Financial Problems and Big Debt
Frequently relying on credit to buy what you can't afford should be a red flag -- if you're not already in serious financial trouble, you're on your way.
Not all debts are created equal. Some debt, such as buying a home or going to school, can be good debt (usually). Good debt is debt that can work in your favor. Using high-interest credit cards to spend beyond your budget and carrying balances from month to month on those cards is bad debt.
Any debt you can't (or don't) pay off quickly is too much debt. While the amount of debt you carry is ultimately going to be a personal decision, there's a quick way to know for sure how your monthly financial obligations stack up against your monthly income. Add up your monthly debt obligations -- that's your rent or mortgage, your credit card, car loan, student loan and any other loan payments (this does not include what you pay for food, clothing, utilities or your discretionary spending). Add up your monthly income -- that's your gross salary plus any other income such as a bonus or alimony. If less than 30 percent of your income is used to pay your debts, you're in pretty good shape at the moment. When the ratio begins to creep towards 40 percent or greater, though, it's time for a financial intervention.