What sized loan should I get?

snowstorm

Hi, can I throw in my two pennies worth!

I have followed a (similar) route to that you are proposing and am glad to say I have now passed all of my exams. Accountancy in my experience though involves many late finishes, particularly around busy times and it should not be underestimated the impact this may have on your opportunity to study for what are challenging exams. Some employers will support you with great study leave, some less so.

It's first worth checking whether your firm will pick up study costs, if not be prepared to pay c£300 per course (London prices so might be slightly less) plus exam fees and revision classes.

Secondly, It's likely that many of your new friends (the other trainees?) will be in a similar financial position and so your evenings out will hopefully be sensibly priced. As such you may be able to enjoy yourself without spending too much.

It is indeed possible to repay debt with future earnings, but it is annoying. Whilst at university I ran up an overdraft like many students and once working you do resent having to pay back these amounts, particularly in the early years when money is tight and that £50-£60 per month or whatever would be really helpful. Even as you progress you're expenses will increase (you may want to buy a house, get married, go on holiday) and the repayments may then seem a pain and would likely impact on the amount you could borrow on a mortgage (Tunbridge Wells is v. expensive).

Finally, why make the decision now at all? Why not refinance your £8k to a lower rate, see how things go with the £40 a week and if you do have difficulty think again and consider borrowing shorter-term and a lower amount.

Kind Regards

morg_monster

At least you are methodical Eoin you are right about that and you have certainly thought things through. I can see why you think the loan is a good idea but just beware of what could happen in the future, especially since you have no savings yet to cushion you. Also remember that the more leisure money you have the more you will want - if you spend £100 on fun and going out one month, maybe it'll creep up to £120 every now and then, etcetera, these extra bits can really add up. If you must get this loan then make sure you do NOT overspend, and still try to be frugal so that you can over pay by small amounts here and there throughout the course of the loan, not just at the end of it.

I also just wanted to echo what snowstorm says, if you can refinance then you should try and live a few months on the £40, to see if your budget is as tight as you think it is (you did admit you might have overestimated bills etc) and then maybe you'll be OK or maybe you'll still want to borrow but it might be less than you originally planned, which has got to be good hasn't it.

keep us posted with what you decide. And don't write off the 0% credit card idea. You could open a few with your salary, especially since you're a graduate, and after a few months of making payments on time your limits will increase and you'll probably have comparable limits to the extra loan you want. Then when the 0% ends you can transfer some to low life of balance cards like Capital One.

PS - glad you are realistic on the exams front, I went to a top uni and did maths, quite a few people went into accountancy, a few sailed through but some were surprised to find that they had a few retakes along the way which curtailed those bonuses and raises along the way... At least though - the more retakes, the more nights in revising and not spending money!!! heehee

ftbworried

I agree with snowstorm, you should probably try to wait.

I did an industrial placement as part of my degree which involved me moving from Manchester to Cambridge (and jees I noted the difference in accomodation costs!!). I, like you, had no savings and moved into an unfurnished house with my fiance and was faced with a weekly left over of £30 (I was also putting away £50 into my savings) on a slighlt higher salary than your starting salary. I had all the same anxieties as you- would I have enough to socialise with my colleagues etc. Yes, it was hard at times- but we tried to live within our means- this was very difficult around birthdays etc but I did it- I only had to turn down a few nights out and they understand because you are a student. Plus because they know you're on a small wage I always found that my colleagues (who were on 60-80K plus) wouldnt let me pay for anything on nights out anyway (however I protested).

Anyhoo, as furnishings were concerend we got ourselves a 0% CC and furnished our 3 bedroomed house (my finace works from home hence we needed the space) for 1k (argos, ikea). This was paid off in within the year at £100 a month.

All in all it is hard BUT YOU CAN DO IT. And blimey am i glad I did!! 12 months on- i'm graduating and due to living within our means and having no debt left (and a new job on the part of my fiance) we have just bought our first house (5% deposit) and are getting married in 10 weeks (paid for by ourselves). We could have never achieved what we have achieved now if we had wanted that 'bit extra play money' 12 months ago. Yes it was a struggle but it has paid off BIG TIME.

