People in extreme debt - is this really as common as I’m told?

[Lesterzap]

Chatting to my friend today who works id debt management. She was saying how busy it’s been since covid and COL crisis.

I mentioned how someone I know had ended up owing 20k. According to my friend 20k of debt is now a drop in the ocean and that there’s been a real increase in people in higher incomes owing 70-100k!!! Totally shocked by this. Aside from my mortgage I’ve never owed more that 5k (car loan)

surely that level of can’t be common?

I'm assuming none of the 50k plus people had mortgages too or if they did they had a good income!

A mortgage broker told me that the calculation for how much you can borrow is reduced due to unsecured debt, so that you can't borrow as much if you had none. He told me 3 times whatever the unsecured debt was.

This was years ago but I assume unsecured debt must affect your mortgage borrowing significantly

I think that level of debt is only shocking if it's not serviceable.

Serviceable debt is how a lot of people live, mortgage is a debt, a lot of mobile phone contracts that include the handset are a debt, car loans are a debt.

Most we had was 18k unsecured. Got a repayment plan thingy and paid off every last damn penny! Horrible times

I was just about to say I don't have any debt, forgetting one of the cars is on finance and the new kitchen is also on interest free credit for the next five years, which both probably total in excess of 40k! 🤣 so yes, I guess technically I am "in debt" I guess, I don't really see it like that as such, as the monthly payment happens automatically, I don't notice it coming out, and I'm pretty confident we won't struggle to pay them back at any point. The car can also be given back at any point and the agreement ceases, so that could just go if circumstances meant it had to. No credit cards or overdrafts though, as that would cause me huge stress and sleepless nights... I'm not sure why, as I guess debt is debt, wherever it comes from, and whatever it's funding. I can completely see how people can be 100k in debt quite easily, as like I said, I didn't even think about the things I'd finances as "debt" until reading this, if someone had a couple of top of the range brand new cars in finance, that could be 100k right there. So long as they're confident they can make the repayments, it probably doesn't feel like being in debt does, compared to someone with a few grand on a credit card, with the repayments barely covering the interest, and feeling like there's no way out of it.

There must be people going hungry so they can drive an Audi. It’s weird. Lot of concern about car finance risk to the nation's finances https://www.thisismoney.co.uk/money/cars/article-11361803/Car-finance-concerns-cost-living-crisis-bites.html

Debt ratio, it's around 35%. I've recently found I'm OK for a mortgage despite having what some people might see as 'shocking' amounts of debt because it's less than the debt to income ratio.

My divorce / family court cost 40k. It went on for five years, and many months the bills were higher than my entire salary.
Then a "friend" maxed out all my credit cards at over 10k and laughed.
So as a single parent I had a lot of debt ... and will be debt free in a year!!

Student loans also!

I mean, does everyone on this thread think their mortgage isn't a debt? * *

No but mortgage is secured, unsecured is not. Unsecured credit is basically discretionary spending and lots of people struggle with controlling that it seems

With graduates starting life £50k in debt I can imagine the fear of large debt is quite diminished from what it used to be.

I was from the days of a student grant, when I kept myself debt free with holiday jobs and didn’t have to pay tuition. Debt terrified me.

But now it’s an inevitable part of becoming an adult. So it’s normal, not frightening. Which IS frightening.

We need to change the language from student loan to graduate tax really, to keep the two things distinct.

Secured debt is distinctly different from unsecured, for two reasons: it's typically at a lower rate of interest as much less risky, and if you start struggling to keep up the payments, you can generally pay it off in full by selling the asset it's secured against.

One of my best friends had run up about £30k in debt by the time we were about 27. I suspect it’s more than that now but she doesnt open up about it.

Exactly.

There's always this snobbery about people who don't own property, who rent their home and maybe get into debt for a big holiday, or Christmas.
Meantime, thousands of people here are in hundreds of thousands of pounds worth of debt to the bank, yet think their lifestyle is something to aspire to because they pay the bank instead of a landlord.

At the end of the day, if you lose your income, that mortgage becomes an unmanageable debt.

I worked for a credit card company 25 years ago and regularly saw letters from pensioners etc who'd managed to max out five credit cards and had no way of paying it back. So unethical that the companies even allowed them to have the cards. So yes, I believe it.

