I know people with terrifying mortgages at our age, a £40k car on PCP on the drive and loaded credit cards….
IMHO there’s no right or wrong answer to this.
Yeah, too much debt can be stressful, but, and this is sometimes a shock to some people – one day we will all be dead, you can’t always be thinking about the future because one day you won’t have one.
I don’t personally have a huge amount of debt, more than I’d like but by nature I’d prefer to have none, but I don’t judge people who do – often it’s the case that they’re in a better position than you might think long-term.
Consider the people you know:
Large mortgage, but large asset – having a large mortgage does limit the amount of disposable cash you have month to month, but legislation as it is these days means than they would have needed at least 5% equity to buy it, there’s a possibility they could have self-certed into a too big mortgage about 10 years ago or bought it with a 110% mortgage, but those issues will have resolved themselves by now.
Big PCP payments, I have my own personal issues with the PCP product, but ultimately it’s another leveraged asset, the finance company had to ‘prove’ to a decent level of certainty that they could afford it when they bought it.
Big Credit Card bill, hardest to look past of course – but do you really know how much they owe? I don’t know anyone who hands over their statements to their friends every month – but again, the credit card company cannot lend more than they can comfortably afford AND can afford to repay, not just ‘service’ every month. They can’t fib and borrow £10k from Barclaycard and £10 from Capital One at the same time, because balances and repayment history is centralised and published to any and all potential lenders.
So, whilst it doesn’t seem prudent, you can live with a lot of debt and it’s reasonably safe too – finance has changed a lot over the years and especially since 2008 – these days a finance agreement is considered a 2 way agreement (it always was, but rarely worked as such in the past) The customer presents a set of fact – income, expenditure, past financial history, the seller presents a facility based on those facts – if anything meaningful changes than the seller is duty bound to change their agreement – so for example if you lose your job they should accept a lower payment until things improve, it will have a detrimental effect on your credit worthiness, but not as bad as you might think, if there’s a disaster, say someone is badly hurt and may never return to work again, then they may ask for assets to be returned but it’s not quick and it doesn’t need to be any more painful that it needs to be – if you’re honest and open with your bank it’s likely you’ll get 12 months before your house is repossessed, most people can sell up and settle long before the bailiffs come.
Consumer Debt really is a no-lose gamble these days as long as you don’t panic or bury your head if things go wrong, and if it does the courts are heavily weighted in favour of the consumer – if a bank lends more than they should, they’ll lose in court, if a bank refuses to be reasonably flexible in the event of a ‘meaningful life event’ they’ll lose in court, and if it all goes wrong and you end up in Bankruptcy court – the most you’ll lose is the things you bought with the borrowed money in the first place. The assets they’re allowed to take for bankruptcy is just luxury goods.
