors say a DTI higher than 20% means you are carrying too much debt. Other say 28% is acceptable. The truth is that while DTI is a handy formula, there is no single indicator that debt is going to ruin your financial health.

Though if Bill Gates is reading this and figures out his total DTI is more than $18 billion, he might want to give up HBO for a few months.

Use our Do I Have Too Much Debt Calculator for a breakdown of what percent of your monthly income is going to credit card debt and mortgage, and how much is left as disposable income to pay your other bills.

Do I Have Too Much Debt Calculator

What percent of your monthly income is going to your debt payments? Use the calculator below and get an analysis on whether or not you have too much debt. If your combined mortgage and consumer debt payments exceed 45 percent of your take-home pay, you may want to consider working with a credit card consolidation company to lower your monthly payments.

Debt enjoyed a banner year in 2016. Americans racked up $460 billion to run the total U.S. household debt to $12.58 trillion.

For a little perspective, you’d need a stack of $1,000 bills 364 feet high to have $1 billion. To reach $1 trillion, that stack would have to be 63 miles high. So America’s debt is approximately a 793-mile-high stack of $1,000 bills.

Welcome to Debt Mountain.

Houses account for most of that. Americans held $8.48 trillion in mortgage debt at the end of 2016. That worked out to an average debt of $176,222 for households that carried a mortgage.

But again, that is secured debt. Just qualifying for a mortgage requires at least a minimal level of financial stability.

Credit cards are much easier to get and much easier to abuse. There was $779 billion worth of it in 2016, which worked out to an average of $16,748 for households that use credit cards. They pay $1,292 just in interest charges per year. That’s like throwing 107 $1 bills into your fireplace every month and watching it burn.

The other big unsecured debt was student loans, which skyrocketed to $1.31 trillion in 2016. That worked out to $49,905 for households that have a student loan debt.

Other forms of unsecured debt like personal loans, medical bills and utility bills make up the rest of that 793-mile-high mountain.

Auto Debt: How to Tell If You Have Too Much?

If you haven’t shopped for a car in while, get ready for sticker shock. The average U.S. new-vehicle transaction price was $34,077 in December of 2016, according to Edmunds.com.

That was an all-time high and nobody expects the upward trend to stop. On average, consumers are paying $495 a month for new car loans, according to Experian. That’s almost $50 a month more than the 2008 average.

With prices so high, the once-traditional 48-month payment plan has been stretched to 72 and even 84 months. Lower monthly payments make cars more affordable, but you could end up owing more money than the vehicle is worth. And remember, a new car drops about 11% in value the minute it’s driven out of the dealer’s lot.

A sign your auto loan is too high

You need more than a 60-month loan to pay off the car and you can’t afford a 20% down payment. Try to keep your monthly payments below 10% of your gross monthly income.

What to do when you have too much auto debt

Sell the car, even if you get slightly less than it’s worth. Then put that money toward a car you can afford.

Refinance your loan. You could find a lower interest rate, but this is more a Band-Aid than a cure.

Consider alternative means of getting around, like carpooling, public transportation, Uber and even a bicycle.

Mortgage Debt: How Much is Too Much?

Speaking of rising prices, the median price of a house in the U.S. was $18,000 in 1963. It was an all-time high of $263,800 in June of 2017, according to Zillow.

Rising prices are good news if you already own one. But the housing market can collapse, as millions Americans discovered the hard way in the Great Recession.

A sign you owe too much on your home

The house you’re considering buying costs more than 2.5 times your annual income. For instance, if you make $60,000 a year, avoid any house that cost more than $150,000.

Whatever the sale price, your monthly payment should not exceed 25% of your gross monthly income.

A 20% down payment is highly recommended, since it could save you thousands of dollars in private mortgage insurance (PMI). A 15-year mortgage is also preferable to a 30-year, since you’ll save tens of thousands of dollars in interest.

How to deal with too much mortgage debt

Refinance to a lower interest rate. The saving could be enough to make the mortgage manageable.

You could also refinance to a longer payment period. Going from a 15-year to a 30-year mortgage will appreciably cut your monthly payments. The down side is you’ll end up paying a ton more in interest over the life of the loan.

