How Much Debt Should You Incur?

Debt is a double-edged sword. When used wisely, it can be a powerful tool to achieve financial goals. However, excessive amounts can lead to financial stress and instability. So, how much debt should you incur? Let’s break it down.

The Good Side of Debt

Before we dive into the specifics, let’s acknowledge that not all debt is bad. Some can be considered “good” if it contributes positively to your financial situation. Here are a few examples:

Mortgage: Taking on a mortgage to buy a home provides shelter and can be a worthwhile long-term investment. It allows you to build equity and potentially benefit from property appreciation.

Student Loans: Education can lead to higher earning potential and career advancement. It’s an investment in yourself.

Business Loans: Entrepreneurs often use loans to start or expand their businesses. If managed well, business debt can lead to growth and profitability.

The 28/36 Rule

One common guideline for assessing a reasonable debt load is the 28/36 rule:

28%: No more than 28% of your gross income should be spent on home-related expenses. This includes mortgage payments, property taxes, and homeowners insurance.

36%: Your total debt service (including housing expenses plus other debts like car loans and credit cards) should not exceed 36% of your gross income.


Suppose your annual income is $50,000. Applying the 28/36 rule:

Housing expenses (28%): $50,000 × 0.28 = $14,000 annually (approximately $1,167 per month).

Total debt service (36%): $50,000 × 0.36 = $18,000 annually.

Remember that these percentages are guidelines, not strict rules. Consider your unique circumstances, such as job stability, interest rates, and overall financial obligations.

Managing Debt Wisely

Interest Rates: Favor low-interest debt (like mortgages) over high-interest ones (such as payday loans or credit cards).

Affordability: If you can’t comfortably make the minimum payments, your load is likely unreasonable.

Seek Help: If it becomes unmanageable, consider working with a nonprofit credit counseling agency to explore options.


Incurring debt should align with your financial goals and capacity to repay. Balance is key—neither too little nor too much. Evaluate your situation, follow the 28/36 rule, and make informed decisions.

Remember, it isn’t inherently evil; it’s how you manage it that matters.

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