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?

They'll put up rates later and make a mint.

Already did that.

Motability would pay £75 per week. How is somebody on FSM paying the other £1000 per month that a new leased Range Rover would cost?

This is really interesting but doesn't surprise me at all. I think it's an epidemic.

Wants have become needs for many and people get themselves into terrible debt cycles.

Have you read or listed to Dave Ramsey? I listen to his podcasts and love him! It's all about this and not falling foul of it yourself and strategies to get out of it if you have gotten into this.

But it's clear so many do with consumer debt - cars being a huge one. People see them as a necessity and get in the cycle.

Very interesting. I always inform young people about how not to fall into this but it's hard with all the pressure around saying the opposite.

I think you're confusing financial literacy with lucking out on low interest rates for a long period of time.

My father quoted this. I grew up in a household like this.

I would love an interest free mortgage! Not sure what would be in it for the bank though.

id be happy with one of those ultra low ones but those days are gone.

Two parents on full PIP = £1600
Two kids on DLA = £1600
2 x carer's allowance = £710
Total = £3,910 tax free on top of any benefits.

That's obviously an extreme example, but it would easily be enough to finance a lease deal on a Range Rover or Jaguar.

PIP and DLA wouldn't impact any other benefits such as free school meals.

she puts big purchases on credit cards while amassing interest on savings

Amassing seems like an exaggeration here! Aren't we talking peanuts really? I'm the same as your mum in that I'd rather pay for stuff with what I've got. If instead I put it on plastic and I managed to accrue £10k of zero percent credit-card debt then with the money sitting on deposit I'd "amass" enough interest to buy one fancy coffee once a week. I'd rather not have the hassle of diarising expiry dates, applying for cards and complicating my budgeting!

Edited to add: plus cake, my mental arithmetic is not what I like to think!

It is very possible though… Parents divorced/separated: mum stays in family home and dad moves out and pays CMS. Mum doesn’t work and it doesn’t matter if the CMS is thousands a month - it doesn’t count as income and the children are entitled to Free School meals and mum benefits like UC etc. Mum could be driving car from when married or rich ex husband could have given her it.

Exactly - I don’t generally have much debt but I wouldn’t say it was financial illiteracy so much as having a good income and not often needing to buy stuff.

I tend to get work done by smaller tradesmen rather than going to Magnet or Howdens, so there’s not really an interest-free credit option there. And I really can’t be bothered moving stuff between credit cards, for the 10p of interest I’d be making.

I’d happily get a loan or extend my mortgage for major renovations, but if I have savings I might as well use them (even my ISAs aren’t making much interest at the moment). I’m not sitting there wishing I could afford to update my bathroom but not being willing to go into debt for it.

One thing I have noticed (and caveat to say this is a very small sample size and I am lucky to live in quite an affluent area) is that you don't see young people having an old second hand banger of a car in their early 20's. The gym I go to which has a lot of young people has a car park full of expensive cars - no one is getting out of a clapped out old car. Suppose though was leasing a thing 20 years ago? Or was it more for businesses?

Motability would pay £75 per week. How is somebody on FSM paying the other £1000 per month that a new leased Range Rover would cost?

There are no extra costs to having motability. The premium cars need a deposit paid upfront and then DWP pay your £303 monthly motability payment direct to the dealer. That's it.

I have a motability car, a brand new Ford Kuga. I paid £1500 upfront for it and they get my £303 pip payment. I do not pay for anything else except fuel. I am required to change it every 3yrs for a new car. (5 with an extension).

One thing I have noticed (and caveat to say this is a very small sample size and I am lucky to live in quite an affluent area) is that you don't see young people having an old second hand banger of a car in their early 20's

Agree - I live in a definitely-not-affluent area and it's the same thing. I wonder if it's a case of younger people being more image-conscious in relation to cars than was the case 20 years ago, combined with the easier availability of credit now.

