Debt Load and Your Finances
UpdatedApr 17, 2025
- Debt load is how much debt you owe in total, including loans and credit card balances.
- Debt-to-income ratio measures your debt burden relative to how much you earn.
- Reducing your debt load could help make payments manageable and improve your credit score.
Table of Contents
Borrowing money is a common financial practice, but how much debt is unreasonable? It depends on factors like your total debt, monthly payments, income, and overall wealth. Managing your debt load effectively is key to maintaining healthy finances.
What is a debt load?
Debt load is the total amount of debt you owe, including loans, credit card balances, and other obligations. It’s often measured by the debt-to-income (DTI) ratio, which is your monthly debt payments divided by your monthly income before taxes. For example, if you pay $2,000 monthly in debts and earn $6,000 monthly, your DTI is 33% ($2,000 / $6,000).
Individual debts might be manageable, but multiple debts can combine to weigh you down. It’s why many borrowers turn to debt consolidation, which simplifies debt and sometimes lightens the burden on your monthly budget. Your ability to handle your debt load depends on your income, savings, and other factors.
Impact of debt load on your finances
A large debt load restricts your financial flexibility by committing a portion of your income to payments over time. Here’s how it impacts you:
Spending: Debt load reduces disposable income for everyday expenses.
Borrowing: A high debt load limits your power to take on additional loans.
Savings: Monthly payments shrink what you can save or invest.
Wealth: Your debt load directly lowers your net worth.
Credit Score: Too much debt load harms your credit, raising future borrowing costs.
Understanding your debt load helps you manage these limitations and make smarter borrowing decisions. Once you understand debt load, you better understand why lenders deny credit card applications and other loan applications.
Debt shrinks your net worth
Your net worth is your total assets (home value, cash savings, brokerage account balances, and so on) minus your debts.
Secured debt is usually at least partly offset by the thing you borrowed for. In other words, you might have $200,000 in mortgage debt, but your home is worth $500,000. If this is your only debt and asset, your net worth is $300,000. As your mortgage balance goes down, your net worth goes up.
On the contrary, $60,000 in credit debt only cuts your net worth.
Debt-to-income ratio measures debt load
The debt-to-income (DTI) ratio measures your debt load by dividing your monthly debt payments by your gross monthly income. For example:
Maria’s monthly payments are $1,500 (mortgage), $400 (car), and $125 (credit card), totaling $2,025.
Her monthly income is $6,000.
Her DTI is 33.75% ($2,025 / $6,000)
Since taxes and essential purchases eat into income you can use to pay down debt, consider your debt load relative to discretionary income (after taxes and necessities). Once you pay for groceries, utilities, and taxes, how much do you actually have left to pay down debt?
The Federal Reserve says U.S. debt payments typically range from 8% to 13% of discretionary income, though this varies by life stage and debt type. In our example, Maria’s debt payments (her car loan and credit card payment) come to about 8.75% of her monthly income.
Lenders check your debt load
DTI tells lenders whether you have room in your budget for a new payment. Once you understand DTI, it’s easier to understand how lenders decide whether or not to approve your credit applications.
Lenders check your debt load by calculating your DTI. Here’s how it works:
Credit bureaus provide lenders with a credit report.
Lenders calculate your DTI using debts listed on the report and the income you provide the lender. (Your lender usually requests your estimated income on your application.)
Lenders decide whether your DTI makes you a safe or risky borrower.
Lenders could deny your application if your DTI is above 45-50%. It’s a sign that your finances may be fragile. Lenders are generally more accepting if most of your debt comes from mortgage payments, rather than, say, credit card interest.
Speaking of credit card interest—if you’re using more than 30% of your credit card limit (total, across all cards), your credit score will probably take a hit. Lenders consider your credit score when deciding loan terms, and whether to lend at all. In this case, reducing your debt load could help you improve your score.
Freedom Debt Relief is not a Credit Repair Organization and does not provide, or offer, services or advice to repair, modify, or improve your credit.
Key aspects of debt load
Whether your payments are fixed or variable is a key aspect of debt load, as are your minimum payments. These are the details that can majorly affect your long term payments.
Fixed payments are predictable. Say you have a fixed-rate mortgage. You can count on those payments remaining the same until you pay off the loan.