The moral of the story? Please don't focus on the short term- your financial projections seems to assume that your living costs stay the same- what if you want to buy a house? or get married? you will have no savings for either of these? Also as your wage rises- so will your student loan repayments- have you considered that? What about increased pension contributions as your pay goes up? all these things eat into your pay rises. My fiance went from earning little over 20k to 40k+ bonus+ company car etc and because of the increase in student loan repayments, tax & NI, company car tax, pension contributions etc comes out with not significantly more than he used to do net monthly.

Good Luck whatever you decide to do.

Eoin_McLove

Thanks snowstorm, morg_monster, and ftbworried! Very helpful advice.

I'm now seriously considering just getting the £8,000 loan. As you say, I can always borrow a bit more if I need it later on. I completely agree that it would be great if I could get through the next couple of years without a loan, so that I really do benefit from my pay-rises and have more money for a mortgage, etc. Since last September, I've spent £35.85 per week on 'leisure', so I know that I ought to be able to manage next year on £39.33. I'm just concerned that I'll over-spend in the first couple of months, when I'll be going out with my new work-mates and so on, and then I'll be broke for the remainder of the year. But no, you're right, it'll be much more rewarding if I can slog through without taking a big loan.

snowstorm: I get fifteen weeks' study-leave per year throughout my three-year ACA contract. My firm is incredibly supportive of its trainees; that's largely why I accepted the job offer! The whole study package is fully paid-for by the firm, although I have to pay for exam re-takes, which, as confident and optimistic as I am, I expect to happen. There are only two other trainees, and I am led to believe that they will originate from the Sevenoaks/Tunbridge Wells area (my firm likes to recruit people who have been brought up in the area; although I'm just a peasant from Dover, which is reasonably far-afield!), which might suggest that they have well-off mummies and daddies to help them out. Completely assumed, but I'm a cynical !!!!!!. I just don't want to feel like I'm the pauper trainee.

ftbworried: my budget forecast for the next three years takes into account increased student-loan repayments, tax, NI, etc. I like your thinking: if I get in with the partners and managers, I should be able to wangle a few free drinks every week.

So, as things stand, I think I will take out the necessary £8,000 loan and try to live on the £39.33 per week. As you say, I can always use 0% credit cards to give me a bit extra if I need it.

Is there a limit, or suggested limit, on the number of 0% cards you can have? I already have an Egg Card (£1,250), which will be used to take my current account's overdraft when it has to be reduced from -£2,000 to -£1,000 some time in the next month or two. I'm concerned, probably completely wrongly, that having too many credit cards might make getting credit in the future more difficult (mortgage, car loan, etc.) - this is nonsense though, yeah? Having more credit cards increases my chances of getting more credit in the future, provided I always pay them off on time, blah blah, yeah?

So, could I reasonably have two other 0% cards in addition to my Egg Card? Even if I only got £1,000 each on these cards, that would give me a significant boost if I need it.

Thanks again everyone.:T

Debt_Free_Chick

Eoin_McLove wrote:

Debt_Free_Chick: yeah, everything on there is my estimated share of expenditure. So, yeah, total gas/elec etc. is £600, double my £300 (this figure is based on my outgoings this year, but I live with two other people, so I have probably overestimated by anything up to 40%, perhaps). My girlfriend and I buy our shopping separately; it's just easier that way!

I guarantee that if you plan your meals, cook at least some things from scratch, and plan your shopping ... that your food bill will halve when you live together. Come over to Money Saving Old Saving for loads of ideas and advice

This is purely my budget, what I spend alone. What my girlfriend spends is her business, and it doesn't affect what or how I spend. Likewise, the loan I might be taking out is purely for me. Mwahahaha. So, just ignore my girlfriend.

