Debts vs pension

greensalad · 8 April 2015 at 9:36AM

I need some financial advice, on behalf of my partner, so that I can try to convince him to pay off his debt. Sorry if this turns into a bit of a rant.

My boyfriend graduated and got his first job August 2012. He graduated with the standard student debt but also a £2k overdraft.
Since day one I've been encouraging him to pay his overdraft off. He earns a good wage, and I foresee a future together, we've discussed saving for a house deposit together but I cannot shake the feeling that if we manage to save, say, £10k, the first £2k is going to have to get swallowed up into his overdraft. I graduated recently (got first proper job last april), so I'm clearing my own overdraft. I don't proclaim to be amazingly well off, but I know I'm trying and I've already paid off a significant portion of my debt, despite earning less than him and working 2 years less.

The argument we keep having is that every few months, I ask him how he's doing on his overdraft, and he's done nothing. He says "it's OK I'm investing elsewhere" but as much as I see it being a good idea to invest elsewhere, he's still living day to day in his OD.
Last night we had a massive row, as he's recently got a pay rise, and instead of using that pay rise to pay off his OD, he's decided to increase his pension contribution by an extra £350 per month. An EXTRA £350, all the money he gained through his pay rise is going into his pension.

To me, it's just so stupid. I am fully behind him getting a pension and making regular contributions, but to put ALL the extra money you have into one pot, when you're still £2k in the hole just seems so silly to me. I asked him why he did that, when he hasn't paid off his other debts and he started reeling off how it's "investing in the future" and I'm "failing to see the bigger picture". I've got a pretty good view of the bigger picture - you shouldn't put all your eggs in one basket. He should be separating what he can afford to put away each month into OD pay-off AND pension, not all in the pension.

Am I in the wrong? Is it really much better for him to stick all his cash away into his pension and then be in debt for the day-to-day? It doesn't make sense to me at all.

Pixie5740 · 8 April 2015 at 9:48AM

How much is the overdraft costing him each month?

I recently took out a loan with an APR of 3.6% because whilst I have the money it's earning me more than 3.6% net.

greensalad · 8 April 2015 at 10:06AM

Pixie5740 wrote: »

How much is the overdraft costing him each month?

I recently took out a loan with an APR of 3.6% because whilst I have the money it's earning me more than 3.6% net.

Currently about 17% EAR on £1500, with £500 remaining free until next summer (at which point the full £2000 will be charged interest).

Meatloaf1981 · 8 April 2015 at 11:46AM

The difficulty here is that there is room for a compromise in that he could afford to spend a few months paying off his overdraft and THEN invest in his pension plan, however he wants to stuff it all in the pension pot straight away. At the end of the day, it is his choice and even though practically speaking he will be losing money every month he remains in his overdraft as fees and interest usually mean he's paying £25 to £30 a month as a fine, unless he can see that the pension pot will not be earning him £25 to £30 a month in positive interest then he will continue to happily save, save, save until the bank come calling for their overdraft back.

Young men, however, will make some headstrong choices and there is not much you can do. If you're planning on saving money yourself towards a deposit, then I would recommend keeping it separate from any money he is also saving and insist on him contributing at least half towards the deposit when and if you come to buy. He sounds a little immature, to be fair, though it is hard to argue with someone investing in the future, my argument would be that we all have to live in the now, and right now the money would help him become debt free a lot sooner.

It wouldn't be so bad if he was actively trying to clear the debt and was making headway already. Sadly, he does not appear to be doing this right now. Sometimes you have to listen to your head instead of your heart.

andyfromotley · 8 April 2015 at 1:12PM

Oh that is really infuriating!!
It would drive me crackers to have someone so stubbornly refuse to do the obviously right thing! Grrrr.

On the plus side he isn't taking his cash and blowing it on gadgets or gambling .. whatever.

However as you aren't actually yet saving for a mortgage together or really made any long term plans i also kind of wonder what business is it of yours?
His money, his life. (i think this changes when you sit down and agree there is a long term plan for you both)
Is there some sort of proxy battle being fought out over this overdraft i wonder? About, control, finances or boundaries? It just seems so odd! Either that or he is just financially illiterate.

Pixie5740 · 8 April 2015 at 1:18PM

greensalad wrote: »

My boyfriend graduated and got his first job August 2012. He graduated with the standard student debt but also a £2k overdraft.
Since day one I've been encouraging him to pay his overdraft off.