In the late 90s and early 00s everyone in their teens and 20s that I knew drove crap cars that were old, underpowered and cost a few hundred quid - never thousands. They wouldn't last that long but there seemed to be more of a market for bangers then.
If you wanted a "new" car usually you'd know a friend of a friend who was selling one cheap. It certainly wasn't something you'd be getting into debt for.
We also got quite good at (very) basic car maintenance- eg being able to hear what a hole in an exhaust sounded like, or being able to feel when a clutch was going, because these things were more common.
You really don't see that sort of array of old bangers on the roads any more (probably not a bad thing in terms of safety, emissions and so on, but the alternative is undoubtedly more expensive)

On 100k I could easily afford a holiday and a new car! Crazy

Despite being on a mid-six figure salary, I have struggled to get a decent limit on a credit card. When we were our renovating house and I wanted to put white goods on credit card, I struggled to get it increased. Currently it’s £5400 and had to beg for that!

Presumably because I pay it off in full when I use it, I’m of no interest to banks. It is quite frustrating sometimes. I use my credit card occasionally to pay for holidays, maybe 2k, again for protection, so I have spending history on it. I’ve no debt of any kind.

Is making minimum payments the only way to get higher limits offered so the bank makes money from me? Maybe it’s my credit card company (Barclays reward card). It would be nice to put some bigger purchases in it occasionally, again in case of any issues.

Because your 3 bed semi isn’t good enough so you need a 5 bed detached and then once your there your Ford Kuga doesn’t look right on the drive so you need a Land Rover etc etc on and on forever

Ky Barclays cc limit is £11700 I've never spent more than £6k years ago on a holiday, but we bank with Barclays, always have done. Perhaps that's why

My credit card limits are ludicrous. Probably £55k over four cards. No idea how they got there, I use one, probably spend £1k a month on average and pay it off on full.

One thing I have noticed (and caveat to say this is a very small sample size and I am lucky to live in quite an affluent area) is that you don't see young people having an old second hand banger of a car in their early 20's

2nd hand cars aren’t cheap & often mean things like ULEZ. I had a fiat 500 on finance, it was the same price as my monthly travel card & parking permit free years ago.

Is that a week? Because they couldn’t afford a new range rover on that per month. As a poster above said, not sure what your ad is but I live next to a Range Rover garage, and yes, you’re talking £1000 a month. I have personally recently been quoted £700-800 for much cheaper cars such as polestar 2 and tesla

That sounds a bit odd. Maybe sign up with Clearscore and make sure there aren't any mistakes on your credit file - e.g. old mobile phone contract that never got closed down properly.

My wife and I alternate AMEX cards to get the sign up bonuses. We recommend each other for extra points as well.

We use them for all our day-to-day spending and the bill is always paid in full each month. They keep upping the limit and I think it's currently £30k despite us never having gone over £3k in a month.

Same here. I also have 3 credit cards that stated with £7-10k limits and have all been reduced to £1600-3000 due to them not being used, which is how credit card companies manage such customers.

i am not convinced the posters saying they have £100k credit cards are being entirely honest about how they use debt. OR, they are describing what they think they can borrow. But what they’ll find in reality is that once they start taking out debt, other lenders are less willing to lend to them.

also some companies are just really strict- Barclays is one. It’s hard to get anything out of the personal loan wise

A lot of it is attitude to debt.

My parents of a different era had to save to afford what they could buy or spend on holidays. Typical Summers camping, albeit abroad, but save to buy high ticket items such as new sofa, kitchen etc.

I have the same attitude and only buy what I can actually purchase from income or savings. My sibling has a completely different approach and pays for holidays on credit cards, has loans for high ticket items and gets through a lot of cars. Has no savings either.

The madness is that my sibling's family income is considerably more than mine. My savings are not inconsiderable. My lifestyle is very decent. But I don't have the same disposable attitude to furniture, kitchens, cars, clothes etc.

I think people see what they view as perceived wealth, but it's an illusion as it's all built on debt. Of course there are some that for instance have purchased that Range Rover outright, but many others paying a ridiculous monthly lease premium to drive it.

My mantra has always been if you can afford to purchase it do so, if you can't then don't.

@Cakegoddesss It is your bank. I have a Tesco credit card with £14.5k as the limit. My salary is not even six figures and I never pay any interest since I pay it in full every month. We use it to pay for nearly everything and use the clubcard points to eat out.

But - tbf- as another poster said- there is nothing wrong with buying on debt if you want the thing and you can afford the interest and repayments. For example saving up for 3 years for a kitchen vs having it now and repaying over 3 years. You secure todays prices and get your kitchen sooner