Agreed - other than to establish your household budget, which I assume you will contribute to jointly. I suggest you consider a joint account purely for this. We have one with Cahoot. We each contribute half of the household budget and all bills get paid from that account. Saves any misunderstanding and/or mistakes :j

Also, to be honest, I don't think I have the potential to save that much. As it is, I'm very careful with how much I spend on the essentials (except food: no compromises on my food!)

I suspect you're a store snob :rotfl: Whereas I'm a food snob - grow my own veg or buy from a farm shop (plenty near Tun Wells!! so no excuses!), buy meat from a butcher, fish from Hastings boats (worth a trip for you, from TW to stock up the freezer). Only use a "value" supermarket for dried/tinned food and cleaning stuff.

so I don't think I could knock it down much further.

Bet you could if you were prepared to make some changes

I'll shut up now. Either you're tempted by my suggestions, or not. If you are, post back or visit Money Saving Old Style.

Cheers - and good luck :beer:

morg_monster

In theory if you pay off your bills in full each month having plural credit cards shouldn't affect your credit rating. However Martin warns people who 'stooze' (effectively put 0% credit card money from lots of cards into savings to earn interest), that multiple credit searches can affect you - even when you are accepted for all the cards. It shouldn't affect whether you are accepted for the next credit card, however if you are looking to get a mortgage soon you want your credit record to be as good as possible, so don't risk it. Question is, how soon is soon? If you know you won't want a mortgage for a good few years, get the cards now but stop applying for new ones in plenty of time (a year or so???). Also - remember that the cash you save by getting the 0% card means that you'll have a better deposit by the time you do want a mortgage which will probably count for more than a really-quite-good-but-not-perfect credit rating.

Copied from the 'credit card' section of this site (the page about stoozing):

"Most lenders' scoring systems aren’t sophisticated enough to detect that you’re playing this free cash gain. Yet multiple applications especially at the same time, and high outstanding debts, even at 0%, will diminish your ability to get competitive credit, so the most important thing is to spread card applications out

Though it doesn’t work this way, a good way to think of it is that you won’t have problems until 10 cards or so, but there are no guarantees (read Credit Scoring article). The highest amount at 0% I’ve ever heard of was £80,000 – netting that stoozer nearly £5,000 a year as the money was off-set in his mortgage. "

Midas

Several things strike me about this thread.

Firstly your income - £15,000 gross for a trainee chartered accountant seems very low. Is this figure definite? Is this a particularly poor company? Can you get a job elsewhere? £20k is more realistic for a trainee chartered accountant.

£500 pa on petrol seems extreme when you explicitly say you want to live close to work. Walk to work. Sell the car to pay off debt.

£600 pa on birthdays and xmas?!? On your salary this is madness. Cut this to £100 max.

You can get a much better deal on your mobile and broadband.

A final thought - even if your plan with the bigger loan worked out, you'd be taking a huge hit in terms of your 'leisure money' in year 3 (according to your stats in post 14). It is always more difficult to cut back when you have got used to the extra cash, as you won't want to take the drop in lifestyle (particularly as you will be earning more and will therefore feel that you deserve more). This looks like a recipe for a disastrous cycle of debt, which could last the rest of your life. Take the pain in the short term now and you wont regret it.

Eoin_McLove

Debt_Free_Chick: Actually, I cook all my meals from scratch already. I don't eat junk! Likewise my shopping is always planned; I know exactly what I'm going to be buying and cooking (it's fillet steak with mixed mushrooms and sherry tonight!). I tend to spend about £75 in one shop, and this lasts me three, or even four, weeks. I realised just today, however, that since January this year, I have benefited from a 10% discount (I work part-time in Sainsbury's to fund my MA). I've spent £1,444.21 on food since 5th September 2005 (£34.39 p/w), so bearing in mind that I won't have my 10% discount after August 2006, I'm going to have to re-think my food budget for the forthcoming year; or rather, I'll have to reduce my leisure money to cater for my food budget! Thank you for the tip; I do plan to have fresh veg delivered each week when I'm in Tunbridge Wells.

