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  • FIRST POST
    • Natasha.rb
    • By Natasha.rb 17th Feb 17, 1:49 PM
    • 13Posts
    • 11Thanks
    Natasha.rb
    Advice on over paying
    • #1
    • 17th Feb 17, 1:49 PM
    Advice on over paying 17th Feb 17 at 1:49 PM
    Hi,

    I've been doing a fair amount of browsing and feel confident about posting now.

    Me and my partner have a small loan approx £5K left, paying £330 a month as we wanted to reduce the term substantially, it currently has just over 12 months left.

    We have just this January started saving very harshly putting away £900 a month to buy a second house and feel it feels like that £330 loan payment is suffocating us. Should we reduce the savings amount and over pay on the loan to get it off first? We don't have any other savings other then this second house fund we have just started.

    Also I have some extra bonus money coming in this month £1500 should i pay that off the loan or stick it in the savings?

    I feel like I'm going round in circles. Living in a bit of a cycle of having 'no money' due to saving so harshly for a house and paying off the loan.

    This may seem very silly, but financial situations when i was a child through my parents has lead me to very cautious and some might say 'obsessed' with money.
Page 1
    • zx81
    • By zx81 17th Feb 17, 1:54 PM
    • 12,002 Posts
    • 12,136 Thanks
    zx81
    • #2
    • 17th Feb 17, 1:54 PM
    • #2
    • 17th Feb 17, 1:54 PM
    If the rate on your loan is higher than that on your savings, pay it off.
    • Wookey
    • By Wookey 17th Feb 17, 1:57 PM
    • 646 Posts
    • 308 Thanks
    Wookey
    • #3
    • 17th Feb 17, 1:57 PM
    • #3
    • 17th Feb 17, 1:57 PM
    Can't help you to much but someone who knows a bit more about it will want to know what is the interest rate atm on the loan and if the option is there without penalty to clear it or overpay. If the interest rate is very low and there is no penalty involved then i would probably look for a fairly high savings account (not that there are many about) if the interest rate is high and no get out penalties then get it paid of asap.
    Norn Iron Club member No 353
    • Natasha.rb
    • By Natasha.rb 17th Feb 17, 2:17 PM
    • 13 Posts
    • 11 Thanks
    Natasha.rb
    • #4
    • 17th Feb 17, 2:17 PM
    • #4
    • 17th Feb 17, 2:17 PM
    The rate on the loan is definitely higher than savings! I did think we would be better over paying to get the loan off but scared by the idea of having nothing in the savings for an emergency
    • Farel01
    • By Farel01 17th Feb 17, 2:56 PM
    • 91 Posts
    • 111 Thanks
    Farel01
    • #5
    • 17th Feb 17, 2:56 PM
    • #5
    • 17th Feb 17, 2:56 PM
    It's definitely a good idea to create an emergency fund. Can you perhaps put half away on the loan and the other half towards an emergency fund? That way you are still paying off the loan quicker but you will also have tangible savings.

    It may make more sense money wise to pay everything towards the loan, but an emergency fund is important and the psychology of saving as well, as in you might be less likely to save and scrimp so much if it all goes to the debt.

    However, paying off a loan also feels awesome! How long do you have left on it?
    Debt free as per 22/12/16 -
    • Wookey
    • By Wookey 17th Feb 17, 3:00 PM
    • 646 Posts
    • 308 Thanks
    Wookey
    • #6
    • 17th Feb 17, 3:00 PM
    • #6
    • 17th Feb 17, 3:00 PM
    If you are saving £900 pm (new house) and paying £330 pm (loan) then why not pay £1k per month to the loan and get it cleared in under 6 months whilst still having £200+ pm going into the new house savings/rainy day money. By December 2018 you will be close to 20k saved up which should be enough for a deposit in most locations.
    Norn Iron Club member No 353
    • allthe7s
    • By allthe7s 17th Feb 17, 3:07 PM
    • 71 Posts
    • 270 Thanks
    allthe7s
    • #7
    • 17th Feb 17, 3:07 PM
    • #7
    • 17th Feb 17, 3:07 PM
    Also if you pay the loan off would you not save a bit on interest so you might have less than you think to pay off it. I would definitely pay £1000 off the loan each month and save the £200 just to be rid of it quicker. X
    Next £615 £495 £436.23 Santander1 £297 £279 £261.95 Santander2 £84 £79 £75.11

