How much debt is reasonable

Antimoron

Why would you think new carpeting or rewiring increases the value of a house?

Value is subjective and only worth what anyone will pay for it. If all that improvement isn't to a buyers taste, then it doesn't add value to them.

Also, some things are so much expected as standard (e.g central heating, double glazing) that most people don't consider them "value add" or top ups.

By your logic, most improvement made to a house increases value which is just not true. I'd argue that value is dictated by many external factors more than a new toilet or space to park more cars.

Say a person borrows 10k to improve a house, the house doesn't necessarily sell for 10k more than it would have.

Just a thought to consider if your borrowing is driven by home improvement - especially if it's your home rather than a property bought for the purpose of flipping I.e. Property developer

[Deleted User]

Antimoron wrote: »

Why would you think new carpeting or rewiring increases the value of a house?

Value is subjective and only worth what anyone will pay for it. If all that improvement isn't to a buyers taste, then it doesn't add value to them.

Also, some things are so much expected as standard (e.g central heating, double glazing) that most people don't consider them "value add" or top ups.

By your logic, most improvement made to a house increases value which is just not true. I'd argue that value is dictated by many external factors more than a new toilet or space to park more cars.

Say a person borrows 10k to improve a house, the house doesn't necessarily sell for 10k more than it would have.

Just a thought to consider if your borrowing is driven by home improvement - especially if it's your home rather than a property bought for the purpose of flipping I.e. Property developer

My take on it...


Yes surveyors only value bricks & mortar not personal taste and CH boilers etc as these items are expected to be there already but...


Many of the improvements listed do add value and will certainly make the property much more attractive to buyers as well enjoyment while you are there.


Cheers

ricky_v

Only good debt apart from mortgage (and possibly a loan for cheap 2nd hand reliable car) is paying insurance/line rental/rail season tickets annually on a 0% card, clearing the balance before the offer ends, as money will be saved.

Unless there's no toilet in the house, or a door is missing, any money into decorating a house should be saved IMO

PeacefulWaters

jeepjunkie wrote: »

Many of the improvements listed do add value

But the addition to value is less than the outlay.

The "investment" makes a negative return.

racing_blue

yellow218 wrote: »

Hi

I've posted in other areas on the site (and others) amount my 0%credit card.

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

I know that hubby and I have 'excellent'credit scores with both above 980, and always getting large ish limits on credit offers.

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

Personally I feel I have the debt under control, able to meet payments and that it is all 'good debt' (ie investing on our home). But i worry what friends and family would think if they knew how much debt we had. Would they think it is reasonable spend or would they worry about us.

Thanks for your help

In my opinion for a debt to be reasonable (or logical), there needs to be:

1. a purpose for incurring the debt
2. a plan for servicing the debt
3. an exit strategy

if you can test these points and especially stress-test point 2, then reason has been applied. So it is reasonable- which is a neutral term- it might still be a good or bad move financially.

MEM62

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).

A nice theory but totally unrealistic for many people in todays housing market.

catshark88

I don't like to have any debt.

There have been 2 instances when it has seemed sensible to break this rule, my career development loan (used to do a postgrad course that led directly to my first job) and a mortgage. These were paid off as fast as I could.

I don't buy things I don't have the cash for.

Borrowing for DIY materials may be the correct choice, if you are def going to sell, are in a rising market, and if your potential buyer likes your specific changes, but I'd still rather earn it and then spend it.

For every brilliant developer/ debt leverage expert we see on here, we see a hundred who took out as much as they could pay the minimum on whilst all went well, and who were clobbered when life got in the way via illness, unemployment, pregnancy etc.

moohound

Having been nearly £40000 in the red, I have learned the hard way that borrowing to consume is usually a mistake. The only really sensible borrowing is for an education, a home, or a carefully considered investment, like a business or a buy to let.

Borrowing at 0% to improve your primary residence seems reasonable so long as it can be paid without incurring interest.

Gaz83

Skinto_7 wrote: »

How did she not? see below

It's there in black and white. She asked what proportion of income is considered reasonable as debt.

This is not the same as asking what percentage of income is acceptable for debt repayments.

dealer_wins

Excluding a mortgage, no debt is acceptable.

One should save up for everything else.