I should probably say that my girlfriend and I are actually living together at the moment, along with a friend, and have been doing so since last September when we both began our Masters degrees at the same university. So we're accustomed to splitting bills, sharing the costs of household items, and so on. We've also been a couple for coming up for five years, so there won't (shouldn't!) be any misunderstandings or anything like that with rent, bills, etc.

You're probably right, Debt_Free_Chick: I could knock my expenditure down. I could probably get my rent down to £300 pcm, but we must have a two-bedroom house/flat because we have so much stuff! Food is another thing that could potentially be decreased by about £500 a year, but I wouldn't want to make too many compromises.

Thanks again!

Matt

Eoin_McLove

morg_monster, thanks! I had read Martin's section on credit cards, but I was unsure whether the negative effect on credit scoring was only done by 'stoozing', or just by having several cards with 0% on purchases used 'legitimately'.

I would actually like to have a mortgage by September 2007. If I could afford it, I would have dived straight into a mortgage, but it's impossible without any savings for a deposit, legal fees, etc. I've been renting for the last three years (total spent in rent by August 2006 will be £11,420!), and I really am not happy about lining the pockets of some idiotic landlord who's more-often-than-not inherited his/her property(ies). So, mortgage as soon as possible! I'd be spending roughly the same per month in mortgage repayments as I would be in rent.

I imagine that I would only require one 0% card (in addition to my current Egg Card) within the next year, so that shouldn't have a negative effect on my credit score, should it? If I were to get a Sainsbury's card (0% on purchases for ten months!), I could use that to buy my shopping for next year, and once the introductory rate is up, do a balance transfer to some other 0% card.

Eoin_McLove

Midas: as I said to someone else, £15,500 for a trainee chartered accountant in Kent is actually slightly above average (£14,000-£16,000 is typical). The firm is considered to be the best independent practice in the South East (and not just by itself!), and in Tunbridge Wells it is pitted against the likes of Baker Tilly (ranked 7th in the country), so it is clearly a competitive and strong firm (£3.5m annual turnover and 3,500 clients, I believe). A trainee chartered accountant would only earn £20,000 in London, believe me; I've applied to about thirty firms in London and Kent in the last five months. As I said, I was offered £21,500 by a Big 4 City firm. You'd never get that in Kent; it's far, far beyond the market rate. Accountancy is renowned for paying its trainees poorly. However, salaries typically double after qualification (typically three years), and as the years pass post-qualification, salaries increase rapidly.

Suggesting I just get another, better-paid job is absurd. I took this job because I thought that I would receive the best training programme, the best experience, and have the best chance of being promoted to partnership within ten years. I was offered jobs by several top 20 firms (all paying around £20k, purely because they were based in London), but I decided that I would be much happier with the firm I've chosen. True, £15,500 is hardly great, but working in London just for a few more quid (and spending quite a few quid more on rent, living costs, transport, etc.) would have been the wrong decision, as avaricious as I am.

£500 on petrol is a gross overestimate. I've spent £320.13 on petrol from September 2005 to the present, but I thought that perhaps I would travel more to see my parents and my girlfriend's parents next year. I don't think my girlfriend would appreciate if I sold the car: it's hers, not mine.

£600 on birthdays and Christmas (plus the other stupid 'celebrations' like anniversaries, Valentine's Day, Father's Day, etc.), yep. A lot, isn't it? I've spent £534.52 since September 2005. I'm just a generous guy. I could wangle it down to £450, I reckon.

My mobile contract ends in September, so I'll be haggling with T-Mobile to get a better deal; maybe £10 a month as opposed to the c.£14 at the moment. Broadband itself could be cheaper, I agree, but I get an overall better deal with NTL on the broadband/digital/telephone package.

I agree: the decrease in my leisure money from year 2 to year 3 would be a bit of a sting, having become accustomed to a more lavish lifestyle. But I've decided not to take the larger loan now.

Thanks for the advice. You must have the golden touch.