overleveraged
Having taken on more debt than can be comfortably serviced given current income and assets.
Example
“Overleveraged by three investment properties he could not afford when rental income dropped.”
Memory Tip
OVER-LEVERAGED — too much weight on the financial lever. One shift and it snaps.
Why It Matters
Being overleveraged threatens your financial stability because you may struggle to make monthly payments during income disruptions or emergencies. Understanding this concept helps you avoid taking on debt levels that could force you into bankruptcy or force you to sell assets at unfavorable times.
Common Misconception
Many people think overleveraged only applies to large debts, but it is actually about the ratio of debt to your ability to repay it. Someone with 50000 dollars in debt can be overleveraged if their income is only 25000 dollars annually, while someone with 200000 dollars in debt might be fine if they earn 150000 dollars per year.
In Practice
A person earning 60000 dollars per year takes out a 300000 dollar mortgage, a 25000 dollar car loan, and accumulates 15000 dollars in credit card debt, totaling 340000 dollars in obligations. With debt payments consuming 70 percent of their gross income before taxes, they are overleveraged and vulnerable to default if they face a job loss or major expense.
Etymology
From Old French 'levier' meaning lever — using more leverage than the structure can support.
Common Misspellings
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Related Terms
More in debt
Other debt terms you should know
See Also
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