How Much Debt is ‘Too Much’? 🤔

How much debt is too much debt? This question comes up a lot, and the answer is it depends. So I have a few things for you to get you thinking about how much debt is too much debt. Now, the first thing we need to address is the difference between good debt and and bad debt. Let me know in the comments if you know the difference between good debt and bad debt, because most people do not know the difference. They're certainly not acting like they know the difference. They're acting rich when they can't afford it, and they're going broke. So I would say that most debt on liabilities, most debt on consumables is too much debt. Most, but not all. If you build debt on depreciating liabilities and consumer goods, and that debt costs you interest, that debt is probably too much debt. However, on a credit card, for example, you can have your 30-odd days interest-free on credit card debt. That can actually be a good thing. It can give you 30 days of liquidity. You can earn rewards and points on your credit card. Credit cards are often better insured against theft, scams, um, oh, what's that, etc. Um, so Not all consumer or credit card debt is bad. However, once you go over the 30 days interest-free, then your interest rate's going to be pretty high and it's going to be penal. And I would say any interest really, um, in double digits is too much. Generally, short-term debt will cost you the most. It could cost you 20, 25, 30% plus a year. A bridging loan, uh, on something like real estate will cost you 2 or 3% a month. I believe that's way too much. Personally, I think if you're borrowing money for property privately, you shouldn't pay any more than a percent a month. I definitely don't think you should be in the 20s and 30s percent on credit card debt. I think that can get you into danger pretty quickly, and it can compound. Now, some people, what they do is they rotate the credit cards, and therefore they leverage the interest-free period. Be careful about that because there are, um, handover and setup fees, which when you add them into the interest, they actually not free. So always be careful of that. Cheers for tuning into my videos, by the way. I hope you find my content useful. Please do hit the share button. I'm on a mission to help as many people on this planet get better financial education and knowledge, and I haven't finished. So please hit the share button. So how much debt is too much debt depends on whether it's good debt or bad debt. Any bad debt is debt on depreciating liabilities and consumer goods. Anything more than your 30 days interest-free, I don't recommend, um, because the interest will build and build and build. Uh, and generally with loans, not all but many, especially repayment loans, is they'll load up the interest at the start and the repayment at the end. So for the first long periods of the loan, you're paying off nearly all interest and virtually no capital. Need another drink. Now, on good debt, hmm, I wouldn't say there's no such thing as too much debt on good debt, but on good debt, I would say 70% is probably the maximum leverage you want on good debt. So good debt is debt on assets that appreciate. Could, for example, be a mortgage on a property, and up to 70% leverage is usually fine. The banks are more than happy with 70% lending, 30% deposit. In fact, on 70, you can actually get 80% lending and 20% deposit, but on 70% lending, the rates are really good. On a long-term mortgage, you could get, I don't know, under 3%, certainly around the 3% a year in interest, which is really low. Um, in fact, if you have good debt right now, if you have mortgages and debt on assets that are appreciating, massive inflation is paying your debt down for you because inflation is in double digits. So if you've got a £100,000 mortgage and inflation is 10%, next year in real spending terms that's gone down by 10%, gone down by £10,000. So actually, having good debt is good. You know, Dave Ramsey says all debt is bad. No, it's not. Good debt leveraged against appreciating assets means you can own those assets that you wouldn't normally be able to own. You'll get the equity and the capital appreciation, you'll get the income, and inflation is paying your mortgages down. For you. Now, some people— so Ed said 1p in debt apart from a mortgage is too much. Ed, I don't necessarily agree with that. I think good debt is fine, bad debt is not. Um, and by the way, if you're in debt by 1p, that's not going to kill you. Um, and if you need to go over for a few days or a few weeks, it's not going to kill you. And remember, you can get your 30 days interest-free on consumer debt, like on your credit card. A mortgage isn't the only kind of good debt, by the way. You can get private