How much non mortgage debt are you comfortable with?

[Raymond Reddington]

Chatting to a friend and colleague and he revealed he has £700 worth of debt payments leaving his account every month - built up from wedding, buying cars (old ones!) and general expenses. I think it's to the tune of over £30k.

This guy is on around 60k but also has large mortgage, 2 kids, 2 cars, small second income from wife. None of my business really but...

It got me thinking that I've been holding off on a new car trying to save as much as I can before going mad with finance or HP/loans. Perhaps I am too sensible. I know this is all relative and has various factors to consider.

Ill ask anyway though, generally speaking, how much non mortgage debt are you comfortable with, if any, in an amount either in total, monthly, or as a percentage of income?

[RoadToad84]

I try my very hardest not to carry any, unless it's 0% and I can benefit from the lump sum remaining in my account earning interest.

[Pablo Escobar]

[quote=RoadToad84]I try my very hardest not to carry any, unless it's 0% and I can benefit from the lump sum remaining in my account earning

Predictable PH reply.

Edited by Pablo Escobar on Friday 14th June 17:13

[kiethton]

What is prudent is very much dependent on commitments/dependents no?

My current non-mortgage debt is a little into 6 figures, but is still manageable at <35% last years' gross income. Minimum payments are ~15% take-home. Mortgage payments are ~30% of monthly base take-home (IO) but mortgage balance <2x last years total gross.

But balanced against this liability I have investments which broadly match/exceed the non-mortgage debt, can't necessarily access them quickly mind...

[grumbledoak]

I would prefer none. Don't mind a car loan if I think I will keep the car longer than the loan period.

[bitchstewie]

I think the answer will depend very much on peoples views of debt.

Debt isn't automatically bad but I don't like having any other than "normal" expenditure that goes on a card but gets paid in full every month.

I'd perhaps come at it from a different point of view which is if you lost your job tomorrow how long could you pay the bills?

[AllyM]

If Stoozing is excluded, not a single penny.

[fat80b]

It totally depends on what it's for and how you plan to service it. Some examples:

Mortgage debt = good
You get to borrow at somewhere near the base rate for 30 years in order to have somewhere to live. In general the value of the asset increases, and regardless of price rises, inflation pretty much takes care of the debt over time. If I had my way, I'd probably borrow more this way if I could. (probably why the OP has chosen to exclude this one).

Car debt = bad
In general, a car is a depreciating asset that ends up owning you if you are not careful. no-one should use a debt to "own" a 30K car (imho). It's a bad idea.

Car debt = good
However, if you need a car / van to do your job / start a business etc, then car debt is actually an investment that returns you in income - In this example, borrowing to buy a van that allows you to work might be considered a good idea.

Wedding debt = bad
Many of us have been there, but it's just not necessary.

Debt to go to university = good
In general, qualifications make you more employable, and ultimately are a good return on investment - My degree 30 years ago was a bargain as it has given me a career that has paid it back 50 times over.

Credit cards = It depends
I've currently got an 0% interest offer on a CC that I took up (despite not needing the cash). I've then put the cash to work elsewhere. In this case, Mr Santander has loaned me 13K for zero cost and Mr S&P500 is doing me proud. In this example debt = good, wish I could have had more .....

[liner33]

I'm not comfortable with any debt, I got into a mess in my 20's and since then I've shied away from it

I do however have a car loan at 2.9% and a small mortgage but have the savings to clear both if required , I have a credit card that I always clear within a few days of spending on it long before the due date

So truth is I would be much more comfortable with zero debt

[MB140]

I don’t have any debt apart from mortgage. I want it to stay like that. If I don’t have the money to buy something then I don’t have it. Unless it’s interest free debt, Tudor watch bought on 0% over 5 years but I have the cash to cover the debt earning about 4% and have 3 payments left on it.

[Shnozz]

liner33 said:

I'm not comfortable with any debt, I got into a mess in my 20's and since then I've shied away from it

I do however have a car loan at 2.9% and a small mortgage but have the savings to clear both if required , I have a credit card that I always clear within a few days of spending on it long before the due date

So truth is I would be much more comfortable with zero debt

I’ve only ever once financed a car and it cost me dearly when I was 19. I vowed never to do so again.

