Manageable amount of debt

krisppp

Hey guys,

I'm starting to worry about the amount of debt I'm getting myself into, and really just wanted some advice on what people feel is a reasonable amount to owe based on my salary and other bits. My big worry is my brother's just decalred bankrupt - and I don't ever want to have to go down that route.

Firstly - I have a salary of about £32k - so I clear about £2k every month - my flat costs £800 inc bills.

My problem is I'm in £2700 of my overdraft, have £400 on one credit card and £300 on another.

On top of this I've done a potentially stupid thing. In moving out with my best mate, I've supported him financially with the promise of being paid back. He owes me £1200.

BUT - a few months ago my mate and I took out a £5k loan together (it was in my name - I guess i've been a bit silly) with payments of £111 pcm - for 5 years.

I'm just really after some advice - cos I don't want to fall into a trap.

Cheers

Chris

skint_spice

Hi Chris,
A comfortable level would vary from person to person, I was comfortable with my debt until I realised I was paying loads of interest while making only minimum payments and not really getting anywhere paying it back.
I don't think I'd feel comfortable in lending a friend so much money but I'm assuming it is a business start up so might be a worthwhile investment in the long run - kind of depends on the amount of risk you are comfortable with which for me is no risk!
But like I said it's going to vary from person to person. Do you feel comfortable or are you starting to panic slightly?

krisppp

Cheers for your thoughts

To be honest - I think I'm starting to panic a bit. I trust my mate explicitly but I have to admit - what I'm concerned about is that I don't want to carry him forever - and his money skills are rubbish.

I just want to make sure I don't lose track of what I'm getting myself into... it seems that - since I've been pretty good and started letting - everyone want to give me credit - but I'm not sure how much I should really take advantage of!

I mean, is there a cut off point (percentage of salary?) where it just becomes impossible to get out of? What do you guys reckon the best way to start to get out of debt like this is?

I know I should be aiming for £0 debt - but I'm a bit of an impulse buyer - and I don't have a problem with owing a bit - I'm just not sure if I'm being stupid?

It seems like there are so many people around me who are in a seemingly impossible amount of debt - and I don't want to get there.

kimmi_b

Hi Chris

I find it interesting that you say you have no problem with having some debt, as I used to feel that way too (I think my exact thoughts were "everyone else has credit so why shouldn't I?").

That was 5 years and £17,000 ago......

It's too easy to slip into more serious amounts of debt so in my opinion (and my personal aim), the best place to be is completely debt-free with a reasonably healthy savings balance to fall back on for emergencies such as the boiler blowing up, dental treatment, those fabulous shoes that you just have to have.....

I'm going about it the hard way - I've had to start a DMP, follow strict budget and will likely have an adverse credit rating for approx 6 years.

There are others on this board who have good advice to give as to how to best budget in order to free up cash to get those high-interest debts paid off so I wil leave it to them to advise you.

Good luck.

dancingfairy

I guess you need to think about what would happen if you got ill or got made redundant. How long would it take you to get another job? how much would you likely to be able to get in another job? would you need to be able to get money if someone in your family became ill? Not owing so much money is likely to give yourself more choices in the event of a problem. Think how much money you are paying back to the banks and that tv/expensive holiday etc you bought could end up costing you so many more times the original purchase. Would you rather have money to yourself or prop the banks up?? :rotfl: . I personally wouldn't be happy having to hand my hard earned money over every month to pay for things I'd already bought.
Good Luck with whatever you decide.
df

tyllwyd

I think you need to think about the amount of salary that is being eaten up by interest. Every month, the interest payment you make is just disappearing into thin air - so by the time you are paying £100 in interest (not repayments of capital, just interest), you would need to earn that amount (plus tax) before you even start having money to spend on yourself.

And most financial advisers recommend you have about 3 months salary in the bank to tide you over if you lost your job etc.

So the amount of debt you are happy with is a personal thing, but if it is getting to the point where it is bothering you, I'd say focus on getting is paid back and not taking any more on. You've already got pretty much half of your salary going out on your rent & loan (in the worse case if your friend lets you down) - more than that is going to start getting very difficult.

Have you done a budget? (See the Statement of Affairs at the make sense of cards website) - I have a feeling that if you write everything down you might find there is less left over to play with at the end of the month than you imagine.

krisppp

Hey guys,

Thanks for all your help so far. What you've said has just made me even more determined to get rid of this debt - or to at least freeze it where it is at the moment.

Any thoughts on the best way to start getting myself out of this? I know you said to plan a budget... what's the best way to do this?

Cheers again,
C

RAS

The SOA is pretty much core to sorting out your finances

Fill in the details on the SOA calculator, press calculate and format for MSE. Paste the reult here and hopefully we'll be able to find some areas you can make savings in.
www.makesenseofcards.com/soacalc.html

krisppp

RAS,

Cheers dude - I've tried to fill it out as accurately as I can - but it doesn't make sense... looking at it this way I have liquid funds.

