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. 

Share This!

Share on facebook
Share on twitter
Share on linkedin
Share on reddit
Share on pinterest

Ready to live debt free?

The best decision I've made was to contact David Sklar & Associates, they are experts in this matters and also have dedicated Licensed Counsellors that provide the best customer support, like Rhoda Lewis, who I highly recommend. She worked tirelessly on my case, explaining ever detail to me willingly. She demonstrates a true interest in her clients. I appreciate how she patiently walked me through what to do, step by step. I now have control over my finances, as a result my life is much more peaceful and I can focus on what matters. Thank you!
Nilda H.
20:18 16 Jun 22
Very helpful and friendly! I am more than satisfied with my experience here. And more than happy with the outcome! Would definitely recommend .
Peggy Bulger
15:10 14 Jun 22
Jerry at David SKLAR helped me thoroughly understand my options and made me feel at ease. If you are looking at this type of service/help, I 100% recommend you give them a call.
Colleen H
12:50 14 Jun 22
Rhoda is a wonderful person, She help me and guided me throughout the process. I couldn’t do it without her support and expertise. Now I can start fresh and full of hope of a better life ahead of me.
ariezel erandio
21:33 06 Jun 22
The service I recieved from David Sklar and Associates was great. I was able to meet with Christin Sylver. She is kind, understanding and, professional. She was able to answer all the quesions that I had regarding my debt. At the end of our meetings, I felt that there is a heavy burden lifted from my shoulders. I recommend Chistine to anyone who is looking into debt relief.
Aliya H
12:11 04 Jun 22
Jerry is a very patient person, he answered all my questions and made this experience so smooth and easy for me. I was not sure what to expect but dealing with him made me feel so much better. He sure knows what he is doing and how to put people at ease for sure (should have done this long ago). I recommend him to anyone I am so glad I had him on my side and now to do my part. Thanks Jerry ur greatPattie
Patty Murphy
21:34 18 May 22
Rhoda Lewis helped me achieve a fresh start two and half years ago! She was very professional with a very warm, caring personality! I emailed her today with a question and she responded quickly. She's great at her chosen profession!!
Debbie Livingston
01:24 11 May 22
Nothing but good things to say about Jackie. She was so nice and so understand and everything was so quick and easy. In a matter of a week, there was the solution that I never thought was possible. Thank you so very much for everything that you have done. ❤️❤️❤️
Cassandra Keenan
21:05 10 May 22
I was in a lot of debt and stress, Jackie Stanley with David Sklar & Associates was very professional, and extremely helpful with getting out of debt. I should of did this sooner, they take the all the weight and stress of a persons shoulders, amazing team at David Sklar & Associates!!
Hubert Z
03:08 10 May 22
Jackie helped me out during a really tough time and she made the entire process very easy and painless. I highly recommend reaching out to her if you find yourself in any financial trouble. You won’t be disappointed!
prettylush 13
02:42 10 May 22
js_loader