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?

We've never managed to get into debt because we got into debt early on with council tax due to being really poor.
It ruined our credit and stopped us being able to get any loans, credit cards, couldn't even get a debt card at one point.
It was for £230 of council tax with £800 worth of court fees.

I joined mse circa 2010 and that sort of debt level was discussed regularly on the debt free wannabe boards. It surprises me not at all that the numbers are increasing in all manners of the word. Mumsnet is not a true measure of financial stability imo. You can of course always lie online but mn seems to be awash with affluence which I find hard to believe and if true then they have no true comprehension of most of the financial aibu’s!

What shocked me was when I worked in a supermarket and I'd say 99% of customers were paying for their food shops in a credit card.
I've never had a credit card in my life. If we wanted something we saved for it, if we couldn't save for it we couldn't have it or had to get it second hand.
The amount of people we know who are earning mediocre money but want to look good so get into huge debt with fancy cars, posh clothes and massive mortgages with fancy furniture etc. it's no wonder people are struggling.

But often it's not that
If your wages cover your bills and that's it, what if your boiler breaks, or your car, or something that can't wait to be replaced?
I'm "ok" as in I have debt but it's already defaulted and no interest and being paid off. My wages cover my bills. There's nothing spare for emergencies and if I had to put 5k on a credit card then it's affording the repayments and so it spirals

The amount of people we know who are earning mediocre money but want to look good so get into huge debt with fancy cars, posh clothes and massive mortgages with fancy furniture etc.

mortgages are usually based on income multiples & are stress tested so it's unlikely you would have a massive mortgage on a mediocre income.

A family member with children got themself into debt as the other parent wasn’t paying for childcare. On a post tax basis, after rent, utilities and childcare they were left with just under £600 per month which just isn’t enough for 3 children and an adult. They earn too much to qualify for any benefits but after taxes they don’t have enough as a single parent to make ends meet.

The debt was paid off for them and we all pitch in to help cover the costs so the children aren’t going without. Next step is to buy a home for them to rent so their landlord is family and not a third party.

I can easily see how £70-100k of debt happens. Family member was going into debt by about £500 per month. Then the car went. One child needed some additional help with 11+ preparation. All of a sudden £10k+ of debt is there. It’s shocking how easily it can happen. Covering the legal fees for divorce is another big ticket item.

Teach what in school though? That lent money is not free money and has to be paid back at some stage? Surely most people can grasp that.

teach them about APR & compound interest

What a ghoul you are.

@multicolouredbunting 3k debt is fine if you can afford the repayments.

If you can't afford the repayments or your circumstances have changed, there are many avenues open to you for advice.

As a lot have mentioned, inflation to wages etc. A lot of wages haven't gone up while everything else around them has. If you had £100 free to yourself every month after everything 2 or so years ago, chances are that £100 is now gone or you're in a negative.

Sadly a lot of industries don't have wage increases, and if they do they are barely noticed in your bank,overtime isn't available, and for some if it was and they kids then child care becomes an issue.

A lot of people are in that vortex, and it's only going to get worse as it goes on imo.

I think you have misunderstood. Many people just pay the credit card off in full each month

What shocked me was when I worked in a supermarket and I'd say 99% of customers were paying for their food shops in a credit card.

we pay for everything on credit cards including groceries. And then pay them off every month. We haven't carried a balance for years. It is quite helpful as at the end of the year you can see the breakdown of what you spent your money on - bill includes pie charts.

They were paying by card. It could have been a credit card or a debit card. Even if it was a credit card, some people use a credit card like a charge card and pay off most if not all the outstanding at the end of the month. Some get cash back or points for using their credit card. It is smart to pay by credit card because it gives you an interest free period until the end of the month.

I don't think you can draw any dire conclusions of the debt situation in the UK from the fact that 99% of customers of a supermarket pay for their food shops by card other than tapping a card is a popular and convenient method of making payment.

Extreme debt?

2k debt, when you are on benefits or minimum wage is an extreme debt

2 million, when you have high income, own property,etc etc is 'no big deal'.

