Sure, some debt makes sense - taking out a loan to buy that house in the first place, for one. But too much debt can cripple your finances, especially if you carry credit-card balances. The worst scenario would be to head into retirement with mushrooming interest payments and only a fixed income to pay them off.
Use these four guidelines to see if you're in over your head:
- 28%: Devote no more than this amount of your monthly pretax income to your mortgage.
- 75%: By age 45, limit your home loans to this portion of your home's value, says Phil Dyer, a financial adviser in Towson, Md.
- 36%: Spend no more than this much of your pretax income on all debts, including your mortgage and credit cards.
- 3 months: Set aside three months' worth of living expenses for emergencies. In tough times, six is even better.
Last updated February 11 2008: 1:33 PM ET