How much debt is reasonable

James_B.

Skinto_7 wrote: »

James,

I think you are being a bit harsh on the OP. She asked originally what % of income is accepatble for debt repayments.

No, she really didn't.

longtermplanner

when does debt become too much. What are the warning signs.

I would say that the warning sign is when your net debt (total unsecured debts minus any accessible cash savings) is trending upwards.

I would be very wary of assuming that your spending on the house is an "investment". I think it's too easu to assum that and that it's safer not to.

Thrugelmir

yellow218 wrote: »

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

And if property prices go down? Or if the money you are investing doesn't add any value when you come to sell the property.

My property is a home not an investment. I've spent a fortune on my garden. Probably the nicest room in my whole house. Most of all it gives me enjoyment and satisfaction. After all it may be my turn tomorrow.

[Deleted User]

In my world, no debt other than the mortgage.


The world is a much nicer place to be when you save up for what you really need.


This is my own opinion... I think that the spend now pay later attitude diminishes the value of money...


Just the way I was brought up I guess.


Cheers

freeisgood

As you asked, no mortgage or student loan or any other debt. I hope it stays that way.

quidsy

I thought as long as it was affordable it was ok, until I was out of work for 4 months & my savings quickly dried up. I had earned too much the previous year to qualify for any decent amount of benefits & I was forced to start making min payments on those debts. My savings would have stretched much further without them & I would have not had the added stress of them. And it was added stress.

I got a job & have been pumping all spare cash into paying down, I'm down from 30k to just under 10 in 2.5 years & aim to be totally & completely debt free in a year (Fingers crossed) It was a harsh but valuable lesson to learn. I had a 4 month safety net of savings but it means nothing if there is nothing coming in once it is gone.

Skinto_7

Skinto_7 wrote: »

James,

I think you are being a bit harsh on the OP. She asked originally what % of income is accepatble for debt repayments,
.

James_B. wrote: »

No, she really didn't.

How did she not? see below

yellow218 wrote: »

Hi



However what proportion of say house hold income/gross salary is considered reasonable as debt?



Thanks for your help

yellow218

why don't i settle this little disagreement.

Skinto- thank you for backing me up. you're obviously on my wave length.
James- I wasn't out for an argument, but perhaps I used odd wording. Maybe 'acceptable' wasn't quite what I meant. I was after some guidance on what people deem as reasonable. Yes, in a perfect world we would all have cash available to us and never get into any debt, but in reality, sometimes it is worth having debt which pays off in the long run (Ie mortgage and student loans).

Rogers answer was something along the lines I was looking for. Its nice to be able to put a figure to it. Using rogers formula hubby and I come out as 21/33 for this year. (if income stays the same- it'll be better next year!)

Hubby and I were first time buyers 2 years ago and in our mid/late 20s. Therefore this is likely to be the time of my life when this ratio looks highest, as I have less equity in my property than someone later in life.

I asked the question as hubby and I made the decision to buy the worst house in the best area.....ie it has potential. We wanted a project. But it did mean getting additional funds. Loans were available to us(as was a bigger mortgage), but 0% credit cards were cheaper (obviously) so long as we pay off before the 0% ends(which we aim to). We are pretty smart with money, always making sure we go for the best deals and make a note of deadlines.We acknowledge that any debt is a risk- but sometimes risks are worth taking (mortgage/student loan).

What I could as 'normal' DIY (painting and decorating) have been covered by our everyday budget. Cards have NOT been used to 'top up' our everyday living. However for bigger projects we have used the 0% cards to fund the materials. We have saved on labour by doing all the work ourselves (within building regs of course) friends and family have come in very handy to guide us and to do the bits we can't (checking/signing off electrics, gas work). We check around for the best price (but keeping quality in mind too) when it comes to the materials.

I am mindful that not everything we do in the house (or garden for that matter) is an investment. Although i have quite neutral taste, i wouldn't count painting and wallpapering as investment (although its now a massive improvement from when we first bought it as the decoration was v tattered when we bought it and the colour scheme was defiantly not anyones taste-i hope!)

However I do view the bigger projects as investments. Why? Because having read up on it these are the areas that are likely to 'sell' and 'add value' to your home. That is why we have chosen to (as some one put it) 'buy now pay later', it also means that the house is more usable for us and therefore much more of a home than a house.

We have added:

-off road parking
-double garage (in addition to the off road parking)
-a downstairs toilet/utility room
-double glazing
-central heating
-carpets (in the bedrooms- elsewhere we have kept with the exposed wood flooding to keep the period feel of the property)

We have improved on
- New kitchen (Totally refurb and layout!)
- re-wiring (inc new fuse board)
(and part of me asking the question about how much is too much is we would like to replace the main bathroom upstairs with a new suite- have priced materials at £1500 and wondering whether I should put this on 0% now with the aim to get remortgage sooner, or wait a couple of years until debts paid off and saved up!)

