Shocked at levels of unsecured debt

[talks2much]

Hi,

Off work for a few days and pondering the recent budget and the state of the economy. I recently started working in a new job where I get to see mortgage applications and data relating to affordability assessments. I have been STAGGERED by the levels of unsecured debt that I have seen and this has made me think that it needs to be much better regulated.

About 50% of the applications that we receive are from people looking to remortgage to raise funds to pay off debts etc. Some of the amounts I have seen are just unbelievable. I have seen applications from couples on high incomes, asking to borrow more to pay off eye watering levels of unsecured debts - debt's higher than my first mortgage was! Many Many examples of people in 6 figures of unsecured debt. How did this happen and why were these people allowed to keep borrowing? Couples of 100K a year plus, owing the same on credit cards and loans. The system must be broken

A further worry if that the recent employer NI rises means that there will almost certainly be job losses/hours cut - what's going to happen when all of these people can't pay these debts as their income has gone/reduced? What happens then?

Surely we need to massively reduce the amount that people can borrow on non-mortgage debt?

Our household income isn't far off that and definitely feels high in the area we live in as house prices are cheap (mortgage around £600 a month). We both have credit cards with limits that are regularly increased so could easily end up with £30-40k of credit card debt.

I've recently retired from a corporate career. My salary last year was £180,000 (salary + bonus). People I worked with earned £250k plus. This is to give you an idea of the salary levels at play.

During this period, I kid you not, I had grown men on these salaries phone me in tears saying they couldn't meet their outgoings on a salary that large and did I think there was room for negotiation to get an increase. Honestly I was 😲

Just weeks before they'd been banging on about how wealthy they were. Now they were saying their wife would leave them if they found out how much debt they were in! I felt really sorry for the wives being kept in the dark (majority were SAHMs with multiple kids posting lavish lifestyles on social media without a care in the world). The guy who phoned me in tears went on holiday a few weeks later!

Honestly it was a real eye opener and yes, it does happen and is probably more common than most people think.

I can see how easily it could rack up.

We’re coming to the end of a Reno and I was amazed how much we could have done on credit if we wanted to. Kitchen, bathroom, windows, wardrobes, etc - you can finance most things. Add on a very fancy car on HP, a holiday, etc and you’d reach £100k+ in no time.

We financed our sofa and car (second hand with a bank loan) and put a few bits on a credit card that’s nearly paid off, the rest we did on a shoestring with our savings! I ran up an eye watering amount of debt on my own in my 20s and I’m extremely close to paying that off, I don’t want to get back into the habit of living day to day on the never never.

Yup, same here. My mantra (business and personal) has always been only to borrow to buy "assets", and never for things like clothes, holidays, etc., and certainly never racking up debt and overdrafts and then re-mortgaging equity release to pay off those debts.

I've no problem with mortgages as that's borrowing for an asset that's unlikely to reduce in value (barring rare market crashes). I'm "OK" with borrowing to buy things like cars, caravans, large furniture etc., as long as in a controlled manner, i.e. plenty of headroom for repayments to continue in case of exceptional circumstances such as unexpected reduction in overtime or bonuses etc.

Running up credit card debts and overdrafts on unnecessary "stuff" is just insane. Things like holidays, normal living expenses, experiences, socialising, etc need to be paid out of money you already have, i.e. savings or current wages.

As for cars, yes, why waste money on something shiny and new if you have to borrow to do so. Cars last an average of 13/14 years so no one "needs" a brand new car every 3 years. Absolutely brilliant for those who can genuinely afford to, who have plenty of cash, no debt, etc., No one begrudges them spending their money on whatever they want. But for those who are up to their eyeballs in debt, have irregular incomes, etc., they're insane for constantly going from one car lease/PCP/HP agreement to another every three years just because they fancy a change or something new.

We buy new cars and run them into the ground. It's far cheaper to do it that way over the life of the car, including bearing in mind servicing and repairs etc. Look after them, have them serviced properly and drive carefully and they'll almost last forever. One of ours is 16 years old, just passed it's MOT (again) without even a single advisory, never cost us more than just routine wear and tear items of tyres, brakes, spark plugs, one new battery, a few bulbs and regular oil changes. I keep a spreadsheet of the costs and it works out at under £100 per month bearing in mind the original purchase price, all repairs, MOT and servicing, breakdown cover etc. Comparable leasing costs for a similar make, model and mileage is over £250 per month. Over 16 years, that's an enormous amount of money saved - roughly £29,000 - just for not being bothered about a shiny new car every 3 years and that's for a pretty basic/cheap model.