Your best option might well be to sell the house. Downsize into something that fits your budget. Consider renting, since you can usually rent a house in the same neighborhood for less than you’re paying on your mortgage.

You won’t build any equity, but renting gives you much more flexibility if financial challenges arise.

Student Loan Debt: Have You Borrowed Too Much?

If cars and houses give you sticker shock, you might need hospitalization if you get near a college campus.

The average annual tuition at public colleges was $9,139 for in-state residents and $22,958 for out-of-state residents in 2015, according to College Board. It was $31,231 at private colleges.

It’s pricier at top-notch schools. Stanford, which charged no tuition from its opening in 1891 until 1920, now cost $46,320 a year regardless of where the student is from.

From 1995-2015, tuition and fees at 310 national universities rose almost 180% at private schools and 225% at public schools, according to U.S. News & World Report. The total student debt tab of $1.3 trillion is shared by 42 million Americans, and it’s increasingly apparent a lot of them are in over their heads.

Millions had not made a payment on $137 billion in federal student loans for at least nine months in 2016, according to the Consumer Federation of America. The total defaults were 14% higher than 2015.

A sign you have too much student loan debt

You have borrowed more for your student loan than you will make in your first year’s salary. Also, your total debt should not exceed more than you can repay in 10 years.

The average student debt was $37,172 in 2016. With a 5.7% interest rate, you’d pay $407 a month for 10 years.

What to do when you have too much student loan debt?

Consolidate and refinance your loans to get a lower interest rate. The rates for federal loans typically range from 3.5% to 7%, but private loans can creep higher.

Federal interest rates are set by Congress and private student loans can’t be refinanced through a federal loan. You can, however, refinance them through private lending institutions.

Federal loans do offer income-driven repayment plans that are worth exploring. In those, monthly payment plans are based on your income.

The best plan is to shop around for colleges and careers before you shop around for loans. Many times you can get as much educational bang for your buck at schools charging half what top-rated universities charge.

Regardless of what you feel called to do with your life, factor a little financial pragmatism. The average starting salary for computer engineers is about $70,000, which the average for Liberal Arts majors is $40,000.

By all means, pursue your passion. Just remember, passion doesn’t pay the bills.

How Much Credit Card Debt is Too Much?

As oppressive as mortgage, car and student loan debt can be, at least they don’t leave you feeling like you’ve been flimflammed by a con man. Credit card debt should have that effect. The problem is, it often doesn’t.

The flimflam is the interest rates, which are three-to-four time higher than the other major debt components. It must be noted there are reasons credit card companies charge such rates.

First, they must protect themselves from getting burned by high-risk lending.

Second, they can. And that’s mainly because most people don’t do the math and see how interest rates silently turn those $120 sneakers into $149 lead weights.

How to tell you’ve borrowed to much

You are making only the minimum monthly payments. You cannot pay off your total credit card debt in one year.

You are using credit cards to pay for essentials like gas and food. You are using one card to pay off another card.

You are using balance transfers to get low introductory rates, which will expire and rocket back up. Your credit card payments are more than your mortgage.

How to deal with too much credit card debt

Ask for a lower interest rate. Many credit card companies will cut you a break, especially if you threaten to transfer the balance to a competing card with a lower rate.

Use cash. Peeling off six $20 bills for those sneakers is a lot harder than simply slapping down a piece of plastic and saying, “Charge it.”

Consolidate your cards. Instead of paying varying interest rates, find the lowest one and put all your debt on that one. The danger is the low introductory rate on transfers usually last about a year, then high interest rates kick in.

A better option is to consider a debt management program, where your bills are combined into one monthly payment that does not balloon after a year. A nonprofit credit counseling agency like InCharge Debt Solutions can help reduce the interest rate to 8% or less.

Warning Signs You have Too Much Debt

How do you when your little part of that mountain is too high? Besides the DTI, there are everyday red flags like making only minimum payments on your credit card.

A few other signs that you’re getting in over your head:

You Are Frequently Charged Over-the-Limit Fees on Maxed-Out Your Credit Cards

Many credit cards charge fees for spending over your credit limit or maxing out your credit cards. This will make this month’s balance larger than last month’s. If all of your credit card balances are greater than 80 percent of your credit limits, consider this a danger signal.

