Topic #206: How much debt is too much? image The average American has $16k in debt, down from $35k in 2008. The ability to borrow money is important in all economies, but borrowing more than you can pay causes all kinds of problems (as the various debt crises around the world expose). How much debt is ok? How much debt is too much? How do you decide for yourself when its warranted to go into debt to achieve something? What’s a story you can share about borrowing something, perhaps money or time, from someone else?

I personally believe that when you are having to make choices between living a regular lifestyle and paying your bills then you have excessive debt. Living a regular lifestyle is what you are personally used to. If you are use to attending the movies and eating out every Friday night and now you have to cut that back to once a month because of bills, then you have excessive debt.

The amount of debt that is excessive to an individual really depends on that persons lifestyle. But it should never interfere with the way you are living your life. I remember a friend that used all his life’s savings and borrowed heavily from friends and family to purchase a rental property. He was sure that the income generated would be enough to pay the mortgage and repay all his debts. He failed to account for the times. He purchased a building when everyone was buying homes. When the home market is up, the rental market is usually down. He lost 40% of his tenants within 6 months of purchase and it took over 1 year to get half of those units rented again. 

During that year he lost weight and was sick a lot. I am sure that the stress from people calling him about their money, the bank, the utility companies all weighed heavily in affecting his health. He eventually ended up selling the property and right before the housing bubble burst. Now that building is fully occupied and I can bet the new owners are very happy. He kicks himself everyday over what he says was bad timing.

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