I'm not in any debt (own house, no mortgage) but can't afford any debt as have minimal income and as I'm retired, no chance of increasing it

Everything is relative

Latest figures from the office of National Statistics show that 91% of household debt is property debt the remaining 9% is made of loans, hire purchase, credit cards etc. The latest statistics are from before the cost of living crisis

I was surprised to see the high 91% figure for property debt; I think I expected that to be more like 60% but I'm not perhaps because of the differences between the north South divide for property prices.There are many fascinating statistics on that website well worth looking at.

The only debt that I have is my mortgage and that is nearly paid off now, thankfully. I have credit cards that I use for my weekly shopping: I pay those off in full every month to make sure my credit rating stays excellent. Debt scares me.

That is on the curriculum.

@DiaNaranja - just curious you say you don't see cars & kitchen as 'debt', because payment goes out monthly and it's affordable. Is this a generational thing - something that us older generation brought up to save up, and then spend when we have enough saved simply don't understand?

We've never bought a car on finance - or a brand new car come to that, I just don't see the point of buying brand new due to depreciation - although I understand chip shortages have made secondhand cars as expensive as new recently - but not bought a car for perhaps 10 years, so we live cheaply! Likewise our kitchen is perhaps 30 years old, bathroom older than that. No point replacing something that's functional and works, although we do have kitchen plans to do it at some point as we would extend to make better use of the space, but we wouldn't borrow to do it, so it's left till we can afford it. Or we'll not bother and sell up when we downsize!
Any major purchases are planned and affordable.

I use a Credit Card for my monthly payments like Petrol, Shopping etc etc. But I pay it all off every month. It's easier to just use the card plus It's a 'reward' card which gives me points for every so much spent, which I then convert to Vouchers for cash. I save the points and then have extra spending money at Christmas

Pay for everything on credit card and pay off debt every month,sometimes more than the bill .I actually manage my money better and get cash back ..win win TBH !

that's good, been a while since I did GCSEs! Do they teach that if you're poorer debt will be more expensive as in less access to 0% interest free, higher APRs, energy prepayment cards are normally more expensive etc?

But these women probably don't have mortgages, and are probably on housing benefit (or what it's called now). So their situation isn't that different from an average working person with a mortgage. Isn't it the same ratio of debt (albeit with higher interest rates)?

I think you have misunderstood. Many people just pay the credit card off in full each month

Yes, paying with a credit card and clearing it monthly is how many financially savvy people operate their finances, although I am sure there are plenty that use credit cards and don’t pay them off. Plus card payments have become the norm after COVID, I am on holiday and struggling to use the (small amount of) currency that I brought, many places are card only.

For anyone doubting these levels of debt, look on the Money Saving Expert website. As others have said, there is a Debt Free Wannabe thread, but also a Debt Free Diaries section, where people use an ongoing diary to update their attempts to pay off their debts. Some of the diaries are an eye opener in terms of debt level.

As to knowing other people’s debts, I have no idea of my friends finances, it just isn’t something we talk about.

Yes I'm exactly the same. Pay everything on credit card but automatically pay it all off every month. That's normal and actually helps credit score and you get better purchase protection. Not everyone using a credit card is racking up any debt.

@blueshoes I don't think it's good financial practice to use an aqua , vanquis or ocean finance card to pay for your basic weekly shopping. These weren't wealthy customers, often they would use sure start vouchers in with their shopping too.

They taught it when I did my GCSEs about 25 years ago it has always been on the curriculum since then. That is in maths. In PSHE financial decision making is a topic exploring different outcomes, decision making, advertising impact,

Do parents teach kids at any point or is parenting now a school's job?

@Ariela No, I’m in my 40s and I’m like that. I’m fortunate to have enough but I’m careful. I don’t spend what I don’t have. I’m laughed at by the guys I work with for my choice of cars (yes I have 2) but both were purchased with cash. One of the guys is 25 and purchased a Porsche.

It’s liberating to have no debt and have a financial cushion. It opens your mind to the world because you can relax.