You Cannot Pay off Your Credit Card Debt in One Year

As a general rule of thumb, you either have too many credit cards or you are carrying too much debt if it seems you cannot pay off your combined credit card debt within one year. When was the last time you had a zero balance on your credit cards?

Using Credit Cards to Pay for Essentials like Gas and Food Because You Are Out of Money

Many people are using credit for small purchases such as gas and food. If you previously paid cash for these or other small items, but are now using credit, it could be a sign that there’s a problem.

Your debt-to-income ratio measures the amount of debt you have against your income. You can calculate this ratio by dividing your total monthly debt payment (excluding mortgage/rent) by your total monthly gross income (before taxes). For example, $500 in total monthly debt payments divided by $2,000 in monthly gross income results in a debt-to-income ratio of 25 percent. If you have a debt-to-income ratio near or over 20 percent, this is a sign that you may have a debt problem.

It’s a fact. Crises and emergency situations happen, and people sometimes are unable to pay for such things as emergency auto repairs or medical expenses because their credit cards are tapped or the majority of their earnings are applied toward debt repayments. It’s always important to keep an open line of credit available for such situations.

You Make Only the Minimum Payments

What many people don’t realize about revolving credit card bills is that making only the minimum payment-or less-can take 12 to 15 years to repay. Making only the minimum payment means you are not applying any significant amount toward the principal. If you’re making only the minimum payments on your credit cards every month, you may be overextended and in need of putting together a spending plan.

Paying Off One Credit Card with Another Credit Card

Taking cash advances to pay bills is not a solution for paying off debts. Paying one credit card with another line of credit actually creates more debt. In addition to the amount equivalent to the original debt, you will be faced with any cash advance fees and interest from that new line of credit.

Many creditors offer new credit cards with balance transfers available at low interest rates for an introductory period. It’s important to remember, though, that after the introductory period the interest rates typically skyrocket to 19 percent or more. Additionally, an increasing number of credit cards are charging fees for transferring balances. If you keep switching credit card balances, you may have a problem managing your finances.

Are you late paying your mortgage, rent, car loan, or utility bills more than once per year? If you juggle bills and skip payments, this is a definite sign that you have a debt problem.

If friends and relatives are constantly giving you money and you’re still short on your bills, credit counseling can help you learn how to budget or put you on a plan for paying off your debts. If you refinance your debts before they’re paid off, you’ll likely be subject to administrative fees and higher interest rates from lenders.

Are you borrowing from a new source to pay off an old debt? Many people who do so obtain debt consolidation loans to pay off all their existing bills. However, once the bills are paid off, some people wind up charging on their credit cards again. This means having to pay back the loan plus the new credit card charges, which drives people needlessly into further debt.

Many people have no idea how much debt they carry on a monthly basis. If you keep using credit cards and are not tracking your spending, your financial situation could get out of control quickly.

Your Credit Card Payments are More Than Your Mortgage

If your combined credit card payments exceed your mortgage payment, you have too much credit card debt.

Your Credit Score Has Declined

If you are using too much of your available credit, your credit score will decline. A lower credit score will make it harder to borrow or consolidate debt at a lower interest rate, and thus harder to pay off the debt that you have accumulated.

Getting turned down for a credit card or a mortgage is a sign that you have too much debt.

You Don’t Have Enough Money for a $1000 Emergency Fund

If you don’t have a $1000 emergency fund and your debt payments make it impossible to save one in 3 months, you have too much debt.

You are Getting Calls from Collection Agencies

If you are afraid to answer for your phone because you think it might be a bill collector, you have too much debt.

You Have Asked for an Advance on Your Paycheck

Not having enough income to pay for your expenses and your debt payments is a sign that your debt has grown too much. Taking an advance on your salary will likely make your situation worse next month.

Using payday loans is another sign that you are in over your head with debt and you need help.

Your Net Worth is Less than Zero

If you owe more than you have, you have a negative net worth. This is another sign that you have too much debt.