finance, um, you know, you can get, um, investors, um, putting money and, and owning equity in, um, well, there's equity and debt in selling shares in a company. So there's actually— it's not quite as simple as people say, oh, Dave Ramsey says all debt is bad, debt is dumb. How have no debt. No, that's dumb, um, because actually you won't be able to build assets. You won't, you won't be able to get capital, capital appreciation and income. Now, when it comes to debt on assets, the clue is usually in what the banks are happy to give you. So the banks are happy to give you at the moment 70% mortgage, 30% deposit. They're actually happy to sometimes give you 75 or 80% mortgage, but what you'll find is the interest rates get a bit more expensive. And when it comes to good debt leveraged on assets, you want to make sure there's a nice buffer of profit. You don't want your mortgage to be nearly as high as the rent because then you've got the maintenance, the management, the insurance, etc., and you can end up having to pay in, and that good debt can turn into bad debt. Edda said, my wife's an accountant, she likes debt. Depends on the kind of debt. This is why I'm talking about this. Now, if you want to get a commercial loan, usually it's a bit less leverage. It might be 65% or 60%. Now, what you have to be careful with, with commercial mortgages, is if the value goes down and your loan-to-value goes up, they can call in the difference or more, the whole loan. So you have to be careful with commercial mortgages and not breaking restrictive covenants on loan to value, which is why on commercial loans I like to be at 60% loan to value, maybe 65% maximum. On residential, probably 75%. On buy-to-let, 70%, 65%. Because by the way, sometimes it's better to get a bit less lending, a bit less gearing, like 5% less, but get the better rate, get the lower interest rate. Sometimes that's better. David has said debt is tax-free. Well, in some ways, yes, David. It depends on the definition of tax, because if you keep rolling debt up and up and up and up and up, then at some point you could have to sell and you could have a retrospective capital gains tax bill. You also have to do your inheritance tax planning in advance. But what David's basically saying is— and I'll have another sip of water before I say this— well, make sure you hit the share button. It's very, very hot today. I'm very thirsty. Instead of selling, say for example, a property realizing a capital gain, paying quite a lot of capital gains tax, being left with the rest. If you refinance that onto a higher loan, let's say you were 50% loan, 50% equity, and then the value went up, um, so you're 30% loan and 70% equity, and you refinance it and take another 30% of the value of that property out, That debt you don't pay tax on because it's loan, it's not deemed as earnings. So I actually like to refinance properties to pull money out rather than sell them. No capital gains tax, I still own them, I can still get the double growth every 10 years, I can still get the income, but the refinance is tax-free. Now the one thing you've got to remember is when you put a higher mortgage on an existing asset those monthly repayments are going to go up, and you've got to make sure you can afford it on the income. But the banks will have their checks and balances, which they call affordability, to make sure that that's the case anyway. So I think while interest rates are low like they are, anything more than 3 or 4% interest, um, in terms of your yearly interest repayment on a long-term loan like a mortgage I think it's too much. I really do. Um, and a lot of people, what they, um, try and do, like for example, if they need a bit of money to get into property or top up a deposit— in fact, my son's school teacher was asking me about getting a bridging loan. Bridging loan cannot be 3 or 4% a year. It can be 3% a month, and I think that's far too expensive. I don't think you can make a, a deal work when you're paying back a loan of 3 or 4% a month. It's got to be really short term. So I'd say that's probably too much. Private finance, I personally wouldn't pay any more than 1% a month on good debt. So quick summary, let me know what you think in the comments, by the way. Let me know if you have any questions because I do engage in the chat afterwards. So the question is, how much debt is too much debt? Well, it depends on whether it's good debt or bad debt. When it comes to bad debt, which is debt on depreciating liabilities and consumer goods, generally speaking, I would say nearly all debt is bad. However, you can get your 30 days interest-free on your credit card. I'm not talking about juggling balances, just what you get on a credit card. And you can build up rewards points