It's not like I go out and buy loads... though having said that - I have made some impulsive buys over the past few months - like buying a new laptop .

All the rent and bills are split in half... but here's my life laid bare!!!

Maybe I just suck at not going out and blowing money

(Can I just say thanks for everyone's help so far by the way - it's so tough having just moved out from my parents, I've realised there's so much I don't know)

Statement of Affairs and Personal Balance Sheet

Monthly Income Details
Monthly income after tax................ 2000
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 2000

Monthly Expense Details
Mortgage................................ 0
Secured loan repayments................. 0
Rent.................................... 530
Management charge (leasehold property).. 0
Council tax............................. 60
Electricity............................. 20
Gas..................................... 20
Oil..................................... 0
Water rates............................. 15
Telephone (land line)................... 12
Mobile phone............................ 35
TV Licence.............................. 7
Satellite/Cable TV...................... 0
Internet Services....................... 30
Groceries etc. ......................... 200
Clothing................................ 30
Petrol/diesel........................... 80
Road tax................................ 10
Car Insurance........................... 100
Car maintenance (including MOT)......... 20
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 0
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 30
Haircuts................................ 0
Entertainment........................... 200
Holiday................................. 100
Emergency fund.......................... 0
Total monthly expenses.................. 1499

Assets
Cash.................................... 0
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 0
Other assets............................ 0
Total Assets............................ 0

No Secured Debt

Unsecured Debts
Description....................Debt......Monthly...APR
Loan...........................2500......56........10
CC1............................400.......10........14.9
CC2............................300.......10........22.9
Total unsecured debts..........3200......76........-

Monthly Budget Summary
Total monthly income.................... 2,000
Expenses (including secured debts)....... 1,499
Available for debt repayments........... 501
Monthly UNsecured debt repayments....... 76
Surplus(deficit if negative)............ 425

Personal Balance Sheet Summary
Total assets (things you own)........... 0
Total Secured debt...................... -0
Total Unsecured debt.................... -3,200
Net Assets.............................. -3,200

Created using the SOA calculator at https://www.makesenseofcards.com.
Reproduced on Moneysavingexpert with permission.

Gemmzie

krisppp wrote: »

RAS,

Cheers dude - I've tried to fill it out as accurately as I can - but it doesn't make sense... looking at it this way I have liquid funds.

It's not like I go out and buy loads... though having said that - I have made some impulsive buys over the past few months - like buying a new laptop .

All the rent and bills are split in half... but here's my life laid bare!!!

Maybe I just suck at not going out and blowing money

(Can I just say thanks for everyone's help so far by the way - it's so tough having just moved out from my parents, I've realised there's so much I don't know)

Statement of Affairs and Personal Balance Sheet

Monthly Income Details
Monthly income after tax................ 2000
Partners monthly income after tax....... 0
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 2000

Monthly Expense Details
Mortgage................................ 0
Secured loan repayments................. 0
Rent.................................... 530
Management charge (leasehold property).. 0
Council tax............................. 60
Electricity............................. 20
Gas..................................... 20
Oil..................................... 0
Water rates............................. 15
Telephone (land line)................... 12
Mobile phone............................ 35
TV Licence.............................. 7
Satellite/Cable TV...................... 0
Internet Services....................... 30
Groceries etc. ......................... 200 is this for just you? this can definitely be cut down
Clothing................................ 30
Petrol/diesel........................... 80
Road tax................................ 10
Car Insurance........................... 100 is this per month? :eek: It's very high!
Car maintenance (including MOT)......... 20
Car parking............................. 0
Other travel............................ 0
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 0
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 0
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 30
Haircuts................................ 0
Entertainment........................... 200
Holiday................................. 100
Emergency fund.......................... 0 you have money left over, start one of these!
Total monthly expenses.................. 1499

Assets
Cash.................................... 0
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 0
Other assets............................ 0
Total Assets............................ 0

No Secured Debt

Unsecured Debts
Description....................Debt......Monthly...APR
Loan...........................2500......56........10
CC1............................400.......10........14.9
CC2............................300.......10........22.9concentrate on this one first, you should be able to clear it in two months max
Total unsecured debts..........3200......76........-

Monthly Budget Summary
Total monthly income.................... 2,000
Expenses (including secured debts)....... 1,499
Available for debt repayments........... 501
Monthly UNsecured debt repayments....... 76
Surplus(deficit if negative)............ 425

Personal Balance Sheet Summary
Total assets (things you own)........... 0
Total Secured debt...................... -0
Total Unsecured debt.................... -3,200
Net Assets.............................. -3,200

Created using the SOA calculator at www.makesenseofcards.com.
Reproduced on Moneysavingexpert with permission.

I think your SOA looks mainly okay, have commented above. I think that a spending diary would be best for you. Track every penny you spend for a month and see where that spare money goes.

krisppp

I agree my groceries are high ... to be honest - I really suck at shopping

I'll definitely try to get this down. Should I try to set a budget limit? if so, what would you suggest is reasonable?

And my car insurance is because I'm a 21 yr old male unfortunately