How Much Debt Is Too Much? 8 Warning Signs

Debt is a powerful tool that can boost your success or cause your financial life to crash and burn. The trick to using debt wisely is knowing the difference between good and bad debt and the right amounts based on your income and goals.

Today, I'll cover tips to use debt strategically, so it helps not hurts you. Plus, you'll learn eight ways to know if you have too much debt and action steps to protect your finances.

Debt is a complex topic because people have different opinions about it. Some insist that no amount of debt is acceptable, not even a home mortgage. Others acknowledge that some debts, such as a mortgage or student loans, are OK but using a credit card or taking out a car loan is a mistake. There's a camp that believes using debt to purchase anything is acceptable as long as you can afford the payments. 

My recommendation is that you should consider going into debt when:

• You're confident that it will give you a financial return. 
• You have a steady income or ample savings to repay it on time.
• You qualify for a competitive interest rate and terms.

As you pay down the principal balance and/or your home value appreciates, you build wealth. That's why financing a home is generally considered good debt.

For example, if you buy an affordable home with a low-rate mortgage, you can build equity over time. As you pay down the principal balance and/or your home value appreciates, you build wealth. That's why financing a home is generally considered good debt.  

Additionally, mortgage interest rates are at historic lows. They also come with an interest tax deduction, making home loans cost even less on an after-tax basis. Depending on where you live, buying a home may be less expensive than renting a similar property, especially outside of large cities.

Another example of good debt is a reasonable amount of student loans. Interest rates vary depending on whether you have a federal or private loan; however, they typically have relatively low interest rates.

Plus, some amount of interest paid on education debt is tax-deductible, which further reduces the cost. And best of all, getting an education gives you the ability to earn more over your lifetime.

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