How Much Debt Can You Really Afford To Carry?

how much debt can you afford

Table of Contents

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, call us at 1-844-962-9200 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. 

Share This!

Very processional and understanding of my situation. Thanks to all your team.
Luc Valade
1695320109
Jennifer Norton's exceptional assistance with my consumer proposal was life-changing. Her professionalism, expertise, and dedication were evident from the start. Jennifer's thorough explanations and attention to detail created a tailored proposal that set a clear path to financial freedom. She went above and beyond, advocating for my best interests and providing invaluable support. Thanks to Jennifer, I'm on track to a stress-free financial future. I wholeheartedly recommend her – she's not just a financial expert; she's a life-changer. Thank you, Jennifer!
Thomas
1695089142
They made a difficult situation, easy thank you.
Ray Barkley
1694806611
I had a great experience with Christine from David Sklar & associates. Very professional, and easy to get through. Thank you
fukinwith doug
1694804075
Great customer service and a smooth process to get your finances on track. Informative and thorough.
Adrian Downey
1694799042
From the moment I sat down in the office, I felt welcome and at ease. Grace Cuffaro was both friendly and highly informative. She is extremely knowledgeable and answered all of my questions in detail, making sure I understood before moving on. I was reassured throughout the process that I was making the right decision and that it was not uncommon nor anything to be ashamed of. I didn't expect my appointments to be such positive experiences, but that's exactly what they've been!
P Bains
1694670814
I was in a tough financial position and found myself searching for relief. I came across David Sklar & Associates page when doing my research on financial advice. The reviews were amazing, but I was concern because I didn’t know what to expect. I made the decision to set up a consultation and had the pleasure to meet with Jennifer Norton. Right from the beginning, she was attentive, knowledgeable, and pleasant to meet with. The experience was painless and very educational. Jennifer made sure I understood my choices, answered my questions, and concerns promptly, in person, over the phone and via email. I’ve been working with Jennifer for a couple months now and I am pleased that Jennifer is the manager handling my file. I would and have recommend Jennifer Norton, David Sklar & Associates to anyone in need of direction regarding finances.
A.L Thompson-Lawrence
1694547608
I had my first meeting with Jennifer, she was really understanding and extremely helpful, and got everything done in a timely manner.
Tamas Wint
1694534757
Jennifer Norton has been the most helpful throughout this truly embarrassing situation that I find myself in. She is informative, understanding, and there is absolutely no judgment. She has handled everything in a very professional and respectful manner and I am SO glad that I have them on my side. Definitely a huge weight off my shoulders.
Jody T
1694533927
Rhoda, Jerry, and the entire David Sklar & Associates Staff were very professional and were great to work with. They taught me a lot regarding financing and I would recommend them to anyone facing financial troubles as well. Rafael L
Medanun
1693930422
js_loader
DS david skalr icon

Book your free consultation.

Call 1-844-962-9200 or fill out the form below. We’ll do the rest.

Contact Us