Do you have too much debt?

According to Bankrate’s 2025 Money and Mental Health Survey, almost half of U.S. adults (47%) say that money has a negative impact on their mental health. Nearly half (47%) of those say debt is one of the leading causes of this negative impact.

Unfortunately for Americans, debt is so common that it can be easy to dismiss or see rapid debt accrual as a necessary part of life. This is evident in Americans’ 2024 spending habits; credit card debt saw a total balance increase of 8.6%, and total consumer debt grew by 2.4% from 2023 to 2024, according to an Experian study released in January 2025.

If you’re living paycheck-to-paycheck, with most of your earnings going toward debt, those could be warning signs of debt problems. While chipping away at those balances may feel overwhelming, know that with hard work, dedication and patience, you can become debt-free.

How to know if you have too much debt

One of the quickest ways to determine whether debt is becoming an issue is to calculate your debt-to-income ratio. Your DTI measures how much debt you have relative to your monthly gross income, expressed as a percentage.

You can calculate this manually by adding up all of your monthly debt payments in your credit report – auto loans, personal loans, student loans, credit cards and mortgages, among others – and dividing that amount by your monthly gross income.

Typically, lenders like to see a DTI under 36%. So, if your monthly gross income is $3,000, your monthly debt payments shouldn’t exceed $1,050.

Warning signs your debt could be a problem

Greg McBride, Bankrate chief financial analyst, says that one simple way of knowing if your debt is becoming a problem is if your total balances are going up every month instead of coming down.

For example, assuming you make a gross monthly income of $3,000, your credit cards, auto loan, and other non-mortgage debt payments shouldn’t exceed $450 a month when combined.

Other warning signs of debt problems may include the following:

• Not remembering how much you owe and to who off the top of your head.
• Borrowing money to make payments on other debts.
• Relying on credit cards to make everyday purchases.
• Making only the minimum payment due on your cards.
• Not having an emergency fund and being unable to establish one.
• Not being able to contribute to your retirement savings.

Good vs. bad debt

While there are many different kinds of debt, not all debts are necessarily bad for your overall financial health. Debt that can increase your net worth over time or that ends with a positive return can benefit your financial future.

Bad debt does exist, however, and it should be avoided whenever possible. For example, high-interest debt accrual – like credit cards, payday loans and high-interest personal loans – won’t benefit your wallet in the long run.

Good debt

Good debt increases your net worth over time or has lasting value. Examples of good types of debt include mortgages and student loans. Residential property or houses generally appreciate over time and are considered a good investment because if you sell, you may get back more than you put in.

Additionally, a college degree enables you to get a well-paying job and earn more money throughout your life. According to the U.S. Bureau of Labor Statistics, U.S. adults with a GED or high school diploma only earn about 60% of what those who hold a bachelor’s degree earn on a weekly basis.

However, this doesn’t apply to all career fields, as certain positions yield higher starting salaries. Before assuming your loans are automatically a ‘good’ debt, consider your degree’s predicted return on investment (ROI) compared to your total student debt load.

Bad debt

Bad debt, on the other hand, doesn’t provide any type of value. It includes things you finance because you don’t have the cash to pay for them. Unlike good debt, it doesn’t add to your net worth or have lasting value.

Bad debt includes carrying balances on credit cards, auto loans and payday loans. It’s considered “bad” debt because, typically, these balances carry no benefit but come with high fees and rates.

Why does high debt matter?

Having too much debt, particularly bad debt, suggests that you may be living beyond your means. This can make you seem like a riskier borrower in the eyes of lenders, as this makes you more likely to default than someone with a lower debt load.

“Too much debt, and the wrong kind of debt, will stand in the way of making financial progress,” McBride says.

“You won’t be saving for retirement or emergencies to the extent you should. Your credit rating will suffer if you’re increasingly indebted, limiting your ability to get better interest rates, impacting your auto insurance premiums, ability to rent an apartment, or even to get certain jobs.”

The more debt you have – particularly bad debt – the more likely you are to fall victim to the vicious debt cycle. You may need to take out more high-interest debt to repay your existing debts. Plus, more debt means that your DTI ratio is high, making it harder to get approved for loans.