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3: Analyze Your Circumstances

Credit and Debt

What is Your Debt Load?


As a general guideline, your total consumer debt load (credit cards, car loans, student loans — anything you pay monthly, except for housing) should be less than 20 percent of your annual net (after-tax) income. How do your spending habits measure up? Use a debt-to-income ratio calculator to assess your debt load.

Keeping up with the Joneses can be tough. You can end up in lots of debt trying to maintain the lifestyle of your friends and neighbors. There are many reasons we might spend to impress or keep up with others. Have you ever made a purchase for any of the following reasons?

  • To show off your success.
  • To experience instant gratification, the “high” of having what you want right now.
  • Because you saw an advertisement that said you deserved something you didn’t have.
  • Because you envied someone else’s apparent happiness.

When you compare yourself to others (which is especially easy to do on social media) and begin to believe that you could have their success if only you owned certain things or had a certain lifestyle, you open yourself up to potential pitfalls. This kind of thinking combined with easy access to credit can lead to taking on more debt that you can handle.

For most of us, happiness is the goal, and the purchases we think will bring us this happiness often disappoint. SAM recommends avoiding spending for an outward show or status and borrowing only what you can afford to repay in a short time frame. Following this guideline can boost your financial well-being by increasing your credit score, lowering your monthly debt obligations and increasing your savings.

Warning Signs of Too Much Debt

Having some debt isn’t necessarily bad, but having more debt than you can handle in a reasonable time frame is stressful. Worrying about debt can affect your behavior, your relationships and your ability to achieve your financial dreams.

Have you found yourself engaged in any of the habits listed below?

10 Warning Signs of Too Much Debt

SAM tips

Use caution with two costly types of borrowing: payday loans and cash advances. Payday Loans are used to bridge a short-term gap between your current needs and your next paycheck. Cash Advances allow you to borrow cash on your credit card, up to a certain limit. Read about the pros and cons of payday loans and cash advances below.

  • Pros:
    • Application for the loan is easier.
    • Usually doesn’t involve a credit check.
    • Can provide immediate cash, if used wisely.
  • Cons:
    • Works like a cash advance against your next paycheck. The cycle usually ends up repeating itself.
    • High interest rates (often up to 300 percent).
    • This is a legally binding loan agreement, and lenders will aggressively pursue borrowers for repayment.
  • Do This Instead:
    • Put off purchases, if possible.
    • Ask friends or family for short-term help.
    • Consider a credit card cash advance.
  • Pros:
    • Money can be withdrawn at an ATM if using a credit card.
    • Pre-authorized checks can be deposited or cashed at your bank.
    • Offers quick cash, up to a certain limit.
  • Cons:
    • High interest rates apply, and lenders are not required to apply minimum payments (if combined with a credit card) to the cash advance portion.
    • Flat fees for the advance amount and ATM charges may apply.
    • Borrowing through cash advances can create a cycle of bad borrowing habits.
  • Do This Instead:
    • Put yourself on a spending plan and look for money through cutbacks in your expenditures.
    • Use your credit card for purchases instead.
    • Ask family and friends for short-term help.
    • Shred all pre-authorized checks to avoid temptation.


To get help with credit counseling, check out these nonprofit and government agencies:

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