What is a dangerous level of debt?

velrist

Loss of main income is the main indicator for me.

I've always tried to afford the essentials including debts just off my income, the extra my partner brings in is bonus money that we use for savings, splash money etc. That way, if something were to happen and I was left with just my salary I wouldn't be desperately short and the resulting reduction in food/council tax would still give me some cash for non essentials.

There was a period of time (many years ago now) when things were quite bad financially, I was buying food off credit cards and consolidating debts every 2 years or so but the debts weren't actually going down just rolling forward when the next new major expense came along.

I've had mini lightbulb moments along the way, clearing the credit card completely was one, refusing to buy anything new on credit was another, now I'm determined to pay off my remaining loan and save up 6 months worth of expenses for emergencies. After that comes the mortgage.

Unaffordable debts come in a variety of forms, when things were bad it used to really annoy me that I couldn't buy cheap food from places like the market or aldi because they didn't take credit cards and I literally didn't have the cash to pay for it, this was back before value brands when aldi only took cash or cheque.

Then my ex-partner and I split up and it gave me a huge kick up the bum to get things sorted out, the shock of needing to adjust to just one income and having to deal with half of our joint debt, mortgage on my own etc was a real shock. The only debts I've taken on since then have been for very large expenses like cars or home improvements.

These days, if I can't afford it on my own then I won't commit myself to it and I would much much rather pay for things in full at the time than borrow trouble for the future.

ajharris

[quote=[Deleted User];discussion/2248091]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?[/QUOTE]

It is difficult to say what is a dangerous level of debt, as long as you keep your job then you should be ok. In your situation you should be ok as looking to pay off as much as possible. The problem is that you are being charged interest on your debts and interest rates are going to get a lot higher after the election.

I am no financial adviser but have you not looked at remortgaging to pay off all your debts? You have a lot of equity in the house. Personally I have no debts and and it feels really good. I am in my late thirties and make sure that I save every month.

Tixy

ajharris wrote: »

It is difficult to say what is a dangerous level of debt, as long as you keep your job then you should be ok. In your situation you should be ok as looking to pay off as much as possible. The problem is that you are being charged interest on your debts and interest rates are going to get a lot higher after the election.

I am no financial adviser but have you not looked at remortgaging to pay off all your debts? You have a lot of equity in the house. Personally I have no debts and and it feels really good. I am in my late thirties and make sure that I save every month.

This sounds like a really bad idea to me, this would be changing unsecured debt to secured debt - meaning that should anything happen (loss of job/illness etc) there is an even greater chance that the house would be lost. Additionally putting debt onto a mortgage usually means it is paid off over a much much longer period, costing thousands in interest.

velrist

[quote=[Deleted User];discussion/2248091]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?[/QUOTE]

It looks like you've got some really good deals there but it would still rankle at me that I was paying £100 a month on interest. In all honestly, I would begin to clear your unsecured debts whilst you have the capacity to afford it without a massive reduction in lifestyle.

My own debts are at very good rates but I'd still rather not be paying any interest at all.

carrieon

I have a debt NOW of £130. But i am on JSA and worry about lack of money, debt etc. I've worked all of my adult life but now find myself in this position. I am also due to recieve my pension in July, so i think the chances of me finding a job now as slim.
However i am very, very carefull and try to help my 15 yr old daughter understand that it is not wise to spend on things she cannot pay for. I wish someone had explained this to me when i was young. In saying that a mortgage you can afford is part of peoples lives. Lucky or unlucky i dont have one. I live in a Council House.
I think as another person said (sorry i've forgotten who it was) that if you're asking this question you are probably worried about your debt.
Good luck and thanks for asking the question. It certainly got people thinking.

LeeSouthEast

To me, a dangerous level of debt is anything (excluding mortgage) that I cannot clear in full on demand. My credit card is now used for S.75 protection on large purchases only and never for revolving credit (current balance £900). This will be paid in full on the payment date as always now.

If I want anything else in life beyond a house, I will now save for it. I've been in the "I owe £20k" boat, and now I'm free of it, I'm never ever going back.

Two9A

The criterion of "can you make it 6 months without a job" is the one I hear most often; a plan to pay 6 months' worth of bills and debt payments if there's no job providing an income. I like LeeSouthEast's idea, though, of being able to clear any unsecured debt on demand, and not being able to do that being a bad thing.

By any of the criteria mentioned in this thread, I'm in a bad way. If I don't get paid for a month, none of my repayments get done: all the debts would accumulate, and I'd be getting red letters from the gas company

TMoose

LeeSouthEast wrote: »

To me, a dangerous level of debt is anything (excluding mortgage) that I cannot clear in full on demand. My credit card is now used for S.75 protection on large purchases only and never for revolving credit (current balance £900). This will be paid in full on the payment date as always now.

If I want anything else in life beyond a house, I will now save for it. I've been in the "I owe £20k" boat, and now I'm free of it, I'm never ever going back.

+1 for this. I have a £1K limit credit card which will buy me most things I need S.75 protection for. My OH has a 6K limit card which covers the *really* big things. But these both get paid off in full on payment date.

I have also been in the £20K(ish) debt hole, and am glad to be free of it. I will not be taking out any more revolving debt. The only further debt that I am willing to take on (assuming there is a provider willing to take *me* on) is a mortgage in a few years time, however I am targetting a morgage at no more than 4x income (or 3x Joint).

dib-dab

I agree with others who have said that a 'dangerous' level of debt is either one that you cannot afford to meet repayments on as well as having a reasonable standard of living and also a debt which you would be unable to meet repayments on if you were to be made redundant.

I was heard to say many times that I did not mind being in debt because I could afford the repayments and it would only worry me if I couldn't. Now I think back now I can't believe I used to say such stupid things. It is the fact that we have been living in fear of redundancy for the past year that has made us realise how bad our situation is and how very quickly it can all come crashing down around us. I feel sick and ashamed of our situation and can't believe that for so long I was so ignorant about debt. Even with threat of redundancy it took us a long while to get a handle on things and realise what we need to do.

And that to me is dangerous - it is sometimes the attitude rather than the debt itself I think.

So a dangerous level of debt can be any amount if your attitude towards it is that it does not matter or that it will magically sort itself out. If you get your head around it and have a plan for if things go wrong then you are as safe as you can be.

WASHER

LeeSouthEast wrote: »

To me, a dangerous level of debt is anything (excluding mortgage) that I cannot clear in full on demand. My credit card is now used for S.75 protection on large purchases only and never for revolving credit (current balance £900). This will be paid in full on the payment date as always now.

If I want anything else in life beyond a house, I will now save for it. I've been in the "I owe £20k" boat, and now I'm free of it, I'm never ever going back.

I absolutely agree with the above post. I'm now debt free but have been 40K in debt (many years ago low, paid every penny back but it caused me great stress and alot of heartache in my marriage. ) I simply couldn't function if I owed money, I longer have a card but my OH does and its frozen in the freezer, its in with the peas but he doesn't know that!, we have savings, but if my washing machine broke tomorrow, I would buy it on the card as its a 0% card and repay the whole balance on pay day.

Tixy - I agree with you too, remortgage isn't a good idea - actually it can be quite dangerous, you add the debts to the mortgage and then run up debts again, happened to me, and happens to many on this board - OP - please do not think about consolidating - it rarely works.

Dib-dab, well done for acknowledging your debts when you did, you will be debt free one day, it doesn't matter if it takes you 1 year or 6 years. If you ever need moral support, you get it here, it can be tough but well worth it.