We were on 121k but I lost my 46k job 2 weeks ago due to downsizing. I had a 3 month pay out so got £9300 after tax.

In total our emergency fund is 30k, £57k in total if I count my savings in my home country. We used to overpay the mortgage significantly but stopped to build our buffer..DH also has a 3 month pay out (on 76k) if he loses his job. Our mortgage is 1284 on a 2 bed flat and service charge of 160 quid per month , we don't have a car and dh bikes everywhere. We have also overpaid dh's student loan and I have no student loan, around 900 quid is left on the balance. Credit cards all paid off in full every month

No kids due to fertility issues and using nhs for fertility treatments (so no expense there and it takes ages).. I would say our expenses are around 3100 quid including bills every month and on dh's salary we can still afford budget breaks to czech republic (£300 for 2 of us inclusive of flights and hotels) and to shop at waitrose even though I am unemployed.

It feels surreal and almost wrong that I am still feeling relatively OK despite the sudden job loss. Maybe it's because we don't have children.

And here I am shitting my pants about clearing the 3-4k debt I built up when I was poor (all unpaid utilities) and mentally ill. Never wanted any debt so avoided credit and loans like the absolute plague and still ended up "in the shit" and tried to kill myself twice over it while bailifs threatened to strip my house bear when I had nothing in the first place.

I don't know how people are even allowed to get into hundreds of thousands of pounds of unsecured debt, and the fact they do it so willingly. It's actually crazy to me. It's crazier to me that they seem to sit there piling it up with no recourse, do bailifs making threats and storming into their homes.

Another system rigged to shit on the poor and make their lives miserable and reward the rich by throwing money at them.

15yrs ago, I had unsecured debt of £16k. I was self employed, work was intermittent, two DC and single. The debt came from everyday stuff like petrol, school uniforms, food and was built up over 10yrs.

I pulled my head out of the sand after being taken to court by my mortgage company. I managed to pay off their arrears so I didn't lose our home. I then came to an arrangement with my creditors and paid all of them within 5yrs.

Since then, I've sold my house and bought outright with the equity.

Yes, I use Klarna. Only one at a time, iyswim. I pay the first payment at point of sale (never more than £30), second payment of £30 comes out a month later and I always settle the last bit before it's due.

I also have a credit card. Atm I owe £124 and it scares me silly. I could pay it off right now, but the next statement is 16th November with payment due 4th December, so I'm keeping the money set aside where I might get 0.0024p interest on it!

It's all too easy to fall into debt. Things like cars and holidays, new furniture or clothes, they're all such fleeting things but cause ruin to your finances. Obviously, if you're struggling to cover your day to day living expenses, that's different and please seek support. I wish I had!

Yep my immediate thought there was “that is clearly a mid-level dealer”, not “oh dear, an unaffordable HP agreement” 🤣

(higher level dealers would not be stupid enough to claim FSM/benefits - they’d launder the money effectively enough that it would look like legit income)

If they get FSM they could be getting benefit / pip
Motobility
on Motobility jag bmw Audi top range cars are available
if you don’t mind putting down a few thousand as a deposit

my friend brother just got a new bmw i4 on Motobility
it’s a 45 -50 k car

s

Household debt to income has dropped to the lowest level for 20 years. However net wealth has become more concentrated in older people (mainly due to housing costs) so younger people have a greater likelihood of being in debt. CBP-7584.pdf

I worked for a lending department in a High Street Bank in the late 80's/early 90's. I was similarly astounded then that many Professional people on high salaries often had huge levels of unsecured personal borrowing.
So it's not a new thing.
It was a case of lenders offering vast amounts of credit back then. I guess there is slightly more caution now, but of course mortgages are much higher than they were in the 1990's.

Mortgage also means you are more stable if there is a job loss. I remortgaged just before my company downsized and I lost my job, 2 year fixed rate at 1282 per month. So I made sure to save up a year of basic expenses which took that into account. I have £30k in the uk (£27k overseas but I really don't want to touch that) so it is close to that amount.

If I was renting and I lost my job just as landlord raised the rent or wanted to sell up, I would be in a bit of a pickle and may have to leave London as they would only count DH's salary and 75k would probably only allow us to rent a studio.

