How Much Income Are Americans Devoting to Debt Payments?

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The median payment-to-income ratio was 13.4% in 2022, according to the Federal Reserve. Learn how much debt is too much, relative to income. 

Taking on too much debt can lead to a lot of financial trouble. But it can sometimes be hard to tell if your borrowing is out of control or not.

That’s because the amount of debt that’s considered too much must be determined relative to your income. For someone making $1 million a year, for example, having $50,000 of debt may not be a big deal. But for someone with annual earnings of $20,000, that amount of debt could be a huge problem, depending on what kind of loans they are.

To see where you stand when it comes to what you owe, it may be helpful to look specifically at the percentage of income your fellow Americans are devoting to paying back creditors.

Here’s the amount the typical American pays towards their debts

According to the Federal Reserve, for people with debt, the median amount of debt per family relative to their assets was 29.2%. And, the median payment-to-income ratio on that debt was just 13.4%, which is the lowest on record. With a 13.4% payment-to-income ratio, a family with an income of $4,000 a month would be paying about $536 per month to their creditors.

The Federal Reserve also reported that only 6.5% of households had debt exceeding 40% of their income. This is an all-time low, and it’s a great sign that fewer people are so deeply in debt and taking on such high payments.

Do you have too much debt relative to your income?

To see how you compare to your fellow Americans, here’s how you calculate your debt-to-income ratio:

Add up your monthly payments to your creditorsDivide this by your income

Say you have the following monthly payments:

A $200 car loanA $100 credit card billA $250 personal loan

Your total debt would be $550. So if your income was $4,000 a month, your ratio would be 13.75% — or pretty close to your fellow Americans.

Now, whether you have too much debt depends on a lot of factors, including what kind of debt you have and what your financial goals are. For example, if you have mortgage debt, then your debt-to-income ratio can be much higher than if you have only consumer debt without it causing financial problems. That’s because you’re covering housing costs with your mortgage payment, whereas someone with consumer debt would still have rent on top of their bills to their other creditors.

If you have a mortgage, most experts recommend keeping housing costs to 28% of income or less, and keeping total debt payments including your housing costs and other debts to below around 36%. If you have only credit cards and no mortgage, though, you would be in big financial trouble if 36% of your entire income went to your credit cards alone and you had to cover housing and everything else with what was left over.

There are also some general rules of thumb for other kinds of debt. For example, you usually don’t want car loans to exceed 10% of income, and you should ideally try not to carry a balance or have any credit card debt since it is so expensive (as of November 2023 the average interest rate is 21.47% per the St. Louis Fed).

But while these rules of thumb can serve as a helpful guide, ultimately the best way to determine if too much of your income is going to debt is to consider how your monthly payments affect your ability to do what you want and need with your money. If you can’t save for retirement or for big purchases or you don’t have enough money to do the things you enjoy because of your debt payments, then you have a problem you need to solve.

If your debts are interfering with your life, consider moving to a smaller, cheaper home to cut your mortgage payment and making a serious plan to repay credit card debt or loans ASAP. You might also try switching to a cheaper used car or refinancing debt to reduce your monthly payments. Keep trying these techniques until you feel your debt is at a more manageable level and you’re improving your personal finances.

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