    Savings Goal £163.67/£3000 by Dec 17
    • Natasha.rb
    • By Natasha.rb 17th Feb 17, 8:02 PM
    • 13 Posts
    • 11 Thanks
    Natasha.rb
    • #8
    • 17th Feb 17, 8:02 PM
    • #8
    • 17th Feb 17, 8:02 PM
    Final payment is May 2018 for the loan.
    I definitely agree that I should be over paying and it will be awesome to see it off. It's just that fear of not seeing my savings going up. I'm a terrible worrier about money, even though our situation isn't that bad compared to others for us it's bad and I do stress about it.
    • Rosie D
    • By Rosie D 17th Feb 17, 9:54 PM
    • 96 Posts
    • 242 Thanks
    Rosie D
    • #9
    • 17th Feb 17, 9:54 PM
    • #9
    • 17th Feb 17, 9:54 PM
    Hi, can you not save up your £900 pm as you were going to & then in a few months when you have more saved up than the o/s loan amount, you could pay the loan off & still have the extra amount to start saving the rest on top of, if you know what I mean? Hope this makes sense!
    • tori.k
    • By tori.k 17th Feb 17, 11:51 PM
    • 2,696 Posts
    • 6,010 Thanks
    tori.k
    I was going to say the same as Rosie, If your worried about the short term then save until your savings reach the balance of your loan then settle it, then if you add you loan payment to your savings the pot would be the same + interest saved then if you just saved it anyway.
    • ani*fan
    • By ani*fan 18th Feb 17, 7:51 AM
    • 1,462 Posts
    • 3,497 Thanks
    ani*fan
    Hi there

    I can understand how difficult it is to save and pay off debt at the same time. Me and my OH are paying off debt and saving for our wedding and a house deposit, all at the same time! It's not easy and while it makes sense number-wise to pay the loan off first, you want to see progress in other areas too.

    The first thing is that if you feel really too skint every month then maybe you need to redo your budget. You don't want to feel entirely deprived but need to try and find a balance. This'll help long term, finding a comfortable amount of spending.

    If you only started the savings last month, then you'll have £900 in there. Many people use £1k as an emergency fund, it's a good amount of money to have. And you don't own your home yet so if the boiler breaks, the landlord can replace it. Bonus. Do you and your OH drive? I think your house fund can double as an emergency fund for a while. Why not? As long as you have some cash there it'll help you feel more secure and less anxious. You're in a strong position and £1230 per month to debt and savings, even if you decide to reduce this a bit, is a lot. Try not to panic.

    My advice (and feel free to ignore it completely) is:

    1. Review your budget so you don't feel so poor. You're in this for the long term so try and think about it like that and don't deprive yourself too much. Is should be challenging but not demoralising.

    2. Take your bonus and pay it towards the loan. That will reduce the interest you're paying and reduce the balance to £3.5k. That's great progress.

    3. If you won't be charged for it, increase loan payments further to £500 every month. It'll then be gone by the end of August this year. Come on here and tell us and we'll help you celebrate!

    4. With an extra £100 in your monthly budget (or whatever you decide) and the extra loan overpayment, reduce your savings to £630 monthly. By the time your loan is paid off in August, your savings will be at £5,310. This is brilliant.

    Am I right that this is a second savings pot and you have a first one somewhere? How much of a deposit do you need for the kind of property you want?

    I think you'll be totally fine, you've got this.
    If you know you have enough, you're rich.
    • EssexHebridean
    • By EssexHebridean 18th Feb 17, 5:07 PM
    • 7,285 Posts
    • 38,532 Thanks
    EssexHebridean
    First thing is to find out how the interest was allocated to the loan - if it was front loaded, then you should stash the money into your savings as planned to build a lump sum, then throw the lump sum at the loan to clear it once you have enough. that also means that for the next little while, the lump sum acts as your emergency fund too, so two birds/one stone. Take a look at the statement for the loan and see if there is an "example redemption figure" - if not ask the provider for one - if the figure to redeem it is less than the sum total of the remaining monthly payments, that is a pretty good indicator of front loaded interest. You also need to check, as someone else said, whether there are any penalties for paying it off early.

    Well done you for being so head-screwed-on and thinking to check it all out and get it cleared ASAP.
    MORTGAGE FREE 30/09/2016
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