Do you have too much debt?

There should be more to life than an ongoing struggle to make ends meet. Still, if you have significant debt, you may never stop worrying about repaying it. Further, even if you plan to limit the amount you borrow, you may have emergency expenses that take a tremendous toll on your monthly budget. Either way, you must know how much debt you can afford. 

Debt is a way of life for most Americans. That is, virtually everyone has a student loan, mortgage, credit card balance, medical bills or another type of outstanding debt. In fact, according to reporting from CNBC, the average American owes roughly $38,000 to creditors. Unfortunately, debt is not always easy to manage. While limiting the amount you borrow may be an effective strategy, some debt is unavoidable. So, how much debt is too much? 

Calculating your debt-to-income ratio 

To determine how much debt you can afford to carry, calculating your debt-to-income ratio may help. After all, financial advisors often recommend taking this approach when considering applying for new lines of credit, buying a new car or purchasing a home. Calculating the ratio is easy. Simply divide your recurring monthly debt by your gross monthly income. If the quotient is more than about 30%, you probably have too much debt. 

Securing financial freedom 

Owing more than you can afford to pay can be unbelievably stressful. Fortunately, you likely have options for improving your situation. Specifically, you may want to take advantage of bankruptcy protection as a way of securing financial freedom. 

If you wonder if you have too much debt, there is a chance you do. You do not, however, have to suffer the emotional, financial and other consequences that come with it. While you cannot discharge all types of debt through bankruptcy, it does allow you to address many unpayable bills proactively.

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