The Impact on Your Financial Health

Let’s return to that sneaker analogy. Debt is like having 100-pound lead weights strapped to each foot. It keeps you from running freely through much of life.

It can keep you from getting loans, owning a home, investing in your future, having a comfortable retirement, paying for emergencies and simply having enough to buy Christmas presents.

It adversely affects your credit score, since 30% of that calculation is based on the amount of debt you have. The worse your credit score, the more you’ll pay in interest on credit cards and loans.

Beyond the financial havoc, debt can have an incalculable emotional effect. A host of studies have shown a correlation between mental illness financial problems.

A report in Clinical Psychology Review said people with debt have three times the occurrence of mental health problems as those who are debt-free. The issues include depression, anxiety disorders and even suicide.

There are a few things in life worth dying for, but debt is not one of them.

How to Deal With Too Much Debt

Between the warning signs and the debt-income-ratio, hopefully you’ll come up an answer to the question of how much debt is too much debt for you.

If your DTI is below 20% and no red warning flags are waving, congratulations! But if you determine your debt is too much, it raises an even more important question:

What are you going to do about it? The simple solution is to make more money, cut expenses or both.

No problem, right?

It takes dedication and a display of personal responsibility, but it also takes a plan.

Write down all your expenses and see where you can cut back. The devilish thing about unsecured debt is that the less you pay on those bills each month, the more you’ll eventually pay in interest charges.

One way to combat that is to get the lowest interest rate possible. A lot of consumers have turned to debt management programs, where a credit counselor helps you consolidate your debt and works with lenders to lower interest rates on credit cards.

Instead of paying all those separate bills, they are combined into one monthly payment that is lower than what you were previously shelling out.

The counselor also helps you design a budget that with expenses you can afford and simultaneously helps get rid of your debt.

The Great American Debt Mountain isn’t getting any smaller, but there’s no law saying you have to help it grow.

Ask the expert: How much is too much credit card debt?

A reader earns a lot but spends a lot. When should she decide enough is too much?

Question: My mother is horrified that I usually have around $10,000 in balances on two credit cards plus several department store cards. But I make more than $100,000 a year, which is a lot more than my father made during any year he was working.

My father died last year, leaving my mom very little money but also no debt. He never owned a credit card, and my mom never worked. So I think she just doesn’t understand how the world works today, and that everyone has “too much credit card debt.” How do I convince her I’m doing OK?

— Karen in Vermont

You’re right about one thing, Karen: Debt is how the world works today.

Sadly, 77 million Americans — that’s 35 percent of all adults with a credit file — have a debt that’s gone into collections.

I’m not so sure I can back you up on everything else.

That $10,000 in credit card debt represents 10 percent of your income. If you consider that your debt to income ratio should be under 15 percent, you’re pushing it. Do you have a car loan? Student loans? You didn’t mention these in your question above, so I’d suggest you use our Debt to Income Ratio Calculator to learn this crucial stat.

If your DTI exceeds 15 percent, then your mother is right: Your credit card debt is a problem. Regardless, even if you have no other debts, I’m still concerned.

As a financial counselor for more than two decades, I’ve seen millionaires flying high and then hitting bottom. You simply can’t guarantee you’re always going to earn six figures. If you get laid off, Karen, do you have an emergency fund that can pay your bills for 3-6 months?

Are you saving for retirement? As I’ve written before, the best way to save for retirement is to retire your debts. The interest you save is free money.

Most people have some level of debt, which may include a combination of mortgages, student loans, personal loans and credit card bills. However, if you have too much it can lead to all sorts of issues

For American households, debt has become a way of life and in some of those houses, the figures are staggering.

Household debt (mortgage + home equity loans + credit cards + student loans + auto loans) in the United States reached $12.58 trillion at the end of 2016, an astonishing rise of $460 billion for the year. The typical American household carries an average debt of $134,643.

Whether it’s mortgages ($176,222 average debt), student loans ($49,905), auto loans ($28,948) or credit card debt ($16,748), money issues are rampant through every age group.

America’s median income has risen 28% since 2003, but the cost of living has increased 30% during that span. Meanwhile, medical costs are up by 57%, while food and beverage prices have risen 36%.

