Debt Restruct

How Much Debt is Too Much and How Much is Healthy?

A distressed over-indebted couple sitting next to each other on the couch, staring at financial paperwork

Debt can make attaining major life milestones easier because, unfortunately, simply saving from a monthly salary will not help you get your dream car or dream house as soon as you might like. However, debt is a double-sided sword; when not taking care of it properly,  you may end up with a financial crisis.

It isn’t always obvious how much debt is too much debt – there’s a fine line between staying afloat and sinking into a debt spiral. 

So, how do you know debt is too much? And how to get out of it?


Debt-to-Income Ratio targets

In order for a lender to determine whether you have too much debt, they use a formula based on your regular expenses and income. This method is known as a debt-to-income ratio or DTI.

This formula is used to calculate your debt-to-income ratio: 

recurring monthly debt ÷ gross monthly income.


How much debt is too much?

As a rule of thumb, a debt-to-income ratio of 36% is considered high. While a ratio of 43% is considered too much debt.

Here are a few tell-tale signs that your debts have risen beyond your control: 

  • At least half of your income is spent on consumer debt (credit cards, medical bills, personal loans).
  • Payments on your credit cards are only minimal.
  • You have been denied new credit lines due to too much debt or damaged credit history.
  • You don’t have an emergency fund. 
  • The balance of your bank account is zero (or close to it).
  • It’s becoming difficult to keep up with the bills
  • You have taken out paycheck advances.
  • There isn’t enough money in your account to cover your bills on time.


How much debt is healthy

Every South African household has common fixed expenses they can’t avoid. Some of these include debts and loans like: mortgage/rent, auto, credit cards, and, in some cases, student loans.

If a ratio of 36% is considered a high amount of debt, then anything below this mark could be considered an affordable amount of debt.

It is important to determine the spending limits in each area. So, here is a rule that was created by financial experts that will keep your debt at a healthy rate. 


The 28/36 rule (or the healthy debt rule)

The 28/36 rule can serve as an effective guide to determining a reasonable debt load. This rule states that a household shouldn’t spend more than 28% of its gross income on home-related expenses.

Home-related expenses , includes mortgage payments, homeowners insurance, property taxes,etc.

The 36% represents the maximum spend on your total debt obligations. This means, your home-related debts, plus other debts such as loans, credit cards, and car finance.

Based on the 28/36 rule, if you earn R500,000 per year, your housing expenses shouldn’t exceed R140,000 annually or about R11,670 per month, and your other personal debt servicing payments shouldn’t exceed R40,000 annually or R3,330 per month.

Check to see if you qualify to reduce your debt instalment with our quick quiz

How could you lower your debt-to-income ratio?

Hopefully, with the warning signs and the debt-income ratio, you can come up with an answer to the question of how much debt is too much for you. 

If your DTI is below 35% without any red warning flags, congratulations!

However, if you determine your debt is too much, it raises an even more important question: How will you deal with it? 

Here are a few ways solutions that you could explore to improve your debt-to-income ratio.


Increase your income

You can always ask for a raise, especially if you have been a loyal, hard worker to your company. If that is not an option, there are many other ways to create a second income.

Thanks to remote jobs and the internet, there are lots of hobbies that make money in South Africa.


Apply for debt review

Debt review helps struggling consumers who are over-indebted. The debt review process helps lower your monthly repayment amount, can protect you and your assets from creditors, and simplify your debt repayments by consolidating them.


Pay off smaller debts as fast as possible

If you pay more than the minimum every month, you will be able to pay off your debt and save on interest. Some lenders allow you to pay extra every month if you specify it goes toward the principal.

Ensure that you are familiar with the terms of your loan before you begin to determine if additional fees or prepayment penalties may apply.


Distinguish between good debt and bad debt

The distinction between good and bad debt should be made. For example, a mortgage with an annual percentage rate of 3.5% can be weighed differently than a credit card with a 20% APR.


What’s good debt?

Getting a low, fixed-rate loan and using it to buy something that has a growing value (appreciating value), like a home or business may be considered good debt.

It is also good if the interest is deductible, as it is with mortgages and student loans.


What’s bad debt?

A high-interest debt or variable interest debt that is used to purchase items that lose value (depreciate) or become worn out. High-interest personal loans, auto loans with long repayment periods, or credit card debt with rising balances are among the examples.



Don’t let your financial obligations overwhelm you, whether you are struggling with mortgage, credit card debt or student loans. There are many ways that will help you deal with this hardship, if you are over-indebted, consider applying for debt review. It is one of the greatest solutions to pay off your debts, get your DTI as low as possible, and move on towards healthy finances.

Do you know whether you qualify?

Find out if you’re eligible to reduce your debt and protect your belongings.

Disclaimer: This website and any information herein is not intended to be, nor does it constitute, financial, tax, legal, investment, credit, or other advice. Before making any decision or taking any action regarding your finances, you should consult a qualified professional directly.

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