What is a dangerous level of debt?

[Deleted User]

OK. I know ideally that no debt is the best situation to be in. And it'd be great if that were the case.

However, taking on board that debt is a fact of life these days, how much would you say is safe? As a % of income or whatever....

OK. Heres me:-

Unsecured debts £20,000. (Credit cards - note, this is probably about 1/5 of limit of these cards - scary, eh? Also, nearly all of this is zero or low interest rate for life).

Income is about £3200 net a month, and out of this, debt payments are about £500 (not minimum but a bit more) with about £100 of this being interest.

Mortgage is £575 a month. Lucky there got a really low rate tracker mortgage. Outstanding amount approx £130,000, house worth about £230,000.

Comments?

sandiep

I think the way to look at it is if you were made redundant, or lost your income, etc, would you have sufficient in place to continue to meet payments? or repay the debt. Or, how vunerable are you to an increase in interest rates?

savingmummy

For me it would be danger if i couldn`t pay main bills, couldn`t repay the debt and couldn`t feed my children.

It really depends tbh!
Some people see thier debt as a HUGE mess but when they post their SOA`s they can make HUGE cutback son outgoings and could manage well and be debtfree sooner then they think!

LilacPixie

I think it varies depending on situation so is not as simple as just XX% or whatever.

Personally we have joint debt of around 72k including mortgage and income is 48k gross. We are comfortable but debt payments are roughly 40% of our net monthly income. We have secure jobs overpay alot and it sits fine with us yet to someone else they might think OMG :eek:.

In your situation I would be worried about my tracker mortgage but as I say thats just me. I would also be worried that out of a £3200 income £1075 goes to debt payments so where does the other £2125 go?

I would also be looking at where income was going each month and if it was better being diverted elsewhere like no point having a 10k balance on a 6.2% credit card and having 10k in savings earning 2%.

mrcow

A dangerous level of debt is one that you can't explain.


Why do you have £20k of unsecured debt? Is it because of one purchase? (Say a car which you are writing off over a period of time) or is it just random borrowing that has built up over time?

If the latter, then it's dangerous.

If I had £20k of unsecured debt, I wouldn't be sleeping well at night at all- and we earn more than you. I'd certianly be paying more than £500 per month off it - look to double that.

WASHER

I would personally say your debt is too high considering your high mortgage. Its time to do something about reducing your debts, before anything happens.

Debt isn't away of life nowadays for some people, I would personally say if you cannot pay cash for it and use a credit card, then you cannot afford it, a credit card is an emergency fund to buy that essential item, to me it would be a washing machine or a cooker (something which I think most people would find difficult to live without), a mobile phone or sky tv is a luxury.

Just my thoughts.

WASHER.x.

[Deleted User]

mrcow wrote: »

A dangerous level of debt is one that you can't explain.


Why do you have £20k of unsecured debt? Is it because of one purchase? (Say a car which you are writing off over a period of time) or is it just random borrowing that has built up over time?

If the latter, then it's dangerous.

If I had £20k of unsecured debt, I wouldn't be sleeping well at night at all- and we earn more than you. I'd certianly be paying more than £500 per month off it - look to double that.

Some of it is for payments on a car? Some of it is holidays...

[Deleted User]

If I'm perfectly honest though, a lot of the debt occured when I was going through a pretty rough time in my life, and money didnt seem that much of a concern. I did let it slip a little.

natsplatnat

For me, if I couldn't at least 'service my debt' and put food on the table, then I would class it as dangerous. Once you realise and become dedicated to clearing a debt you do need to throw everything you can at it. At the end of the day, it would be safer to have zero unsecured debt! Thats what I am aiming for! *dreams - one day!*

WASHER

Why are you asking about a dangerous level of debt today? Is your level of debt beginning to concern you, if so, post an SOA, and we will see if we can help to reduce your outgoings.

Thinking about your debt level can happen just before your lightbulb moment (where you decide to take action).

WASHER.x.

ninky_2

depends what you mean by dangerous.

danger of bankruptcy? danger of spirralling out of control? etc etc.

i'd say any unsecured debt suggests you are in danger - danger of having a miserable and poverty stricken future. basically you are paying for past with debt with future income. not only will everything you buy be more expensive (how would you like it if your boss cut your salary by 25% yet this is what many do to themselves by buying on credit and only paying the minimum off each month) - you are also not saving for the future. that's all a big danger IMHO.