Ric Edelman, a syndicated radio host who has written eight books on personal finance, said at least part of the American debt plight can be blamed on a lack of financial education.

"Once you show people how money works, they almost instantaneously change their behaviors," Edelman said. "There are a few people who are spendthrifts, who are psychologically in a place where they spend their money and can’t control themselves, but overall, people who spend money poorly simply don’t know what they’re doing is bad."

There are common fixed expenses for nearly every American household that can’t be avoided. It’s impossible to avoid mortgage/rent; auto; credit cards and, in many cases, student loans.

The question that should be answered is what the spending limit should be in each area? Here are some guidelines from financial experts on how much to spend in these areas.

Most mortgages fall in the range of 31% to 36% of total income, including principal, interest, taxes, insurance and association fees. In some cases, usually in larger cities, it can push upward of 45% to 50%.

Those limits might need adjustment in times when regular pay raises can’t be counted on. Plus, past generations paid less for health care and college. Due to shorter lifespans and greater pensions, there wasn’t as much pressure to save for retirement.

So, what is reasonable? By capping housing costs at 25% of your income, it will give you flexibility in other areas. It should also allow you to have the house paid off by retirement age. It’s a huge advantage to choose a 15-year mortgage and stick with it, but reality for most people is that the lower monthly payment of a 30-year mortgage is more comfortable.

When it comes to student loans, ideally you won’t borrow more than you expect to make during your first year out of school. Parents shouldn’t borrow at all to pay for a child’s education because it will interfere with retirement savings. Aim for 10% of your gross income to go toward student loans and try to pay them off as soon as possible.

Automobiles are not a good investment. Car payments should be no more than 5% to 10% of gross monthly income. Shoot for a four-year loan and a 20% down payment to maximize your flexibility.

Credit cards always are the area of most concern. The smartest goal is to shoot for zero credit cards.

Zero? OK, make it one credit card … and for emergency use only!

Your financial life is much more manageable when you use a credit card to finance unexpected circumstances you really can’t afford, like an automobile repair or home repair or maybe a medical emergency. Credit cards become a nuisance when you use them to pay for anything and everything from groceries to gas to utility bills, clothes shopping, entertainment and so on.

If you’re going to use a credit card, do it with discipline, reasonable spending expectations and the goal of paying off the debt every month. At the very least, make more than the minimum payment and don’t saddle yourself with more unneeded purchases.

"Modern life can be difficult,” Houston financial advisor Joseph Birkofer said. "People choose debt instead of going without, so the problem keeps growing. At some point, I think you do have to say that enough is enough."

One of the methods lenders use to determine if you have too much debt is by pouring your regular expenses and income into a formula and coming out with something called a debt-to-income ratio or DTI.

Your DTI is expressed as a percentage through this formula: recurring monthly debt ÷ gross monthly income = debt-to-income ratio.

There are two ways to determine your debt ratio, one involving your mortgage payment, one leaving it out. The one involving mortgage (or rent) payments is the one most often used by lenders in deciding whether to approve a loan so we’ll begin there.

Add up all your monthly debt payments, things like credit card bills, auto loans, student loans, personal loans and the rent/mortgage payment. Divide that figure by your gross monthly take-home income, which is your income before taxes and other deductions are taken out.

So, for example, let’s say your total monthly debt payments equal $3,000 and your gross monthly income is $6,000. The math for that is 3,000 ÷ 6,000 = .50 or 50%. That is considered extremely high. You have more debt than you can handle.

When mortgage/rent is included in the equation, lenders like to see a 35% or less DTI ratio. The housing industry will make you a loan with a DTI as high as 43%, but your interest rate will reflect the increase risk to the lender and be very high.

The other method for DTI – seldom used – is the same formula, minus your mortgage/rent payment. The resulting figure should be 10% or lower. That means your debts should account for 10% (or less) of your income. If it’s a larger figure, bells should be clanging in your head.

Potential fixes? The simple answer is to a) cut expenses; and b) increase income. Unfortunately, it may take a while to adopt either habit.