We bought at the end of the recession, in the south east of England.
I think whenever you are dealing with big sums of money there is always a risk, but in my mind that risk is well worth taking. Yes there is a risk the house prices would go down. But the likeliness is (and as it has turned out) that house prices would go up (compared to two years ago), especially if improvements are made to the property.

Personally I took the risk to buy the house I did as a house is an investment in the long run. I appreciate that I don't yet own all the property and won't have a fairly long time, but at least (some) of the money I pay on my mortgage each month comes back to me in the end. We rented for 6 years- that was £50k wasted!

Now in two years (according to Zoopla) my house price has increase by £77 k. Now I know Hoopla is not going to be 100% accurate. But that price is based on the house as we bought it two years ago- so doesn't include the improvements.

yellow218

Weird thing is I wouldn't even dream of getting a car loan. You actually drive away your money- the car depreciates as soon as its off the forecourt. I can never see myself buying a brand new car let alone pay interest on it!

[Deleted User]

yellow218 wrote: »

why don't i settle this little disagreement.

Skinto- thank you for backing me up. you're obviously on my wave length.
James- I wasn't out for an argument, but perhaps I used odd wording. Maybe 'acceptable' wasn't quite what I meant. I was after some guidance on what people deem as reasonable. Yes, in a perfect world we would all have cash available to us and never get into any debt, but in reality, sometimes it is worth having debt which pays off in the long run (Ie mortgage and student loans).

Rogers answer was something along the lines I was looking for. Its nice to be able to put a figure to it. Using rogers formula hubby and I come out as 21/33 for this year. (if income stays the same- it'll be better next year!)

Hubby and I were first time buyers 2 years ago and in our mid/late 20s. Therefore this is likely to be the time of my life when this ratio looks highest, as I have less equity in my property than someone later in life.

I asked the question as hubby and I made the decision to buy the worst house in the best area.....ie it has potential. We wanted a project. But it did mean getting additional funds. Loans were available to us(as was a bigger mortgage), but 0% credit cards were cheaper (obviously) so long as we pay off before the 0% ends(which we aim to). We are pretty smart with money, always making sure we go for the best deals and make a note of deadlines.We acknowledge that any debt is a risk- but sometimes risks are worth taking (mortgage/student loan).

What I could as 'normal' DIY (painting and decorating) have been covered by our everyday budget. Cards have NOT been used to 'top up' our everyday living. However for bigger projects we have used the 0% cards to fund the materials. We have saved on labour by doing all the work ourselves (within building regs of course) friends and family have come in very handy to guide us and to do the bits we can't (checking/signing off electrics, gas work). We check around for the best price (but keeping quality in mind too) when it comes to the materials.

I am mindful that not everything we do in the house (or garden for that matter) is an investment. Although i have quite neutral taste, i wouldn't count painting and wallpapering as investment (although its now a massive improvement from when we first bought it as the decoration was v tattered when we bought it and the colour scheme was defiantly not anyones taste-i hope!)

However I do view the bigger projects as investments. Why? Because having read up on it these are the areas that are likely to 'sell' and 'add value' to your home. That is why we have chosen to (as some one put it) 'buy now pay later', it also means that the house is more usable for us and therefore much more of a home than a house.

We have added:

-off road parking
-double garage (in addition to the off road parking)
-a downstairs toilet/utility room
-double glazing
-central heating
-carpets (in the bedrooms- elsewhere we have kept with the exposed wood flooding to keep the period feel of the property)

We have improved on
- New kitchen (Totally refurb and layout!)
- re-wiring (inc new fuse board)
(and part of me asking the question about how much is too much is we would like to replace the main bathroom upstairs with a new suite- have priced materials at £1500 and wondering whether I should put this on 0% now with the aim to get remortgage sooner, or wait a couple of years until debts paid off and saved up!)

We bought at the end of the recession, in the south east of England.
I think whenever you are dealing with big sums of money there is always a risk, but in my mind that risk is well worth taking. Yes there is a risk the house prices would go down. But the likeliness is (and as it has turned out) that house prices would go up (compared to two years ago), especially if improvements are made to the property.

Personally I took the risk to buy the house I did as a house is an investment in the long run. I appreciate that I don't yet own all the property and won't have a fairly long time, but at least (some) of the money I pay on my mortgage each month comes back to me in the end. We rented for 6 years- that was £50k wasted!

Now in two years (according to Zoopla) my house price has increase by £77 k. Now I know Hoopla is not going to be 100% accurate. But that price is based on the house as we bought it two years ago- so doesn't include the improvements.

House sounds wonderful with a good use of funds, all the best!