Certified Financial Planner (CFP) Exam 2025 – 400 Free Practice Questions to Pass the Exam

The recommended rule of thumb for consumer debt as a percentage of net income is approximately 20%. This guideline suggests that no more than 20% of an individual’s net income should be allocated toward servicing consumer debt. This figure is designed to help individuals maintain a manageable level of debt in relation to their income, thereby reducing the risk of financial strain and promoting long-term financial stability.

Maintaining consumer debt at or below this threshold helps individuals avoid overextending themselves financially. By ensuring that a significant portion of net income is available for essential expenses, savings, and investments, individuals can better navigate unexpected expenses and reduce stress associated with debt repayment. This principle is particularly relevant in personal finance, where balancing income and debt is crucial for achieving financial goals.

In contrast, higher percentages could lead to financial difficulties, as more income would be tied up in debt obligations, leaving less available for essential expenses or savings.