This is the mantra of Robert Kiyosaki - who preaches pay yourself first and asset gaining is key to that.
It’s how real wealth grows and is true capitalism in action.
People will never get any real wealth when they don’t listen to these things and debts just grow….

I’m guessing cars and household improvements (maybe holidays). People don’t want to live within their means.

The banks are "vampires" they are ALWAYS encouraging debt! I just ignore them!

I got into a lot of debt when I was younger (store cards became a "new thing, as did credit cards and I was useless with money). I am now debt free and have been for many years, well apart from my mortgage. My clearscore rating is 1000 (out of 1000) and I get a monthly email. It has just arrived today (the email) and I have 56 offers I can review for loans and credit cards. 56!! Jesus, luckily I have no need, want, or desire to get into debt again but can you imagine how much damage I could do if I wanted to?

Just because it's not the way you organise your finances (or me!) why should nanny step in to wag the finger at the way other people organise theirs?

Who are you trying to protect? If it's the borrower then we're all adults and if some of us are willing to pay the going rate to borrow whatever money the banks are prepared to lend they should be able to make that choice.

If it's the lenders and the banking system that you're trying to protect they're pretty much able to manage their own credit risk.

Me too Op. Maybe it's my age, I'm a baby boomer, but I was brought up to avoid debt at all costs. If I couldn't pay for something, I saved up until I could. I even ran my small business that way. Other than a mortgage, I haven't been in any debt for over 30 years, and my mortgage is now paid off. I won't say it's been easy but I wouldn't be able to sleep nights if it was any other way.

It's the casual attitude to debt I find hard to accept.

If you have a cheap house/mortgage but earn well then you'll have the cash to buy a fancy car

Yeah because the banks make such sound lending decisions, until they don't. That is literally what caused the crash in 2008!

Banks lending irresponsibly to people who couldn't afford it and then selling on that debt in the form of CDOs literally caused the global economy to crash. Don't be fooled, literally no lessons have been learnt from 2008. The banks are still doing the same irresponsible lending patterns and selling on the debt. Tightening regulations has just changed the nature of how they do it.

Excessively high unsecured debt is a threat to national and global economic stability. Whether its market crashes that crush businesses and property prices, to government bail outs the tax payer has to fund. It has a huge impact.

So those millions of maxed out credit cards and high levels of debt that one day can no longer be serviced are economic ticking time bombs.

When I was 17 (20 years ago) I was offered a credit card with a £500 limit at a Freshers Fayre. I wasn’t 18, but the salesperson told me to put my date of application as my birthday to sign up. I did it because I wanted the free Polaroid camera they were offering as a sign up gift.

On my 18th birthday, I received the card in the post. Over the next few years, the card limit increased and I maxed that out, along with my student overdraft. I then got a graduate loan of £5000 to clear it all off. I couldn’t afford my loan repayments on top of my rent and bills, so acquired another credit card to keep going. It took me until the age of 25 to sort it all out. I think at worst, I had £6k of debt, struggling to pay it and seeing the interest mount up frightened me so much that I haven’t been in debt since.

DH and I were offered an eye-watering mortgage 10 years ago to buy our first house. It was so tempting to think about what we could buy if we borrowed what we were offered, but we bought a smaller house and now we have just finished paying the mortgage. Had we bought a house to the value we were offered, we’d have been repaying it for years and years to come. We’re lucky that although we’re not mega earners, we are comfortable and can afford the things that I want - I can see why, with everything being spread out on a plate, people are tempted into debt.

And like @Jaxhog said - it's the casual attitude to debt that grinds my gears. A lot of people who borrow and fund extravagant lifestyle habits think 'well, if it all goes tits up, someone will always be there to help me.'

We all need to take some responsibility - and I go back to my point that managing money well should be taught to young people. It can only be beneficial, surely?

Op you are right - its madness!
I've never had debt, apart from credit that I paid off in full every month and my mortgage - now paid off. Retired at 57 and live off our pensions.

That is literally what caused the crash in 2008!

True, but there was a regulatory response to that many years ago. It's not a free-for-all. Lenders are required to conduct thorough affordability checks before lending, including evaluating the borrower’s income, expenses, and overall financial situation. And the FCA (created as a result of the crash) has imposed stricter rules on high-risk lenders and practices like aggressive marketing and excessive fees.