How to predict whether or not you have crossed from healthy to problem debt?

It is true that all debt is bad, but there are certain  things as ‘healthy debt’ and ‘problem debt’. Most people can repay debts which aren’t burdensome on their shoulders especially if it’s for their college education or a mortgage which can help them build long-term wealth.

Debt can become a problem, however, when it reaches a certain degree or is wrapped up in credit cards or high-interest loans.

It’s high time you put an end to your notions and reflect upon whether your debt level has crossed from healthy to problematic. Also, in the process of doing so, figure out the ways of dealing with debt efficiently.

But, before doing that, let’s first know about healthy debt.

What types of debt can be classified as healthy debt?

There are 4  types of debt which can be healthy:

  1. Student loans – It has the potential to give you placement opportunities so that your financial future is secured.
  2. Mortgages – Homeownership is an asset which can help you build both equity and net worth.
  3. Business debts – Business debt is required for investments and the profit usually covers for the debt.

Whatever you owe becomes a credit, which in monetary form is a debt and majority of people have some debts to repay. It is only when it becomes difficult for you to make payments that you know your debt is problematic.

Things to remember when you are doubting that you have crossed from healthy to problem debt. .

  1. Your debt-to-income ratio may be pushing you back to take out a mortgage

Lenders who offer mortgage loans will generally evaluate loan candidates based on a measure of debt versus income.

People who have a higher ratio of debt to income are denied the chance to borrow more. It is extremely tough to get a mortgage loan if your debt-to-income ratio is above 40% and many lenders shy away from anything above 30%. People who have high ratios are considered less likely to have the ability to repay the money they owe.

If you see that banks and other lenders are turning you down, it’s time to reduce the baggage of your debt.

  1. Your debt is not a good or healthy debt

It is questionable whether or not there is such a thing as “good debt”, but at the very least, student loans and mortgages can play a vital role in building wealth in the long term.

Credit cards are used to buy “stuff” such as clothes, gadgets, and other items, which may be may be a wasteful expenditure as they don’t carry any real value.

If you are burdened with debt and most of it is due to consumer spending, it’s time to recognize that you may have a problem, and to find a solution about it.

  1. Your credit score is dropping

If you have some amount of debt then it isn’t going to kill your credit score. In fact, it can help it, as long as you’ve sincerely shown you can pay in full.

Order a copy of your credit report; you can obtain a copy from each bureau for free once a year, and check your score.

A score which is above 700 means that you are doing well. But, if you have a lower score, you may have to take out a loan, to buy a home, a car, at a relatively higher interest rate. Once you agree for a higher rate of interest, it becomes difficult to manage your loan.

A score which is too low could make it very difficult for you to borrow at all.

Therefore, work on improving your score by paying the debt amount as early as possible.

  1. You are unable to pay on time

If you are not paying your bills on time, there’s a high chance that your credit score may decline.

According to Credit Karma, about 95% people, with fair to excellent credit scores, made on time payments. But that dropped to 75% for those with scores between 500 and 599, and 60% for those with scores which are below 500.

So, try to pay your bills on time to save the credit score from declining. If in a month, you’re not able to repay the entire outstanding balance, at least make the minimum payment. But don’t make it a habit.

  1. Your credit card reaches its maximum limit

When your problems are increased due to credit card borrowing, there’s not a healthy sign. Interest rates on those credit cards can be very high; so if you can’t pay off the balance in full every month, your debt problem will increase with time.

Credit cards often have their set of restrictions; they have borrowing limits, and you should rarely come close to using them.

If you have overused the limits, using new credit cards for extra spending – it suggests that you are facing a debt problem.

Ensure that you’re able to save a certain amount every month. Adjust your budget in that way.

  1. You have got no emergency fund

If the debt has made you so vulnerable that you are unable to save for anything, then there’s obviously a problem. If you think about the future, then you won’t have any savings at the time of a crisis.

A crisis like the medical emergency or an accident can take place, anytime and anywhere. So, in such a situation, you’ll have to take out another loan or borrow from others.

So, save a portion of money to build an emergency fund. This way you will stay carefree.

  1. You are using almost your entire paycheck to pay for basic necessities

Many people consider pushing back savings to pay for basic essentials like rent, utilities, and other bills. Such a habit can put your life on the edge and living on the edge is definitely going to hamper your lifestyle, and further, you can get depressed.

Ensure that you’re able to save a certain amount every month. Adjust your budget in that way.

  1. Your relationships can be affected

Even if you are financially stable, you can often experience a fight with  your spouse. But when there are serious debt issues in the family, it can lead to serious strain between you and your partner.

Constant argument about debt issues is not healthy and you may have to pay the price for it in the near future.

The only way you can work this out is by spending time with your partner discussing important financial issues to cover up for existing problems.

Along with the problems we have already discussed, these things can also be an alarm for you to deal with your debt seriously.

  1. Missing payments and getting letters from creditors
  2. Borrowing money to pay bills and to catch up with arrears
  3. Paying those creditors who are heavily pressurizing for debt payments
  4. Making faulty promises to creditors to pay unreasonable amount
  5. Creditors can take legal action against you


Whenever you borrow money, it is necessary to know if it’s a healthy debt or a problem debt. Healthy debt will be useful to you and problem debts can create harm to your financial health. However, a healthy debt can become a problematic debt if you can’t manage it efficiently.