Individuals or households can only handle so much outstanding debt before it gets beyond their capacity to repay. When that happens, creditors will start calling to collect what is owed. Poor debt management practices, such as late payments and charged off accounts, will lower your credit score, which in turn can affect things like future employment opportunities, whether or not you get an apartment, and/or your car insurance premiums. In addition, some people experience physical symptoms of distress (e.g., insomnia, headaches, fatigue, etc.) when their debt gets out of hand.
When you fall behind on paying bills, late fees are added to unpaid balances, increasing the outstanding amount owed. Falling behind on paying bills may jeopardize your family's well being if utilities are shut off or if funds are not adequate to put food on the table.
What are some warning signs that you have too much debt? Calls from creditors to collect payment, juggling bills because you can't pay them all, taking out a loan or new credit card to repay previous debt, and a high debt-to-income ratio. A debt-to-income ratio indicates the percentage of net (after-tax) income that is being consumed by consumer debt payments such as credit cards and loans. A 15% debt-to-income ratio is a good upper limit; 10% or less is even better, especially if you have a big family or are a single earner. A debt-to-income ratio of 20% or more is an indication of debt overload. Essentially, it means that one full day's worth of pay is unavailable because it is "spoken for" through previously incurred debt.
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