What indicates a healthy debt ratio?

A healthy debt ratio is indicated by a ratio of less than 1.0. This suggests that an individual's total debt is less than their total assets, which demonstrates financial stability and a manageable level of debt compared to the value of assets owned. A ratio below 1.0 indicates that the person owns more than they owe, reducing the risk of financial distress and revealing better financial health.

A ratio of 1.0 or higher implies that an individual’s debt equals or exceeds their assets, which could signal potential financial difficulties. Ratios greater than 36% may indicate a high level of debt burden compared to income, often viewed as a warning sign. Similarly, while a ratio of 50% or lower is certainly better than higher ratios, it does not meet the threshold that strongly suggests overall financial health as effectively as a ratio below 1.0. Consequently, the definition of a healthy debt ratio relies on maintaining assets that exceed debts, thereby promoting a financially secure position.