and cash back and things, so it might be worth using that 30 days free. Also, when you use your credit card, you often get better insurance against theft and scams and returns and things like that than you do in a debit card. So not all bad debt is bad, but only really 30 days. Anything else above that, I think it is, is too much debt. And you definitely don't want to be building up debt on credit cards and expensive debt, you know, these sort of 20, 30 plus percent APR. It's way too much. It's unsustainable. Now, on good debt— another drink— it's a bit different. I'm much more— do you know, I haven't told many people this, but I have about $30 million worth of mortgages, so I'm in a lot of debt. But, um, that leverages up on a more than $50 million portfolio. By the way, I use dollars just because I have followers all over the world now, not because I'm trying to make the numbers look bigger. Now, on good debt, which is loans and mortgages leveraged against assets that produce income and capital growth, I would say 70% leverage is about right. You can get 75% on buy-to-let, and you will be able to get 80% and 85%, but you'll find that that monthly interest can get a bit too much where you don't make cash flow. You've got to be careful on that. Just because you can get the loan doesn't mean the loan is right. So I like 70% or 75% lending on buy-to-let mortgages. 75%, maybe 80%, you might want to get on your own residence on your home, and then on commercial maybe 60% or 65%. Now as your portfolio goes up in value and you gain equity, you can refinance and you can take that money tax-free and you can keep the asset. And that's smart. And you know what, a lot of, um, these billionaires who own these big companies, that's how they draw money. They draw it through debt, not through, you know, drawing billions in salaries or dividends. So it's actually quite smart. Now Abdullah said perhaps 50/50 equity and debt. I'd probably say that's a little bit low. It's safe, but it's probably a little bit low. You could probably be at 60 or 65% and still be safe. Now why would you want to be a bit higher than 50/50? Because you want to reinvest into more assets that produce more income. Because if you build assets like property that produce income and then as they go up in value, you refinance them, you take out the equity, and you buy more assets that produce income. That will soon compound pretty heavily, so you'll have multiple properties, multiple assets, and multiple streams of recurring income. When it comes to yearly interest on long-term loans, at the moment you can get interest at 3% and 4%. When it comes to shorter-term loans, like a year or less, I don't want to pay any more than 1%, and I prefer private finance to bridging loans. Now, when it comes to your company and selling shares and raising capital, You can do that through equity or debt. So you can sell shares and give people shares in the company, or you can just use it as debt. I don't really like loading a load of debt up on my company. I don't have any debt on my company. So I hope you found this content useful. Let me know what you think in the comments. Let me know, um, what your questions are. Ed has said here that debt can cause stress. Absolutely right, Ed. That's why I pretty much agree with you. Anything over 30-day interest-free on bad debt Don't do it. It's a spiral. It gets addictive. The thing is, if you think about it, you only have to overspend a few hundred pounds a month, and over a few years that can compound to many thousands of pounds. And then with all the interest on the interest, that can be tens of thousands of pounds in debt that you can really, um, really— it can struggle to get back. Um, now Edda said here you can join rob.team to start and scale your business. Ed has just joined for the cost of a price of a coffee. Ed, you're predicting my next move. So why don't you join Ed, who says that debt can cause stress, and if you can't pay it back, you know, people do commit suicide over debt. People do have a lot of stress and anxiety over debt, which is why I've done this video. This is obviously my opinion experience. Make sure you get good financial advice. Speak to an accountant, speak to an expert in debt if you're in debt. But like Ed said, you can join Rob.team for just the cost of a large coffee, and you can learn to start and scale a business. You can get better financial education and knowledge. You can learn how to invest. You can build assets that produce recurring income. You can build multiple streams of income. So here's what you need to do. Open a new window, open a new page on the internet, type in now rob.team. Rob.team, type it in in a new window, do it right now. If you're in debt, stop spending on