"These are habits that are best established early in your life, but I see young people as being a very vulnerable group," said George Washington University professor Annamaria Lusardi, who is considered one of the world’s foremost experts on personal debt. “We have a $1.3 trillion student loan debt in this country and we also have a huge part of the population that doesn’t grasp the concept of compound interest.

“These young people start their adult life in debt. They are highly leveraged. It leads to mismanagement of their finances, which perpetuates the debt problem we have today.’’

Here are some tell-tale examples that your debts have climbed too high:

  • Your consumer debts (credit cards, medical bills, personal loans) total half or more of your income.
  • Creditors are calling to collect payments.
  • You’re making only minimum payments on monthly credit card bills.
  • Your credit cards are maxed out.
  • You have been rejected for new lines of credit. Either you have too much debt or your recent credit history is damaged. Or both.
  • You don’t have an emergency fund. Financial advisors universally recommend liquid funds equivalent to three to six months of your income in case of a financial emergency, such as losing your job or unexpected medical bills.
  • Your bank account is typically at (or below) $0.
  • After paying bills, there’s no money for basic extras, such as seeing a movie or ordering food.
  • You have taken advances on your paychecks.
  • You are paying bills late because there isn’t enough money in your account to cover those costs.
  • You open a new credit card account to help pay off another credit card or to pay typical monthly bills. Bad strategy. The goal is to REDUCE the total amount of debt, not add to it.

People like to believe they can control their finances, but sometimes the situation gets overwhelming and they need to reach out for help. There are some quick fixes that seem like they would provide relief, but all they do is dig you a deeper hole.

Things like payday loans; car title loans, rent-to-own items and loans with “no credit check” should be avoided at all costs. Each one of those will make you situation worse, not better.

If you can’t turn the situation around yourself, consider contacting a nonprofit credit counseling agency. The credit counselors will work with companies to reduce the interest rate on your credit cards; they will help sort out your spending issues; help you develop a budget and put you on an affordable payment schedule.

The process – known as debt management – usually takes 3-5 years, but you are debt free when it’s over.

How do you know it’s time to call a nonprofit credit counseling agency?

  • If you’re adding (not subtracting) debt every month.
  • If you’re living paycheck to paycheck.
  • If marriage doubles your problem – i.e. you suddenly owe twice as much because your new husband or wife brings debt into the union.
  • Your net worth is less than zero.
  • You don’t answer the phone because it might be a bill collector. At this stage, you’re probably losing sleep over your finances. It’s a sign your debt is officially out of control.
  • Your savings have been drained.
  • You have turned to drugs or alcohol.
  • You hide spending habits from loved ones.

To most people, debt represents another four-letter word they rather not use.

Some people are so averse to it that they won’t even consider a car loan because of the risk it creates. They pay cash for everything and never carry a balance on a credit card, if they even have a credit card!

That is one extreme.

The opposite would be the risk-takers, people who love to use other people’s money to their advantage. Occasionally, it can result in big losses, but it’s also a way to make big gains.

To be sure, most Americans reside somewhere near the middle. We are cognizant that debt sometimes is used to build wealth, but aware it also can destroy a comfortable lifestyle.

It’s all in how you view the world and how you take advantage of opportunities.

  • To some, student loans are a bridge to higher education, a chance to dramatically boost earning power. To others, student loans are an anvil, requiring a lifetime of payments that delay (or prevent) the purchase of a home, having a family or saving for retirement.
  • To some, mortgages build equity for the future, while providing a place to call home. To others, mortgages are a huge debt that could end up in foreclosure.
  • To some, auto loans allow us to purchase safe, reliable transportation. To others, auto loans add a rapidly depreciating asset to our pile of debt.
  • To some, business loans can help us launch or expand a company. To others, business loans jeopardize the enterprise, zap the company’s wealth and potentially put some people out of work.

Sometimes, taking on debt is the difference between recognizing opportunity and being too scared to move forward.

Avoiding too much debt really revolves around personal responsibility. Remember, lenders are usually willing to give you far more money than you can comfortably repay. Setting limits is up to you.

A good place to start is the 50/30/20 guideline advocated by U.S. Sen. Elizabeth Warren, a bankruptcy expert, and her daughter Amelia Warren Tyagi in their book, “All Your Worth.’’

