How Much Debt Can You Really Afford To Carry?

how much debt can you afford

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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. 

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The team at David Sklar and Associates Inc are very professional and are willing to help you get out of debt. Highly recommended.
Melissa MacKenzie
12:35 29 Mar 23
I would like to thank the team at David Sklar and associates inc. for all the time and effort they put in to support this process for me. This topic can be challenging to disclose but a big thank you to Christine for going above and beyond in guiding me through all my options and supporting me through the decisions. I cannot recommend this group enough , as they have shown me compassion , knowledge , and understanding throughout the entire process. I look forward to the next step of this process and learning how the proper way of becoming financially educated through the support of their financial counselling team. For anyone who is struggling , just know that there is a wonderful group of educated professionals at David Sklar who are available to help!
Michelle Plouffe
18:45 14 Mar 23
It took me awhile to get up the courage to contact David Sklar but I’m so glad I did. Trina walked through my options with me and provided the knowledge I needed to make a decision to help turn my financial situation around. She is patient and empathetic and answered any and every question that I had. Trina provided me the reassurance I needed that I was making the best decisions for me and my family. I’m so happy that I reached out and now have a plan to get back on track.
M. Mackenzie
19:59 12 Mar 23
Trina was very helpful and thorough.
Sam M
15:26 12 Mar 23
Christine was very helpful, kind, and understanding. She explained everything thoroughly, answered any questions I had, and was responsive to any concerns I had. 100% would recommend
Katherine Campbell
17:29 08 Mar 23
Jackie Stanley is excellent she took the time to explain everything to me and I am so grateful to her for giving me a fresh financial start so if you have any doubts don’t and go see her if you want to achieve financial freedom!
Heather Helfield
21:24 06 Mar 23
Amazing friendly staff that knows what they are going. They make a difficult situation not so bad. Would give 10 stars if I could.
alie Balan
22:37 25 Feb 23
Very helpful and kind and gave me all the available options before helping me decide which one was best for me. I would definitely recommend Jackie
Alison Rivard
01:01 21 Feb 23
Great experience i was in financial trouble and someone of my friends recommended this company. Cori is a wonderful and welcoming person she did a very good job and came up with a smooth and flexible monthly payment after the reduction. i highly recommend this company. Thank you David sklar and special thanks to Cori.❤️🙏🏻
Jasmine Joseph
22:08 13 Jan 23
Met up with Mr. Jason Sklar to discuss more in person, very thorough and clear. He is very kind and thoughtful, I will be referring anyone with the same situation to David Sklar & Associates.
Ariel Domingo
02:33 29 Dec 22
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