depreciating liabilities and start investing in assets, and rob.team is an asset. It's only the cost of a large coffee a month. You can cancel any time. Ed's in. Emmanuel has said, this is a very, um, useful topic. Make sure you invest in your education and knowledge, not just in hard assets. You are your best asset. Invest in yourself wisely. You pay yourself the best return. Gary Vice has said, hi Rob, is rob.team worth signing up for if you're starting out and investing and want to grow wealth? With not huge cash flow. I'd say that's, uh, one of the perfect types of people, Gary. Here's the reason why. Number 1, it only costs you a large coffee. It doesn't cost you thousands of pounds like many courses. Number 2, there's 5,000 other entrepreneurial-type members like you in all different levels. Number 3, you can cancel any time. And number 4, which is a big one, Gary, I've just launched the 9-hour, 10-module How to Invest series. Which is live on rob.team. So go and join now by opening a new page, type in rob.team, go join for the cost of a large coffee. You can cancel any time. You can even claim it as a business expense. You can get the 9-module, 10-hour How to Invest series. You can get my content on building wealth, on knowing all the different types of income streams, learning about all the different assets. You can even learn how to invest low and no money down. You can learn the best business model for 2022, um, and it's actually one that I of course practice. I always practice what I preach. So yeah, Gary, I think rob.team is perfect for you. As you can see, it's in above you. So all of you now, just go quickly, open a new window and type in rob.team. Go and join this disruptive entrepreneurial, um, membership site. Edda said it's huge, uh, and it's like the Netflix but educational and for entrepreneurs, and it's one-third the cost of Netflix. So instead of, you know, sort of wasting your life away watching entertainment and mind-numbing fiction? Why didn't you just invest one-third of that and learn, earn, and invest? Why don't you learn how to build multiple streams of income, build digital assets? Why don't you learn all the different asset classes? Learn how to invest in the 9-module, 10-hour series. A 10-hour masterclass course with me would be £1,000. Our courses are 8 to 10 hours a day. They're £1,000 a day, no discounts. But you can get this 10-hour How to Invest series for the cost of a large coffee. Essentially, you get that course free. Also, by the way, I've got coming up How to Hack Virality masterclass, How to Automate Sales and Marketing masterclass. Uh, what else have we got coming up? I've got, um, How to Empower Yourself masterclass. Um, how to start a business masterclass. These are all 3-hour, 5-hour, 8-hour masterclasses only for Rob.team members, and all coming in the next few weeks. So make sure you go and, um, open a page, a new page on the internet, type in Rob.team. Marcus said, I think it helps with mindset regardless of where you are. So thank you very much for that kind Comment. David has said, hey Rob, how about having a Rob.team stakeable NFT model? Yeah, you know what, I did launch some higher level NFTs and I might launch some lower cost, wider market ones. And if I do, I'll of course launch them all to Rob.team members first. Rob.team members are my special community. They get all the love and the content first. They get access to special live events. They get access to the Make Cash Challenge, access to the Start Your Business Challenge. Um, they get access to all the live Zoom masterclasses before anyone else. In fact, there's probably 3 masterclasses a month no one can get unless you join Rob.team. There's my 21 Ways to Monetize Social Media masterclass. It was 6 hours, all completely recorded, available for you when you join Rob.team. So look, I've got to get out of here because I've got to go and do a Clubhouse room and a podcast recording now. Um, if you, if you jump on podcast, you'll see me there. Sorry, if you jump on Clubhouse, you'll see me there. It's going to be on, um, why saving will make you broke. But if for now you just go and join rob.team, do it now. Invest in yourself because you pay yourself the best return. Invest in yourself wisely. Learn, earn, invest. And it's a third of the cost of Netflix. Chelsea says I'm in on rob.team because it's worth it. So open a new page, type in rob.team. I'll see you there. And if you want a little summary of how much debt is too much, I talked about good debt, bad debt, residential mortgages, commercial mortgages, buy-to-let mortgages, short-term loans, long-term loans. It just— um, watch the replay. Thanks for tuning in, everyone. You are legends. And remember, if you don't risk anything, you risk everything.