How much debt is reasonable

Jagraf

heartbreak_star wrote: »

The fact you are only paying the minimum amount rings alarm bells for me. Why not overpay and get it cleared? Do you have enough spare to pay extra once the interest kicks in?

HBS x

I think maybe the op meant as they were on zero interest he could put the rest away, although there is a loan which may be best paid off, unless that's zero too.

Jagraf

MrsSmith2013 wrote: »

I would say no debt at all is reasonable! I've learned the hard way, and once its paid off I will never ever get into debt again. It will be a case of saving up for things and buying them cash, instead of sticking it on a card and paying for it later.

Everyones situation is different, but I cannot WAIT until the payday when I only have to pay the mortgage and essentials and the rest isn't going on debt repayments!

Snap. To me the question is "how much stress from debt is reasonable" lol

kaya

How much debt is acceptable? None at all

MEM62

To argue that debt is acceptable because it is 'invested' is short sighted. This only holds up if the investment can be liquidated at short notice should your circumstances change and you can no longer make payments from your income.


You need to stress test your finances by asking yourself "how would I cope if unemployed for six months?" That will tell you whether you current debt level is comfortable. If you are looking at financial difficulties or even the prospect of selling your house in such circumstances then either your level of debt is too high or you savings are too low.

freeisgood

To me, debt is something that if absolutely unavoidable to get into, then it should be viewed as a temporary situation to get out of as soon as possible. Not like my SIL who lives to the edge of her OD and has done so since I have known her!

yellow218

Thanks for the replies

I don't have a loan. I have a couple 0% credit cards. (still debt).

I haven't maxed out the credit cards. And have only used them for home improvements(to build a garage and renovate a kitchen). day to day living is well within income.

Heart break star- you asked why am I only paying the minimum amount. This is why.
within income, we can afford to pay off a higher amount each month so that the debt is cleared before interest hits. However rather than pay off the card I make a standing order to a savings account each month for the same amount. This makes interest. Although interest rates are small, every penny counts right. Therefore it will take me a little less time to pay off the debt than is i was to pay it off by that amount each month (I would lose what I make in interest).

(I think some people do this as a way to make money- called stoozing?)

And all you people out there saying that no debt is acceptable. Do none of you have mortgages? Or student loans. Come off it. Student loans are debt and acceptable- I wouldn't have my income now if I hadn't studied. And mortgages- surely it is best to spend your money paying off a debt(mortgage) so at the end of 25 (as an example) years you actually own your home rather than paying the same amount to someone else and have nothing to show for it.

And businesses use debt all the time. If I was a property developer I might get a loan or a credit card to enable me to do up a property, then pay off the debt with the proceeds.

Whats the difference?

If I invest in my home, get it revalued, my mortgage payments go down (as LTV ratio is higher).

James_B.

yellow218 wrote: »

And all you people out there saying that no debt is acceptable. Do none of you have mortgages? Or student loans. Come off it.

And there it is. You start with a polite request for people's opinion, and then when they politely give them, decide to launch into this little speech, lambasting people who have a different opinion to you.

Well done, what you actually wanted was a chance to have a go at people, but you decided to wrap it up in an innocuous query.

If you'd care to read what I posted again, you'll see that I was very careful to qualify what sort of debts I viewed as acceptable (to me). Well done you for being so astute, and so certain that you are doing the right thing.

And shame on you for deciding that you'd use your self-satisfaction as a reason to have a go at people who posted to try to help you.

Skinto_7

James_B. wrote: »

And there it is. You start with a polite request for people's opinion, and then when they politely give them, decide to launch into this little speech, lambasting people who have a different opinion to you.

Well done, what you actually wanted was a chance to have a go at people, but you decided to wrap it up in an innocuous query.

If you'd care to read what I posted again, you'll see that I was very careful to qualify what sort of debts I viewed as acceptable (to me). Well done you for being so astute, and so certain that you are doing the right thing.

And shame on you for deciding that you'd use your self-satisfaction as a reason to have a go at people who posted to try to help you.

James,

I think you are being a bit harsh on the OP. She asked originally what % of income is accepatble for debt repayments, dont think there has been many answers to that, a few have responded with their veiw that any debt is unacceptable, quite rightly the OP is countering with (and in as nice a way as you can disagree with someone) their own view that some debts are acceptable (mortgages/student loan etc)

I really dont think the OP is spoiling for a fight or delibertly asking a question just to argue!!

Anyhow IMO debts such as mortgages/cars/home improvments are fine as long as the borrowing rates are the best you can get and the repayments do not stretch you each month.

As people have said you should have a fund in case you lose your monthly income, just to ensure you can continue to pay a few months worth payments.

rogerlbo34

A good rule-of-thumb to calculate a reasonable debt load is the 28/36 Rule. According to this rule, households should spend no more than 28% of their gross income on housing expenses (including mortgage payments, home insurance, property taxes, and condo fees), and a maximum of 36% on total debt service (i.e. housing expenses + other debt such as car loans and credit cards).

[Deleted User]

rogerlbo34 wrote: »

A good rule-of-thumb to calculate a reasonable debt load is the 28/36 Rule. According to this rule, households should spend no more than 28% of their gross income on housing expenses (including mortgage payments, home insurance, property taxes, and condo fees), and a maximum of 36% on total debt service (i.e. housing expenses + other debt such as car loans and credit cards).

Good advice there from a US poster promoting an Australian website in their contact details.

Good work, sport. Chuck another tin of spam on the barbie, would ya?