Is There Ever a Safe Amount of Debt?

Everyone wants to live a “Debt-free life” but living debt-free is quite challenging now. In fact, owing debt is not that bad and carries only negative aspects. Debt also has a positive angle if you handle it properly, and debt may become a tool to grow your wealth for the future.

In reality, “debt” is not always a scary matter as the economic system is driven by the structure of debts. However, the level of good debt should be in line with income level and it’s recommended that you consider your concerns thoroughly before creating debt.

Nevertheless, it’s found that Thais have continually created a higher amount of debt. At the end of 2019 prior to the COVID-19 pandemic, Thailand’s household debt was at 70% of GDP and increased to 86.6% of GDP at the end of Q3 in 2020 (Source: The Bank of Thailand). Household debt is divided into Secured Personal Debt, such as house loans, car leasing, and Unsecured Personal Debt, such as credit cards, and other consumer debt loans.

Noticing that a week before the salary day, most salarymen will say “It’s nearly the end of the month and I’m dead meat”. That is because expenses exceed income, followed by a question ‘what is a safe debt limit for a month’, and the answer is the safe level varies for each individual. The measurement to determine whether your debt reaches a safe level is called the Debt-to-Income Ratio (DTI). 


The Formula of Debt-to-Income Ratio (DTI)

Monthly deb/monthly incometx 100


Monthly income includes salary, OT, part-time job, dividend, etc.

Monthly debt includes installment payments for house, car, utility bills, credit card, etc.

The calculation is to add all debt payments in each month and then divide by total income.

Suppose in January, the total income is 60,000 baht and the debt to be paid is 20,000 baht. The result is 33.33% (20,000/60,000 x 100). That means the DTI ratio is 33.33%. In other words, your debt payment is 33.33 baht for every 100 baht of income.

If the DTI ratio is 36% or lower, it means you have good financial health and your debt is well managed. If you plan to apply for an additional loan, you’ll likely get approved.

37 – 42%

Defines good financial standing, and be able to pay monthly debt. Reduce debt is recommended.

43 – 49%

This level of monthly debt implies that someone is struggling with a debt problem, and debt is going to exceed an ability to pay. It’s suggested to reduce unnecessary debt as soon as possible.

50% and up

This level of debt is considered critical which means someone spends half of income to pay debt. It’s recommended to stop creating new debt and attempt to clear current debt as soonest as possible.


How important is the Debt-to-Income Ratio?

The debt-to-Income Ratio (DTI) is the percentage of your gross monthly income that goes to pay your monthly debt payments and is used by lenders to determine your borrowing risk. A low DTI ratio demonstrates a good balance between debt and income. In contrast, a high DTI ratio demonstrates a debt overload compared to monthly income.

Generally, those who have a low DTI ratio tend to manage their monthly debt effectively. Financial loan services like banks, want to see a low DTI ratio as it reflects that the loanee has the potential to pay a debt, or the borrower is more likely to be qualified for a loan.

You may sometimes need a larger amount of money than your available savings to buy assets or essentials, for example; a house, working tools, or education expenses, so you can’t avoid creating a debt or applying for a loan from the bank. If you’re able to manage debt effectively, debt will possibly turn to value and create a sustainable future.