Adjustable-rate payments are unpredictable. When you have an adjustable-rate mortgage, your payments could increase if interest rates rise—or drop when they fall.
Minimum payments are flexible and expensive. Unlike most loans, credit cards have no set repayment period. You can avoid late status by making a small minimum payment every month instead of paying down the full balance.
Low minimum payments are a financial trap. Credit card companies set them low to stretch out repayment over a longer period so you pay more interest. Generally speaking, the faster you pay off your credit card debt, the less you’ll pay in interest.
Benefits of reducing your debt load
There are several benefits to reducing your debt load:
Reduces total interest paid, freeing up funds.
Offers peace of mind by easing financial stress.
Improves your credit score, leading to better borrowing opportunities.
Strategies for managing your debt load
Managing your debt load effectively involves these strategies:
Budgeting: Track income and expenses to keep your debt load light.
Prioritizing payments: Use the snowball method to keep up momentum. If you’ve zero motivational hangups, consider the avalanche method instead to save more money on interest.
Debt consolidation: Combine debts into one loan to simplify payments or lower costs.
Credit counselors: Consult credit counselors if your debt load feels overwhelming. A credit counselor may suggest a debt management plan. A DMP is a structured plan to fully repay all of your unsecured debts within three to five years.
Debt relief programs: Reach out to debt relief programs to settle debts. A professional debt relief company can sometimes settle debt for less than you owe and help you get rid of your debt faster than by making minimum payments.
Read: Debt Snowball vs. Debt Avalanche: Which is Better?
Tips for avoiding future debt problems
Preventing an unmanageable debt load requires responsible borrowing habits:
Plan before borrowing: Create a budget so you know your income can support new debt payments alongside what you’re already paying.
Emergency fund: Save for unexpected expenses to avoid increasing your debt load.
Smart credit use: Avoid spontaneous purchases that inflate your debt load.
Financial discipline: Budget and pay down debt to keep your debt load in check.
Insights into debt relief demographics
We looked at a sample of data from Freedom Debt Relief of people seeking debt relief during November 2024. The data provides insights about key characteristics of debt relief seekers.
Age distribution of debt relief seekers
Debt affects people of all ages, but some age groups are more likely to seek help than others. In November 2024, the average age of people seeking debt relief was 49. The data showed that 17% were over 65, and 18% were between 26-35. Financial hardships can affect anyone, no matter their age, and you can never be too young or too old to seek help.
Home-secured debt – average debt by selected states
According to the 2023 Federal Reserve Survey of Consumer Finances (SCF) (using 2022 data) the average home-secured debt for those with a balance was $212,498. The percentage of families with mortgage debt was 42%.
In November 2024, 25% of the debt relief seekers had a mortgage. The average mortgage debt was $236504, and the average monthly payment was $1882.
Here is a quick look at the top five states by average mortgage balance.
| State | % with a mortgage balance | Average mortgage balance | Average monthly payment | |
|---|---|---|---|---|
| California | 20 | $391,113 | $2,710 | |
| District of Columbia | 17 | $339,911 | $2,330 | |
| Utah | 31 | $316,936 | $2,094 | |
| Nevada | 25 | $306,258 | $2,082 | |
| Massachusetts | 28 | $297,524 | $2,290 |
The statistics are based on all debt relief seekers with a mortgage loan balance over $0.
Housing is an important part of a household's expenses. Remember to consider all your debts when looking for a way to get debt relief.
Support for a Brighter Future
No matter your age, FICO score, or debt level, seeking debt relief can provide the support you need. Take control of your financial future by taking the first step today.
Show source
How do you calculate total debt load?
One way is to add up the amount you owe and compare that to the value of your assets. Another way is to look at the monthly payments you have to make on your debt, and compare that to your income.
What is considered a high debt load?
A high debt load is any amount of debt that's hard to manage. This can vary a lot based on the individual, with some having a lot of credit card debt, while others have a lot of student loan debt.
For example, to qualify for a conventional mortgage, your debt payment-to-income ratio cannot be above 45%. Anything above 36% requires special documentation to get a mortgage. For non-mortgage debt, the ratio should be much lower.
How does debt settlement affect my debt load?
One of the benefits of debt settlement is that it can reduce your debt load. Having creditors agree to accept less than the full amount you owe can reset your debt load to a more manageable level.
