Forget Mount McKinley at 20,320 feet. By far the highest peak in America is Debt Mountain and millions of American’s are making it taller every day.
How much of that debt can you afford to call your own?
To find the answer, you first need to know just what the mountain is made of.
There is secured debt like mortgages and automobile loans. They are backed by collateral (or security), so the lender can repossess your house or car if you default.
There is unsecured debt like credit card debt and student loans, which are backed only by the borrower’s promise to pay. That can be very unsecure.
Secured debt has a better reputation because so much of it is in mortgages and your house generally increases in value. Those chrome-plated tire rims you just bought with a Visa card do not.
But shiny rims can’t automatically be lumped into the “bad debt” pile. When it comes to the question of how much debt is too much, there are as many answers as there are people.
There are formulas to help you figure it out, and we’ll get to those in a second. But the basic answer is it all depends on what you can afford.