The 50 stands for limiting your “must have’’ expenses — shelter, utilities, food, transportation, insurance, child care and minimum loan payments — to 50% of your after-tax income. And here’s another gauge for debt. If a new debt payment keeps you under the 50% mark, you can probably afford it. This can be a tough one in major cities, where typically nearly half of your income is needed for the mortgage or rent.

The 30 is for your wants. Use 30% of your income for “luxuries,’’ such as eating out and vacations.

The 20 is the remaining 20% of income that should be used for saving and paying down debt.

It can all be very daunting, trying to stay in these ranges, trying to save for the future while paying off the past.

But it can also give you a guide to evaluate your debt on all levels.

Too much credit card debt makes life difficult.

When you're carrying too much credit card debt, it makes things pretty tough. You may feel like you'll never find your way out of debt, or that you're always working too much to try to pay down your credit card balance. Too much credit card debt can hurt your credit score, which can make it hard to get a loan, buy a car, or even rent an apartment. Having too much credit card debt is stressful – for many it's like a heavy weight they carry around all the time.

Luckily, there are ways to get help with your credit card debt and people who can show you how to get out of debt completely. Tens of thousands of individuals and families have learned how to reduce debt with help from American Consumer Credit Counseling (ACCC), a non-profit organization dedicated to helping people solve the problem of too much credit card debt.

When you have too much credit card debt, ACCC can help.

At ACCC, we offer a variety of strategies, solutions, and tools for people who have too much credit card debt and other unsecured debts. We offer:

  • Expertise. Our professionally trained and independently certified credit counselors are experts at helping you understand how to pay off a credit card, how to manage money more effectively and how to live life debt-free in the future.
  • Savings. We offer free credit counseling and the fees for our debt management services are among the lowest in the industry.
  • Faster pay off. We work to help you save money in a variety of ways and show you how to get out of debt quickly – usually within five years – through a debt management plan.

Debt management plans: an alternative solution for too much credit card debt.

When you have too much credit card debt, you'll get a lot of offers from banks and other credit card companies offering to transfer balances or give you a new loan to pay credit card debt. The problem with many of these solutions is that they can cost a lot or require you to take on new liabilities, leaving you with even more debt. A debt management plan from ACCC is a great alternative for getting out of credit card debt. Under this plan, you'll consolidate all your payments to various creditors and instead make just one payment each month to ACCC. We'll cut checks to creditors on your behalf, saving you the time and hassle of paying bills each month and simplifying your finances to make it easier to keep current with payments. We'll also work with your creditors to reduce interest rates, finance charges, and fees to help save you money and pay off debt faster. Most of our clients with too much debt have been able to pay it off within five years using a debt management plan.

Too Much Credit Card Debt? Here’s What to Do

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Many of us who have struggled or are struggling with too much credit card debt will have that wake up call: that day when they wake up and realize they’re in over their heads. That day can invoke many feelings of fear, regret, panic and stress, but never fear: you can make a plan to clean up your mess and get out of debt.

How to Get Out From Under Too Much Credit Card Debt

I won’t guarantee that the road to debt freedom will be short or that it come without hiccups, but if you’re seriously committed to becoming debt free, you can get rid of your credit card debt no matter how big the pile is by following the steps listed here. Read them over and then, if you’re truly committed to living a debt-free live, take action.

This is likely the most difficult part of getting out from under a mountain of debt. When you first look at your situation, it may feel as if it’s too big a mountain to climb. It’s not. Whatever the numbers, you can do this, but you’ve got to get your head in the game first and change your mindset about money and about your ability to dump your debt. Psyche yourself up by reading debt payoff stories and imagining what your life would be like if you didn’t owe anyone a dime.

The reason that people succeed in paying off credit card debt is because their “why” – their reason for wanting debt freedom – is bigger than their temptation to spend money on things that don’t truly matter to them. Most debt problems come from a buildup of impulse purchases on things that don’t truly bring joy to the lives of the spenders. In order to conquer this problem, you have to determine the real reasons why financial freedom is important to you.

