How Much Debt Can You Really Afford To Carry?

how much debt can you afford

Are you worried about how much debt you have? Debt can be a necessary part of life. The ability to borrow money and pay it back in installments helps you afford major purchases like a car, a house, or an education.

Debt should help you build your life up. But if you borrow too much, debt can quickly become a burden dragging you down. How are you supposed to know how much debt you can really afford?

Total Debt Servicing Ratio (TDSR)

When lenders talk about much how much debt potential borrowers have and how much more they can reasonably be expected to afford, they refer to a Total Debt Servicing Ratio (TDSR).

As far as banks are concerned, the maximum amount of debt that a person can afford is a 40% TDSR, i.e., your monthly debt payments take up 40% of your before-tax income. Here’s what the bank includes in monthly debt payments:

  • Credit card payments if you don’t pay your full balance each month
  • Car payments
  • Mortgage payments
  • Line of credit payments
  • Student debt payments
  • Utilities such as heat
  • Taxes

If your TDSR is over 40%, some subprime lenders may give you high-interest credit. At this point, you are at a higher risk for insolvency. Your TDSR is something that banks will look at any time you apply for a mortgage or a car loan. Your TDSR can also help you find financial danger signs before they take over your life.

How Much Debt Can Your Budget Afford?

A 40% TDSR is a major debt load that will significantly impact your standard of living. Living off the remaining 60% of your income (before taxes) will be tight, especially if you live in a major city like Toronto where the average housing cost and rent take up a considerable amount of income.

The general rule of thumb is that you can afford to pay 30% of your income on rent; that’s often unrealistic and many are paying far more. If you’re living with a 40% TDSR and spending 40% of your income on rent, you’re only a paycheque away from serious financial trouble. One option may be better debt management, and these tips for cutting expenses can help.

Sudden job loss, illness, separation, or unexpected expenses quickly turn into an inability to keep up with debt payments. That’s when it’s time to talk to a bankruptcy trustee, now known as a Licensed Insolvency Trustee. You can come visit us at David Sklar & Associates for a free consultation.

A bankruptcy trustee will discuss your options. You may be able to repay your debt with a simple debt management plan, or you may need to file for bankruptcy or a consumer proposal.

When you get a free consultation at David Sklar, a bankruptcy trustee will walk you through your options. If you can’t afford to pay back the debt you have accumulated, you’re considered insolvent. That gives you options for getting out of debt with some relief. Talk to a bankruptcy trustee if you’re worried about how much debt you have.

Take Your First Step Towards A Debt Free Life

If you are overwhelmed by debt and live in the Toronto area, call us at 416-498-9200 to book a FREE, confidential appointment. We will review your financial situation in detail and discuss all of your options with you. Alternatively, you can fill out the form below and our team will reach out to you. 

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Ready to live debt free?

I cannot emphasize enough how thankful I am for Jackie Stanley's help with filing for bankruptcy.All of us dread being put in this position and we have a million questions about the process but trust me Jackie makes it so easy for you that you don't have to do anything yourself!She is very kind and friendly and puts you at ease right away. She emphasizes with you and let's you know it's not your fault.Most importantly when you leave that first meeting you will not believe the load that is taken off your shoulders. You can actually feel it!You are a godsend Jackie and I can't thank you enough!!I hope you are highly valued there as much as you are by me!
Sue Murray
18:45 05 Dec 21
Putting together and executing a Consumer Proposal can be daunting, that is unless you work with Cori Naron at David Sklar & Associates Inc. Cori's advice and support has been instrumental over the past five years. Thank you Cori!!
Barry Kuntz
20:37 01 Dec 21
I’m very happy with the services I received for Jackie Stanley who helped me get my finances in order. It was a quick and easy process & all of my questions were answered.
Amanda Frappier
01:18 19 Nov 21
I have had the privilege of being supported by Jackie at David Sklar Associate. She was very helpful, very professional and very friendly. She gave me the help I need. Thank you Jackie for your help.
Alex Taylor
22:03 17 Nov 21
Got my probe solved, great service
arny raposo
17:02 11 Nov 21
Jackie at Daivid Sklar and Associates is such a pleasure to work with. She explained everything in great detail and is always there when I have a question or concern. She really cares about her clients.
Steve Medica
09:33 10 Nov 21
I filed a proposal with another group, which came in as a referral from one of my brokers. My experience went from ok to bad to worse, due to lack of communication and education on the process I was to embark on. I worked with Cori Naron in the past, and I came to her now for help on literally doing the work that the other group should have done. Cori stepped in, educated me, advised on rights, responsibilities, how the process works and what potential outcomes may happen. I do not have enough words of recognition and gratitude for what she did - she alleviated stress, anxiety, dead-end thoughts and she made me live again. Congrats to DSklar for hiring her and retaining such talent.
Giani Kokolakis
18:45 25 Oct 21
Very professional service. Before contacting David Sklar & Associates i contacted bunch of other firms they seemed fishy. After I spoke with Jason Sklar at Hamilton Office I discovered professionalism with hope. I was explained every step of my situation with solution professionally. Thank you David Sklar & Associates.
Wajay Awan
07:29 12 Oct 21
I met David a few months ago and i am glad I did. He has helped me all the way through my bankruptcy with good advice and explained every step of the process. David is a very down to earth and very professional. Anytime I've had a question I was able to reach out to David by phone or email and he always got back to me. If your struggling with your bills and need a way to get help, I strongly recommend David Sklar &Associates to help you. My experience with them on 1-5scale would be a 5;; My life is so much better now, thanks to David Sklar.
Bruce Locke
16:13 08 Oct 21
I have had the privilege of being supported by Jackie S, at David Sklar n Associate.She was helpful, professional and friendly. I was able to get the help I needed at a difficult time in my life. I would recommend anyone who needs support with working out their debts to ask for Jackie, she will be waiting to assist however she can to help you through your debts. She works with a team who is always ready and responsive.Thank you Jackie and your team:)
Denise Simpson
15:17 09 Sep 21
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