How much debt is too much? UK Stats

Are you worried about your debt? You have come to the right place. Each month, over 170,000 people visit our website looking for guidance on debt matters.

In this article, we’re going to help you understand:

•  The difference between good debt, bad debt, and toxic debt.
•  How much debt is generally seen as too much.
•  Ways to manage and maybe even write off some of your debt.
•  When it’s time to start worrying about your debt.

Our team knows how it feels to be worried about debt; some of us have been there too. That’s why we’re here to help you learn more about debt, how much is too much, and what you can do about it.

Debt & Income

Often, you can determine whether you have too much debt by comparing your debts to your income.

Debts that are more than 40% of your annual income, for instance, could seem like too much. Working out your debt in comparison to your income can easily dictate how much debt is too much. 

It’s also worth figuring out the differences between what debt you might have – whether it is good, bad, or toxic debt.

While all debt isn’t good in the traditional sense of the word, some debts are slightly better than others.

Good

This is when a debt has a low or a fixed interest rate, and the original loan was used to get something that increases in value, like a house or a business.

Tax-deductible interest also contributes to a ‘good debt’.

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Bad

Bad debts are debts that have high or variable interest rates, and the original loan is used to buy things that lose value or simply for consumption.

Personal loans for things like holidays or high-interest credit card debt are examples of bad debt.

Toxic

Payday loans are prime examples of toxic debts, as well as loans that last so long that you end up paying much more than the item is worth.

Loans that also require collateral, like your car or other valuable items that you can’t afford to lose, can also be labelled as toxic.

Figuring out your debt load

While there is no one rule for debt, we go through some general guidelines in working out your debt and whether your debt is, indeed, too much. 

If you have debts that equal less than 36% of your annual income, this is considered in general as ‘affordable’.

If you have debts that equal between 36% and 42% of your annual income, you’re recommended to try and pay off your debts in a ‘snowball’ method.

This means scheduling and paying off your debts from smallest to largest.

If you have debts that are between 43% and 50% of your annual income, then this is considered too much.

In these instances, it’s recommended that you consult a credit counselling agency such as StepChange, National Debtline or Citizens Advice.

If your debt equals over 50% of your annual income, this is considered as high risk. At this point, you may well want to seek legal advice and even consider the benefits of bankruptcy to cover your outstanding debts.

Carrying a large amount of debt, especially relative to your credit limit, can hurt your credit score as it indicates higher credit utilisation and potential lending risk.

Keep in mind that high interest can dramatically impact your ability to repay a debt.

This is a guidance tool only and not an assessment. For accurate interest calculations, contact the company issuing the credit. Do not rely solely on this calculator’s results.

When should you start to worry?

There are many different factors that you have to take into account when considering how much debt is too much.

Reports state that the average person in the UK doesn’t begin to worry about their debt until it is at least in excess of £6k. 

It’s also reported that one in six adults would have to owe more than £10k before they start to worry and consider whether that amount of debt is too much.

While this varies for different people who might be under different circumstances, it is interesting to note that £10k seems to be when people realise that their debt is too much.

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Every day our partners, The Debt Advice Service, help people find out whether they can lower their repayments and finally tackle or write off some of their debt.

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When it comes to deciding how much debt is too much, it varies drastically from person to person.

Your income is a key factor in dictating whether you legitimately have debt that is too much. Also, personal considerations come into play.

We go through some of the more frequently asked questions about how much debt is too much.