Make a list of your “whys” and post it in a place where you’ll see it often, like in your wallet. Make sure those “whys” are in the front of your mind every time you’re tempted to deviate from your journey to debt freedom.

3. Write Down All of Your Debt Numbers

On a spreadsheet, a poster board or with an online tracking system such as Personal Capital, write down the names of all of your creditors. List to whom you owe, how much you owe them, the current minimum payment and the current interest rate you’re paying. Don’t panic when you see the totals: they were there before you decided to face the fact so nothing’s truly changed; it’s just that you’ve made the smart step of choosing to face the music. This is success #1.

4. Write Down All of Your Other Monthly Expenses

Otherwise known as “making a budget”, this step will help you to get a clear picture of what has to go out of your checking account each month. Don’t forget to include a clothing allowance, a medical expenses allowance and allowances for other expenses that you may not have every month but that will eventually come. Check out this post on common budgeting mistakes so that you can learn how to budget correctly for your individual situation.

5. Determine Your Net Cash Flow

Your net cash flow is the amount of money you’re left with each month after you’ve included all net income and subtracted all monthly expenses. This number should be a positive number. If it’s not, it’s time to start selling stuff in order to get your minimum payments to a place where you can afford to make them all with cash. Creating a “challenge everything budget” will help you to know what to cut in order to get your monthly expenses lower.

6. Analyze Your Savings Accounts

Not including retirement accounts, analyze how much you have in savings and investment vehicles. Write the total down, and then set it aside as we work on the next steps.

At Well Kept Wallet, we prefer Dave Ramsey’s debt snowball. The debt snowball works like this: starting with your smallest debt, put every extra dime toward the debt until it’s paid off. Then take the minimum payment for the debt you just paid off, and add it to the minimum payment on the next biggest debt. You’ll then proceed to put all extra funds toward paying off the next biggest debt, and keep moving up until all debts are paid off. Download the free Debt Snowball Worksheet here.

Another suggestion that Dave Ramsey makes in his Baby Steps is to put $1,000 into a savings account for emergencies, using all extra non-retirement savings funds to put toward debt. If you’re starting out with zero in savings, use all extra monies to create a $1,000 emergency fund before working toward paying off that first debt. This $1,000 will be there in case of bumps in the road such as car repairs.

8. Be Prepared to Handle Bumps in the Road

Every single debt success story we’ve documented has had bumps in the road along the way. Unexpected expenses, job layoffs, car repairs or whatever comes, and it’s easy to get tempted to give up. Now’s not the time to give in – now is the time to get angry at all that your debt has taken from you: your time, your money, your freedom and your joy. Make a commitment that you’ll keep on working on your debt free goal no matter how many times Murphy comes to pull you off course.

The journey to debt freedom can get, well, boring. When the numbers are going down and everything is on track it’s easy to get comfy in your improved financial situation, to get bored with the same old, same old and to consider settling for “good enough”. Don’t let that happen to you. If you find yourself getting bored with the mundane task of watching your debts go down, do something wild to give your journey a boost. Sell something big and put the proceeds toward debt, make a list of the vacations you’ll take with cash once your debt free, or scare yourself if you have to into imagining what could happen if you were laid off in your current state of debt.

The point is to keep yourself motivated so that you don’t settle for the “comfortableness” of being able to make your minimum payments. Another way to combat debt payoff boredom is to celebrate your successes. For every debt you pay off or every milestone you reach, be sure to celebrate with a frugal celebration. Make a special dinner at home, buy yourself something fun for under $20 or simply share your success with someone you trust who will be happy for you and your win.

10. Get an Accountability Partner

Choose someone who’s good with money and that you trust that you can share your plan with and have monthly check-ins with to help you monitor your progress. A good accountability partner will be someone that you can bounce spending temptations off of that will be honest with you about what he or she thinks about the purchase but will still let the decision fall on you. An accountability partner can help you stay on track when temptations, fears or boredom set in.

By following the ten steps above, you can and will make progress in eliminating your debt. By sticking to the plan all the way through, you will indeed find yourself living a life free of consumer debt. Imagine how wonderful that feeling will be, and start your journey to debt freedom today.

Refinance Your Student Loans or Credit Cards

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