What is considered living debt free?
Living debt-free means having no outstanding payments or financial obligations on credit cards, personal loans, student loans, auto loans, medical bills, mortgages, utility payments or other types of debts. Some people still have a mortgage but consider themselves debt-free if all other accounts are paid off.
35% or less: Looking Good - Relative to your income, your debt is at a manageable level. You most likely have money left over for saving or spending after you've paid your bills. Lenders generally view a lower DTI as favorable.
This could be in the form of a payday loan, credit card, personal loan, etc. In these situations, you spend most of your time, money, and effort paying off the interest and little or no money is going to the principle of the loan.
Key takeaways. Debt-to-income ratio is your monthly debt obligations compared to your gross monthly income (before taxes), expressed as a percentage. A good debt-to-income ratio is less than or equal to 36%. Any debt-to-income ratio above 43% is considered to be too much debt.
Key Takeaways
From a pure risk perspective, debt ratios of 0.4 (40%) or lower are considered better, while a debt ratio of 0.6 (60%) or higher makes it more difficult to borrow money.
The average debt an American owes is $104,215 across mortgage loans, home equity lines of credit, auto loans, credit card debt, student loan debt, and other debts like personal loans. Data from Experian breaks down the average debt a consumer holds based on type, age, credit score, and state.
Each household should spend no more than 36% of their income on debt overall.
Back-end DTI focuses on all of your monthly debt, not just housing. This could include your mortgage as well as auto loans, student loans, personal loans and credit cards. It does not include daily expenses such as groceries, utilities or medical bills (in many cases).
- Build a large savings.
- Pay off credit card transactions immediately.
- Buy a cheap used car.
- Go to community college.
- Rent.
- Buy only what you need.
High-interest loans -- which could include payday loans or unsecured personal loans -- can be considered bad debt, as the high interest payments can be difficult for the borrower to pay back, often putting them in a worse financial situation.
What is a safe amount of debt?
Ideally, financial experts like to see a DTI of no more than 15 to 20 percent of your net income. For example, a family with a $250 car payment and $100 of monthly credit card payments, and $2,500 net income per month would have a DTI of 14 percent ($350/$2,500 = 0.14 or 14%).
What is the average credit card debt in the U.S.? Based on data from the Federal Reserve Bank of New York and the U.S. Census Bureau (based on 2024 and 2023 data respectively), it can be calculated that each American household carries an average of around $8,674 in credit card debt in a year.
U.S. consumers carry $6,501 in credit card debt on average, according to Experian data, but if your balance is much higher—say, $20,000 or beyond—you may feel hopeless. Paying off a high credit card balance can be a daunting task, but it is possible.
Living debt-free means having no outstanding payments or financial obligations on credit cards, personal loans, student loans, auto loans, medical bills, mortgages, utility payments or other types of debts. Some people still have a mortgage but consider themselves debt-free if all other accounts are paid off.
Student loans can be a form of good debt, as long as you end up earning enough income to repay it over time. If you're responsibly using a student credit card to pay for your everyday expenses while in school, that could be another example of a credit product that is working for you.
Bad debt can be defined as money you borrow for something that you quickly consume, depreciates in value or doesn't help you make progress toward your financial goals. The best example is high-interest credit card debt, especially if you can't pay off your balance each month.
The Standard Route is what credit companies and lenders recommend. If this is the graduate's choice, he or she will be debt free around the age of 58. It will take a total of 36 years to complete. It's a whole lot of time but it's the standard for a lot of people.
Around 23% of Americans are debt free, according to the most recent data available from the Federal Reserve. That figure factors in every type of debt, from credit card balances and student loans to mortgages, car loans and more. The exact definition of debt free can vary, though, depending on whom you ask.
You might have too much debt if your debt-to-income ratio is more than 36%. Signs of having problematic debt include rising balances despite making regular payments, or being unable to build an emergency fund of at least $500.
| Debt type | Total average balances | Percentage of total consumer debt |
|---|---|---|
| Student loans | $1.57 trillion | 9.20% |
| Personal loans | $356 billion | 2.09% |
| Housing debt (includes both mortgages and HELOCs) | $12.52 trillion | 72.39% |
| Auto loans | $1.63 trillion | 9.30% |
What is unmanageable debt?
Personal debt can be considered to be unmanageable when the level of required repayments cannot be met through normal income streams. This would usually occur over a sustained period of time, causing overall debt levels to increase to a level beyond which somebody is able to pay.
“Assuming that your mortgage or rent are going to consume the lion's share of that [“needs”] category, I recommend keeping credit card payments below 10% of your monthly take-home pay if you aren't in a position to affordably pay off your entire balance each month,” he says.
How much of my salary should I spend on a car payment? According to our research, you shouldn't spend more than 10% to 15% of your net monthly income on car payments. Your total vehicle costs, including loan payments and insurance, should total no more than 20%.
The average monthly car payment is now a record $733, according to Edmunds. And even if your monthly auto loan payments are around $500 per month, that still may be uncomfortably high. And that's before adding up the cost of maintenance, fuel, and auto insurance.
Car payment statistics
The average monthly car payment for new cars is $726. The average monthly car payment for used cars is $533. 39.20 percent of vehicles financed in the third quarter of 2023 were new vehicles. 60.80 percent of vehicles financed in the third quarter of 2023 were used vehicles.
