Summer 2004
How much debt is considered manageable? Here’s a rule of thumb: Monthly debt payments, not including a home mortgage, should be less than 20% of monthly disposable income – that’s income after subtracting mortgage or rent payments, food, utilities and taxes.
For example, take a family that lives in government quarters and has after-tax take-home pay of about $2,500 per month, with no utilities or other housing expenses. If the family’s food costs are estimated at $500 per month, this means the family has $2,000 a month in disposable income. So, according to the 20% guideline, debt payments for things like credit cards and car payments should not exceed 20% of $2,000, or $400 per month. This is a ballpark figure for the maximum amount of debt that’s considered manageable.
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