Horses for courses and no issue with those who have loans or finance for whatever they fancy, but I’m a bit old school and have had no finance other than a mortgage since that age and aim to remain that way.

[98elise]

Less than 1k.

Apart from mortgages I've only ever had one car loan about 30 years ago. I have a credit card but that gets paid off every month.

I'd rather save for something than take a loan.

[Jonathan27]

liner33 said:

I'm not comfortable with any debt, I got into a mess in my 20's and since then I've shied away from it

I do however have a car loan at 2.9% and a small mortgage but have the savings to clear both if required , I have a credit card that I always clear within a few days of spending on it long before the due date

So truth is I would be much more comfortable with zero debt

This is the same for me, made mistakes when young and steer clear now. I have a mortgage and that's it. The mortgage is worth about the same as one years gross earning, and I am fairly comfortable with that.
When I need a new car I buy one that I can afford to pay cash for. I know plenty of people who find it odd that I drive a cheap 10 year old car, when I could 'afford' something new and flash, but I wouldn't be happy with buying a car using money that I don't yet have. Current car is worth about 1% of my annual income!

[Muzzer79]

My mortgage is sensible against my earnings.

My car debt is minimised and relative also to my earnings.

That's the only debt I'm comfortable with. I won't have debt on credit cards, other loans, etc unless it's interest free.

[E63eeeeee...]

Funny enough I was randomly looking back at my old finance spreadsheet earlier. I peaked at owing about 10 months take-home, back when I had a reasonably well-paid and very secure job, shortly after buying a new car and partly financing our extension, but my only asset apart from some equity in the house was the car itself. Iirc I wasn't completely comfortable with it at that level, it was a good thing I didn't urgently need money at that time, but it did come down steadily after that.

Then I got a better paid but less secure job, and at first spent most of my additional income clearing my debts more or less completely, so I'm now debt free apart from a couple of 0% cards where the debt is balanced by an investment somewhere else with interest. I'm thinking about a smallish loan to buy a new car, to save cashing out any investments, but I certainly couldn't imagine voluntarily getting back to anything like that proportion of my income in debt again in future.

[halo34]

None

Since I flipped to a 10k loan earning x % is bringing cash in and loans work in reverse have basically kept minimum debt apart from Paypal to keep my credit score decent in case I need it for mortgage purposes etc.

I may have to buy a car in the next 12-18 months but am working extra to pay in cash.

Its attitude for many these days that debt is a part of life though, I just dont understand where the magic money tree is coming from that clears it for anyone.

[G-wiz]

Not an option for everyone, but as a first time buyer, 3 bed end-terrace, we bought cash.

Never entertained the thought of borrowing money and getting a mortgage.

[Evanivitch]

fat80b said:

Car debt = good
However, if you need a car / van to do your job / start a business etc, then car debt is actually an investment that returns you in income - In this example, borrowing to buy a van that allows you to work might be considered a good idea.

I think most people fall in the category of needing a car to get to work reliabily as a minimum. Families then need a car that's reliable (because being unable to access childcare is a very expensive problem to have) and suitably sized.

[colin79666]

None really. I’ve had a 0% loan on a mobile phone once so I could earn a bit of interest in a savings account instead plus a car loan when the manufacturer deposit contribution made it a better deal. I’m both cases I had the money and could have paid had it not been to my advantage to take the loan.

Other than the house I’d rather save and wait or go without than take out loans. I understand if someone puts a washing machine on a credit card because they are on a low income and can’t afford it right there and then but I honestly can’t understand how you can enjoy a holiday knowing when you get back you are going to carry on paying for it for months!

[Sarnie]

As a mortgage broker, I deal with clients finances on a daily basis.

The responses on this thread might be PH typical but they are not real world typical.

If I do a FTB mortgage for a couple, in 5 years time when we come back to remortgage them, it's extremely common for both to have a HP agreement each, usually a loan or CC balance for things they have spent on the property and if they have kids, childcare costs.

It's easy for people to say "If I can't afford it, I'll save and buy it cash" but thats not common, people need cars and they need to pay for things that their income can't provide, hence they end up carrying debt.

What other options do people have? It's easy to say people should drive a £500 car and save..........in reality thats difficult to do when you need the car to be reliable etc.....