student loan ~~~~

siuron

yes i'm well pleased with all the helpful comments/advices given. Thanks all for that.

can someone advice me on how i can save more?

morg_monster

Kind of...
Let me explain exactly what I mean. Lets say next month you have £100 left over at the end of the month. You could use that £100 to overpay the loan, thus decreasing the total by £100. Or, you could put it in a savings account with (say) 4% interest. In one years time, your £100 in the savings account will be worth £104. £100 of your student loan in the same year would now be actually £103.20. So you are 80p up. Now that isn't much. But if you saved £100 every month into a 4% interest rate for 5 years (so £6000 in total) (lets assume the 4% rate stays the same and forget about inflation), then buy the end of the 5 years you will have saved (about) £6640.

Mean while, had you put that £100 every month into your student loan, you would have paid off (about) £6506. So you are £137 up now if you use the £6640 to pay off the loan.

The other point is though that while now your finances are quite simple, they will get more complicated and you'll have more demands on your cash, you may need to buy things on credit. At this time, you may wish that you hadn't put cash to pay off your loan. If you don't, you will have plenty of cash which you can use as you see fit to a few years down the line.

Though, it is tempting to be debt free, most people I know don't even consider their student loan when adding up their debts. I have about £12k in loans, finished uni in 2003 and just started paying off £56 a month in Feb.

climbgirl

I'm sorry to confuse the issue (I just want to get this straight in my own head!), but even if the interest rate is lower than the amount you could get in a savings account, surely it's still better in the long-run to pay it off quickly?

So you're paying 3.2% interest. Any money you could overpay or repay on that loan, you put into a bank account instead at somewhere between 4-5.2% (the best ISA rate I know of at the moment!). So you're making somewhere between 0.8-2.0% interest on your savings. Which is below the rate of inflation so you're effectively losing money?

morg_monster

sorry i take too long to type. As for savings - you're already onto the right track with the ISA. Keep using that up first, then go for a 'normal' savings account. With the ISA, make sure you have a good interest rate. There's loads of guidance on the main MSE site. As for your budget, you hardly spend anything! I'm not sure there's anything you could cut down there - but just to check, are you sure you need life insurance? (If you don't have kids or an OH then it is probably just unnecessary).

morg_monster

climbgirl - just think of it on a yearly basis. Your £100 in the student loan on April 1st will be 'worth' £103.20 one year later. Your £100 in the savings account on April 1st will be worth £104 one year later. You put that £104 in the student loan, voila, you're 80p up what you would have been if you had put that £100 in the student loan at the start of the year.

I can see where you're coming from but I cant think how to explain it to you... basically your money will end up being worth more after a year in your savings than in your loan?

siuron

climbgirl wrote:

I'm sorry to confuse the issue (I just want to get this straight in my own head!), but even if the interest rate is lower than the amount you could get in a savings account, surely it's still better in the long-run to pay it off quickly?

So you're paying 3.2% interest. Any money you could overpay or repay on that loan, you put into a bank account instead at somewhere between 4-5.2% (the best ISA rate I know of at the moment!). So you're making somewhere between 0.8-2.0% interest on your savings. Which is below the rate of inflation so you're effectively losing money?

calculating on interest alone of course the ISA/savings outside is better than the student loan.
but the CAPITAL is DIFFERENT?

i will need £15k as well to put in the bank in order for me to gain more interest than losing interest right?

climbgirl

morg_monster wrote:

climbgirl - just think of it on a yearly basis. Your £100 in the student loan on April 1st will be 'worth' £103.20 one year later. Your £100 in the savings account on April 1st will be worth £104 one year later. You put that £104 in the student loan, voila, you're 80p up what you would have been if you had put that £100 in the student loan at the start of the year.

I can see where you're coming from but I cant think how to explain it to you... basically your money will end up being worth more after a year in your savings than in your loan?

yeah, I see that. I guess it just means you're stuck with what is effectively a lower savings rate until the loan is gone?

Natalie25_2

I'm in a similar situation to you. I don't like the fact that there is this big loan looming over my head even if it's not classed as a 'real debt'. I used a 0% credit card to reduce the interest payments I was making per month, meaning that more of the money taken out of my wages went towards paying off the loan rather than just interest repayments. I should point out that I only borrowed enough from the credit card that I could repay instantly with my savings should I lose my job.

Now I am at a point where the interest payments are minimal so I am saving as much as possible, but also making a few ad-hoc payments to my student loan when I have some extra money.

morg_monster

climbgirl - yep, basically, if it is earmarked for your loan, that is how you'd have to consider it. But it is still interest, you can do what you want with the total.

siuron - that is true, but you don't have £15k to pay it all off at once, I assume. If you did, obviously you could pay off the loan and save all future interest. BUT still, if you had £15000, you could still put it in a high interest account, and at the end of the day, you would be able to pay off the loan AND have some extra money.

The fact is, if you have any amount of money to pay off some of the loan, big or small, you're better off paying it into a savings account, leaving it there to accumulate interest, then when you pay it into the loan, you are paying off the initial lump amount, all the loan interest on that lump amount, PLUS a little bit extra (the difference between the loan and savings rates)! As long as the loan interest rate stays below the best savings interest rate you can get, you will always be saving yourself a bit.

siuron

morg: now is making more sense...but i still cant get my head around the £40 interest charge a month at the moment (£480 a yr), how do i compensate that??

there's no way i can compensate the £40 a month charge until i have a big enough sum with good enough interest to level the interest being charge? so am i right in saying that i will not save as much as being charged for the first 2 yrs?(thats if i save £7500 a yr)