Encouraging or nagging? It's not like he's blowing his money on crap, he is being sensible and putting money in a pension. Maybe if you backed off and left him to sort out his own finances he'll repay the overdraft of his own accord.

I find it irritating when people give me unsolicited financial advice.

greensalad · 8 April 2015 at 2:53PM

andyfromotley wrote: »

However as you aren't actually yet saving for a mortgage together or really made any long term plans i also kind of wonder what business is it of yours?

I've kinda been thinking that myself. But at the same time, we're making plans to have a financial future together so I guess while it might not be my business right this second, it will be my business soon.

Saying that, we live together, own a car together, have joint accounts etc so I'm guessing we are pretty financially linked, even if I don't have access to his bank account. I'm aware his overdraft isn't a debt of mine but it still impacts me. So maybe it is my business...

Either way, I can't force him. I can only try to convince him.

greensalad · 8 April 2015 at 2:55PM

Pixie5740 wrote: »

Encouraging or nagging? It's not like he's blowing his money on crap, he is being sensible and putting money in a pension. Maybe if you backed off and left him to sort out his own finances he'll repay the overdraft of his own accord.

I find it irritating when people give me unsolicited financial advice.

I said I thought he should pay off his overdraft as soon as he started work. I didn't nag constantly, maybe every 6 months over the last 2.5 years I've asked him how his savings are going.

And he does spend money on crap. Several hundred pounds of video games a month, three holidays a year with his friends, alcohol, betting etc. He puts money in his pension too of course, but he does spend money on other things. He has borrowed money off me in order to pay for things.

Maybe he will pay it of his own accord. But approaching three years of debt shows it's unlikely.

solentsusie · 8 April 2015 at 3:27PM

greensalad wrote: »

I've kinda been thinking that myself. But at the same time, we're making plans to have a financial future together so I guess while it might not be my business right this second, it will be my business soon.

Saying that, we live together, own a car together, have joint accounts etc so I'm guessing we are pretty financially linked, even if I don't have access to his bank account. I'm aware his overdraft isn't a debt of mine but it still impacts me. So maybe it is my business...

Either way, I can't force him. I can only try to convince him.

You say you have joint accounts, if so you are already financially linked as far as the credit reference agencies are concerned.

And he should also remember that the bank can recall the overdraft at any time they choose.

Does he have enough in the way of instant access savings to pay this off?

I would at least try and persuade him to get it down to the free £500 level. Perhaps you could relate it to the fact he is losing pretty much a video game each month in bank charges. Make it something tangible that he values and his attitude might change a bit.

He does sound a little immature with his money, but as a mother of 25 and 21 year old sons this does not come as a surprise at his age. Although saving for a pension is all well and good you do have to pay your day to day living expenses as well. And that includes paying off your student debts.

My concern if I were you would be the linked financial accounts. If he gets into further debt this could impact on you as well.

Also, if you are looking for a mortgage in the future, any outstanding debts will probably reduce the amount of any mortgage offer you are given.

Good luck.

andyfromotley · 8 April 2015 at 3:42PM

greensalad wrote: »

I said I thought he should pay off his overdraft as soon as he started work. I didn't nag constantly, maybe every 6 months over the last 2.5 years I've asked him how his savings are going.

And he does spend money on crap. Several hundred pounds of video games a month, three holidays a year with his friends, alcohol, betting etc. He puts money in his pension too of course, but he does spend money on other things. He has borrowed money off me in order to pay for things.

Maybe he will pay it of his own accord. But approaching three years of debt shows it's unlikely.

Now this would pee me off enormously, and much more than the pension money.

Its kinda unusual really, if you had only posted the above i would bash him, and say that you are probably not financially compatible. But on the other hand he has chosen to pay significant extra sums into his pension, which is a sensible thing to do. He's a contradiction this one!!

greensalad · 8 April 2015 at 3:45PM

solentsusie wrote: »

Does he have enough in the way of instant access savings to pay this off?

Zero instant access savings available.

solentsusie wrote: »

Also, if you are looking for a mortgage in the future, any outstanding debts will probably reduce the amount of any mortgage offer you are given.

I know we'll never get to the stage of getting a mortgage with these debts, simply because whatever we save for a deposit, we'll have to save £2k more to fill this hole. If that makes sense. It's just frustrating to see no change and I don't know what else to say to convince him to pay it off.

Debts vs pension

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