Financial Debts: When to Determine If You Have Too Much

April 09, 2020

Having debts is sometimes a part of life that is hard to avoid. Think about the credit cards you may be using, mortgages, auto loans, and even cash that you borrow from friends or family. Even CEOs have some forms of business loans to pay for their companies. On a more personal level, you may not always on top of your finances. Some people regularly spend more than what they earn, while others have been in emergency situations that have led them to obtain quick loans or payday loans.

The biggest question, however, is: when can you say that you have too much debt? We’ll answer this crucial question in the following sections.

Why you need to know if you have too much debt

It’s important to have a clear picture of your financial standing. You have to sit and jot down what you are earning and what you are spending monthly. With this information, you will know how to spend more wisely and find a way to generate more income. It’s also a wise decision to set a budget and plan your finances for the whole year.

What about your debts? While having some debts is normal, going beyond what you can afford will compromise the quality of your life. You don’t want people or lenders chasing after you because you won’t have a sound sleep at night, thinking about all the debts you need to settle. For this reason, you have to stay on top of your debts before they negatively impact your life.

What signs of too much debt to be wary of 

There are many clear signs that you should be wary of. These signs indicate that you are about to lose control of your debts and finances in general. Be careful of the following:

  • Your total debt sums up more than half of your monthly income.
  • Lenders start contacting you for late payments.
  • Lenders begin to reject your loan applications.
  • You financially struggle during emergencies.
  • You can’t financially make it towards the end of the month.
  • You can’t spend on extras, even for some basic needs.

How to determine if you have too much debt

Now, let’s get into the actual formula to determine if you have too much debt. Lenders typically use this formula to compute for their clients. This formula is called a debt-to-income ratio, and it calculates the percentage of the debts you have compared to your income, as follows:

Recurring monthly debt ÷ gross monthly income = debt-to-income ratio.

For instance, you have a total monthly debt repayment of R4,500, and your monthly income is R10,000. To incorporate the formula: R4,500 ÷ R10,000 = 0.45 or 45%. This percentage is a score indicating that you have too much debt for your income to handle monthly.

Understand that a good debt-to-income ratio is 35 per cent or lower. If your numbers are above the 35 per cent mark, do what you can to reduce your spending and pay off your debts.


As you can see, there are many factors that determine one’s debts. These include the life stage you’re in, your spending habits, goals, job, financial obligations, and many more. Sure, having some debts is normal, as many South Africans do. However, when is it time to stop getting another debt? Consider the valuable information outlined above so that your debts won’t spiral out of control.

We are one of South Africa’s most reputable lenders providing various types of instant online loans, such as payday loans, personal loans, and quick loans. If you need financial assistance, get in touch with us to see how we can help you!