I think the banks have some responsibility for this. I am constantly being offered loans almost every time I log into internet banking.

I think irresponsible lending is a big factor. The credit card companies just have to evidence on their file that the customer can pay their monthly payment on that specific card - ie the payment is less than their income less their expenses per the application. It doesn't factor in how irresponsible/unsustainable it is to devote every remaining penny to debt.

Would agree with a PP that many bury their head in the sand over 10-15k. Many also tried to be clever and refinanced cars/home improvements etc onto 0% credit cards and then had nowhere to go when the term ran out and they couldn't afford to clear it or get a new card. Or those who had been told you could wrack up loads of debt and get it written off by way of an IVA, without ever having been told the full consequences.

We also saw many sad stories of those living off credit cards when fleeing abusive relationships. Or those wracking up debt on behalf of others in cases of financial abuse.
Every story was very different and it was actually uncommon that borrower had merely been frivolous

Until recently I’ve hovered around £15-25k of debt most of life (21-39) I’m down to about 7k now. It is an awful, awful feeling to have that hanging over you, and it spirals. it’s so very easy to get sucked into a cycle of debt. The first credit card I got I was 18, no job, no regular income yet was signed into something I had no idea about to get a blow up sofa.

‘They pay the bank instead of a landlord’

Show me someone whose rent is less than the monthly interest would be if they owned the property with a mortgage? I pay £600 a month in interest and properties in my block are rented out at £1,700-1,800 pcm. It’s nearly always better to own, even with debt, as rents are extortionate in this country.

Yes it's common.Take a look at MSE DFW section. Often the higher earners are worst because they just think £50k is a drop in the ocean and the number of people who just consolidate debt then build up more credit card debt is unbelievable. Lower earners often stop before they get to that point either because they can't get more credit or because their bar for worrying about it is a lot lower than the high earners.

People take out car loans now for £30-£40k which doesn't help.

Exactly this.

I've always had some kind of debt since my student days - student loans, car hire purchase, credit cards, sofa interest free, kitchen interest free, loans to consolidate, mortgage...but it's always been very manageable, I'm a high earner and I work in finance so understand debt. You can definitely make debt work for you but there's far too many people out there who don't understand the products they're taking out. I work in retail banking products and I'm amazed every day at what consumers don't understand. Finance education should be a subject at school.

Spent most of my life in some level of debt. Recently separated for that reason, among many others. No personal control over STBX spending on what I classed as wants opposed to needs. Debt spiralled for various reasons, serious drop in income, inability of lenders to compromise despite prior discussion with them regarding impending reduction in income, STBX continued spending etc. My personal debt, despite being forced to use credit to put food on the table at time was slowly decreased, his remained constant or increased. Horrible spiral and still continuing despite separation.
Since separation all I want is to use any spare income to reduce my personal debt, but cannot in case this ends in court. His personal debt increase would counteract any reduction I make so trapped into minimum payment scenario atm. Very frustrating 😕

Totally believable- I have debt of £9k and my husband £15k. This was a result of Covid- my husband's (a contractor) employer refused to renew his contract because they weren't sure what Covid meant for their business. I had recently given birth and had another baby at nursery. We didn't qualify for furlough payments and had to live off credit cards until my husband found another job 9 months later- it was scary and we've not recovered financially since.

well if you include cars/home improvements the figure will be quite high

Yes, agreed. But the vibe I get on this thread is that some people view certain debt as bad (car finance) and some debt as fine (a kitchen on finance or student loan maybe).

Sevicable debt isn't anything to be frightened about. It's oerfevtly normal not to be able to afford a house all in one chunk, so you split the payments over a period agreeable to both you and the bank.

Lots of people couldn't afford a holiday/boiler replacement all in one chunk, so they split it over time with a credit card and perhaps pay some interest in order to have what they want or need at the time. I had a boiler replaced, it cost me X amount over X years and I paid X amount for the convenience of not having to find all of the money straight away. The debt was serviced on time and in full and my credit score has been very glad of it.

Do I think its right that credit scores should mostly rely on debt repayment to improve? Nope. But that's how things are.