So how much debt is "acceptable"?

Dj_Jestar

Dj_Jestar

Dj_Jestar

Caporegime
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Back in East London
To start with, I have no debt at all - except if you consider things like tenancy agreements and mobile phone contracts "debt".

No credit cards, no mortgage, no personal loans, no car finance etc. etc. never have, save one smallish (£2,000) interest free company car loan I had nearly 10 years ago, and paid off within 2.

But - I'm miserable because I have no shiny things. I want a bigger car, I want a house, I want stuff that I see plenty of people going into debt for to get, and they seem happy. But everyone tells me "No! Don't do it! You'll regret it!" but I don't see others with this regret? Maybe they are crying on the inside, or I am distracted by their shiny things?

So anyway, perhaps with a mortgage as an exception to the rule, what is an "acceptable" amount of debt for any given person to have? I'm not after an exact science here, but at what stage does someone transition from "debt ridden" to "not debt ridden, but does have some debt"?
 
For me it totally depends on their salary and other outgoings they have. Really you'd need to know the exact situation a person is in to be able to comment, which is why I've refrained from doing so in the other thread.
 
Ideally you don't want any unsecured personal debt.

I accept though that some people need it for cars, or for large purchases where they don't have the money otherwise.

There's no rule of thumb to say what's good. But there's plenty of warning signs for what's bad.

Unsecured debt total is > Your basic annual salary = Warning
Unsecured debt = Items you no longer have or have consumed ... holidays, purchases that have outlived their use = Warning
Unsecured debt = Monthly payment is more than 1/3 of your monthly net salary = Warning
Unsecured unstructured debt = Would take you more than 3 months to pay off = Warning

The transition is very simply a structure on the debt that sees it reduce month by month without additional debt building.
 
I have £8000 of Student loan, £350 on my credit card, out of my overdraft (but only just). Though I own my flat outright.
I would say a reasonable level of debt (minus student loan) would be around an 1/8th of your salary as I reckon that would be manageable but it really depends on the person. Some people could manage a higher level or debt, some couldn't.
 
varies for everyone, I took a £25k loan out towards paying for my car, well have done this 3 times and will repeat next time I need one, it's more a case of disposable income than total income in reality
 
well Gordon seemed to think 11.4% debt : GDP was fine...

Ideally you should be working towards zero unsecured debt cause as soon as you start securing debt (house) you want to be paying that off as soon as possible.

I know its cliché but seriously live within your means, the more you borrow to make yourself happy now the more your denying yourself in the future.
 
Its not so much the amount of the monthly repayments that concern me. its what would happen if i was no longer able to repay them through redundancy etc.

Due to the split up from my ex and taking two months off work to go on holiday my credit card ran up to about 3k, am currently paying off 800gbp per month which is manageable, I could pay less but then I would be charged more interest and I think it would be prudent to get rid of it asap in case I was not able to repay any of it in the near futur I'd be screwed with such a large burden.
 
Missus and I have 9k on a finanace car thingy and 2k on a CC

nothing else.

Both bringing him ~£50k a year.

no worries
 
You go into debt for taking things on like a house......you dont have any choice in the matter.

I have always saved up the cash for any shiny things I want.
I know people who have taken loans to go on a shopping spree or buy stupid size TVs, that for me is a bit silly plus interest will hammer you. Them sort of things you should save up for.

Cars are a tricky one.....I did get a car on finance but I only did it because it was on a 0.3% interest rate and I got 2k scrappage for getting rid of my old car! I ended up owing about 8k for a car worth near 11k. The monthly outgoing were sensible and would have been paid off in 3 years but after a year I sold the car, cleared the loan/debt on the car and made almost 2k in my pocket....so that worked out well.

So imo debt is acceptable for things we need to live....house, cars etc but not for shiny things. The fact that we all get raped by our government and shafted on wages while inflation is always on the increase is just something we have to live with, mainly resulting in debt we have no way of avoiding.
 
If you exclude mortgage then we pay around 5% of our household income on 'credit' and that's paying off more than the minimum monthlies. If you include mortgage then around 30% of our household income pays 'credit'.

It's difficult to say what is right / wrong for the most part it comes down to common sense (something some people really seem to lack!)
 
Had debt after uni, have about £800 left on my student loan last year. Took out £8000 loan from BOMAD when i came back from Australia to buy a car to get to work, but I paid it off in 18 months.

Apart from the Student loan which it doesn't make sense to pay off at the moment (although it does get paid bit by bit through my salary so will probably be paid off in a year anyway) I don't have any current debt apart from month to month credit cards. Will be taking out a £100K mortgage within the next year though, so I don't want anything else i'd have to be paying back.
 
In total (including loans from friends, Credit Cards, Loan companys) I have £3.5k of debt. Should all be gone in 2-3 months
 
It's a very subjective subject isn't it? What astonishes me are people who have interest bearing debt and yet still stash money into a savings account 'just in case'.

Badly managed but low debt can be horrific, but well managed high debt can be fine. To put it in perspective, up to about 2 years ago my total debt owing was about 1.2 million UK GBP :D

Sounds horrific doesn't it? It's not so bad when you realise it was directly secured against appreciating assets. No, I don't want to get into the house/investment argument again :p They cost me less than I sold them for=win.

I read that thread about somebody with 1k month incoming splashing some 50% of that on debt repayments - that would make me nervous, even though he seems to be 'coping'.

In terms of servicing debt you have to consider having no income too don't you? I mean I always try and keep a 4-6 month buffer of bills paid. I don't always manage it (typically Jan/Feb/March are the low months because of it being tax time) but I know I'm a lot more relaxed about it when I've that buffer.

I don't think there's a wrong or right answer as it depends on what the accumulated debt is for? The vast majority of my debt was managed investment - a world apart of being in the same debt for shiny depreciating cars and holidays. I have credit cards for that... Or something.
 
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