Acceptable Debt...

MrsTinks

Ilona wrote: »

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.

I'm going to disagree with this - I had old bangers too and economically they have a lot to answer for in my initially ending up in debt. It was near impossible to budget for the work that they needed (I'll grant you I became VERY inventive in fixing them!).

If you buy a car after saving up then you are accepting the total loss in value from buying to selling/scrapping. For me the option isn't viable to have an old banger - I cannot have an unreliable car because of my job. I CHOOSE not to have a small car because of safety issues (this is a direct result of my work, I decided that I wanted a big car to keep my family safe in the event of an accident) - the best way of doing this is in my case PCP - it means I put the minimum in to the car, I have it a few years and then I change it. ANY negative equity in the car is written off when I voluntarily hand it back. If I bought the cars I've owned outright I would have lost thousands (one car we handed back we would have lost £8k over the period we owned it).

Sometimes the debt "makes sense" because it minimizes your risk and cost. Ironically.

EssexHebridean

We've "split the difference" on the car issue. My current car is a 9 year old Clio, we've owned it from brand new - and when it was bought, I took out a loan to cover some of the cost. That loan was then treated as "bad debt" and was paid off early, saving on interest. (And I then reclaimed the PPI I'd been made to take out on it, too - win/win) The current intention with the Clio is to keep it as long as we can - we know its history, and as a car to drive, I absolutely love it! After all this time (and 125k miles on the clock) it really owes us almost nothing now, either.

Mr EH's cars have always been elderly when we've bought them - at least by current standards. We paid £2300 for the first, and £2000 for the current one - those have given us somewhere around 7 years of reasonably heavy mileage motoring. We've always taken the view that after 18 months tops, they have paid for themselves in savings over his travel costs to work via public transport, and at the point where they start showing a lot of advisories for work required, we trade in for the next one. Both of those cars have been saved for and paid for in cash. I'm fairly savvy when it comes to buying second hand cars (he'd be the first to admit he doesn't have a clue on cars!) and am very capable of driving an extremely good bargain.

Both are regularly maintained and work is done when needed - so maximising their lifespan.

NorthernMonkey1

I'd say anything you can clear with a months wage, with the exception of a mortgage is OK.

I travel a lot for work, and use my CC all the time to pay for stuff, which is expensed back. Using any credit card and not paying it back, in full, every month is bad debt. (Stoozing is different, 0% on a CC for investing is a different kettle of fish)