Acceptable Debt...

Eadie

Don't get me wrong I know debt isn't good and debt levels are relitive to the individuals circumstances.. but what do people think is acceptable debt.

Like many on here I have debt, which is about 30% of my annual income... I wish it were lower but high rent and a significant number of defendants has meant I can't clear it as quick as I'd like to.

Is there an acceptable level ?

bearcat16

I consider mortgage an acceptable debt (as long as you can afford the payments) and also any stoozed debt. (Eg £5,000 on a 0% credit card but same balance in a high interest savings account)

Other than those, "acceptable" is quite subjective. I know people who have £30k debt on credit cards, with an income of £28k and are very relaxed about it.

I also know people who go into a panic if they build up more than £100 on their credit card and rush to pay it off even before the bill comes.

As long as you have a plan, (a cash flow plan) that includes a decent contingency and you make measurable progress month on month, you're on the right path.

foxgloves

Interesting question. It will be different for everyone. I regard our mortgage as 'acceptable debt', also a small personal loan which we took out this year to add to some savings to buy a much newer, more reliable car. I would also consider borrowing a sensible proportion of the cost of future, essential home repairs/improvements.
Things I consider to be 'unacceptable' debt is buying consumer goods om credit cards, overdrafts loans, etc. For me, this would be things like sofas, furniture, TVs & tech, soft furnishings, non essential clothing & footwear, kit for hobbies, etc. I don't see any of that as sufficiently essential to go into debt for. I would just save for those kind of items. It might mean I can't have them instantly, but I's rather that than be paying off a sofa for 5 years or never getting credit cards cleared.

tallyhoh

I agree its different for everyone but personally I find the only acceptable debt is a very manageable mortgage

dano17439

I think its all about what type of debt it is. For example I have car finance of approx. 21k. My car is worth 30k, so if I got into any financial trouble, I know I have equity in my car to pay off the debt, and buy a cheaper one if needed. However, if I had the same level of debt say on Credit cards, then this would worry me more, as I would have no assets to clear this debt if problems arose

MrsTinks

To quote someone... :money:

Debt isn't bad, Bad debt is bad.

EssexHebridean

Indeed, Martin used to (maybe still does) do a bit of blurb on this very subject when speaking live. He said if I recall correctly, that "Good debt" encompassed that for acquiring somewhere to live - ie Mortgage. For education (Student loan, graduate loan). and for essential transport - so a car purchase when a car is essential for travel to place of work, for example. Personally once other debt was cleared and a budget was set and working for us, we regarded our mortgage as "any other debt" and set top clearing that off ASAP too.

The "bad debt" examples he used I believe were that which is accrued to pay for "I want's" - holidays, clothing, consumer goods etc.

I'll venture ONE exception to this - and that is where, as a lot of folk do on here - someone who is otherwise debt free uses a 0% card to cover the cost of something that they have the money saved to purchase, thus allowing the money to sit in savings earning interest, while the debt is paid off slowly.

It also goes without saying that all the "good debt" is kept to an affordable minimum - so a mortgage for a home suitable for your needs without rivalling Buckingham Palace for Grandeur, a sensible car for your needs.

In answer to the OP, if it doesn't fall into the categories above, as "good debt", or under the 0%/money in savings banner, then in my world, it would not be acceptable to me,

Ilona

The only debt I find acceptable is a mortgage to buy a house. I pay for food and petrol with a credit card but I have money in the bank to clear it every month. It seems the norm now to borrow to buy a car, I have never done that. Started with a series of old bangers and worked my way up to something decent by saving up for it.

Going back 35 years, I once borrowed £3000 from an ex to pay for new windows and a door in my house because they were falling apart. He didn't charge me any interest and I paid it back weekly from my wages. I wouldn't do that now, I save up for everything I need.
Ilona

OneLife_OneShot

I have learnt the hard way over the past few years that the only acceptable debt is one you could clear in a month or two if needed be. Mortgages would be fine in my eyes as you need it to have a home.

As long as you aren't living way beyond your means I think you are fine. Everyone is different though!

lazer-zxr

After being in £52k debt, and still not out of the woods:
Acceptable debt =
-Easily manageable mortgage
-Stoozing (0% finance where you have the cash to clear it)

and thats it.

Even my outstanding debt, which is theoretically self servicing debt from buying Solar Panels for my home, is not acceptable any more.

If I want something, I'll save.

lazer-zxr

OneLife_OneShot wrote: »

As long as you aren't living way beyond your means I think you are fine. Everyone is different though!

The problem is .... poeple's perceptions of living beyond your means.
My perception might be if I have saved and can afford it, it's within my means.
Another person might say if they can raise credit to buy something, it is within their means, and the whole scale inbetween.