I want to be (student loan) DF!

KittyKate

Hi all. Long time MSEer, first time DFWer!

I don't have 'bad' debt (and by that I mean I'm not getting threatening letters/having extortionate charges added - I still class my debt as debt!)

I hugely admire EVERYONE on here and hope you can advise me.

I have £14,000 of debt from my student loan. I left Uni 3 years ago and am only being stopped £70 off my wages to pay it back. At that rate it will take me about 15 years! (The APR is very low though).

Can I overpay? Is it feasable to get as much off the debt as possible before I have to buy a car for work/get a mortgage? Or am I better off saving for 'emergencies'?

I'm 24 and I work full time. I rent with my OH and am fairly sensible with money in some places (but a bit lax on others).

Gemmzie

Isn't the APR around 2.2%? You'd probably be better off saving towards overpayments.
If you put between £25 - £250 away every month then you can easily get a regular saver of 7%/8% and just keep moving it each year.

Then you should be able to make a lump payment because as far as I'm aware, they should send you a statement each year which states how much you've paid off and how much is left owing.

gregrichards

You can definately pay overpayments, but as it isnt taken into account as a debt with mortgages etc you need to decide if its worthwhile. It is a debt hanging over you but it all depends what your priorities are. If you have got a well enough paid job and are pretty secure ie somewhere to live etc, then I'd say yes pay it off as much as you can.

You have to decide if you would be better saving money in an isa or high interest savings account, then paying a larger amount. The money is better making interest in your account than theirs as long as you are a diligent saver.

Timmne

Student loan isn't a "debt" as anyone who matters would consider it - I wouldn't pay it off if I were you!

Echoeing what Gemmzie said, I would just save into a reg saver or even just an ISA - this is far more worthwhile. it also means you're building up savings for a rainy day, in case they're needed in the future...

KittyKate

Timmne wrote:

Student loan isn't a "debt" as anyone who matters would consider it - I wouldn't pay it off if I were you!

Echoeing what Gemmzie said, I would just save into a reg saver or even just an ISA - this is far more worthwhile. it also means you're building up savings for a rainy day, in case they're needed in the future...

I don't have a choice whether or not to pay it off! And yes, I DO see it as a debt. I don't know who these people who matter are but it's a debt I'm being charged for and it matters to me! I'm perfectly happy to pay it - I spent it - and I'm certainly not going to ignore it or let it build up even if it is a small APR.

I already have savings - a modest amount, too much for an ISA - should I be throwing this at the student loan or tying it up for a year at 10%?

KittyKate

gregrichards wrote:

You have to decide if you would be better saving money in an isa or high interest savings account, then paying a larger amount. The money is better making interest in your account than theirs as long as you are a diligent saver.

I just don't want to have this debt for years - surely what I make on the 10% account will be knocked down by the 2.2% or whatever making it barely worthwhile?

Is it DFW to save up and pay off, or is it better to pay off what you can, when you can?

jessicamb

KittyKate wrote:

I just don't want to have this debt for years - surely what I make on the 10% account will be knocked down by the 2.2% or whatever making it barely worthwhile?

Is it DFW to save up and pay off, or is it better to pay off what you can, when you can?

In this case because you are much getting a better interest on the savings side then the debt side it is financially better to save up and then pay off in a lump sum. The interest earned on the savings exceeds the cost of the debt so it might not be much but its better in your pocket

barnaby-bear

KittyKate wrote:

I just don't want to have this debt for years - surely what I make on the 10% account will be knocked down by the 2.2% or whatever making it barely worthwhile?

Is it DFW to save up and pay off, or is it better to pay off what you can, when you can?

http://www.moneysavingexpert.com/cgi-bin/viewnews.cgi?newsid1157645184,28030,

Does this help?
Basically the interest rate is lower than real rate of inflation and salary rises so student debt benefits from debt-erosion, there are smarter things to do with the money for now, saving it as a higher interest rate will make you a bit of money , plus you'll have the money available so in event of redundancy, relationship breakdown, house move it's liquid and you won't need other forms of credit. It "doesn't matter" because it isn't counted for things like mortgages unlike most debt.
I agree psychologically it's a debt but if you ring fence it in the knowledge you are saivng money it might help - think of it like an offset account.

barnaby-bear

KittyKate wrote:

I don't have a choice whether or not to pay it off! And yes, I DO see it as a debt. I don't know who these people who matter are but it's a debt I'm being charged for and it matters to me! I'm perfectly happy to pay it - I spent it - and I'm certainly not going to ignore it or let it build up even if it is a small APR.

Do you plan to take on any debt in the next 15 years?
I.E do you plan to get a mortgage, if so consider whether it makes sense to take on a mortgage i.e. borrow more money at 5.5% or pay back debt 2.4% even if you don't plan to have a mortgage I'd rather have the student loan savings in my acocunt as insurance so if I was redundant or ill the bills (in my case mortgage) would be met, would such an insurance policy have any value?

KittyKate

barnaby-bear wrote:

http://www.moneysavingexpert.com/cgi-bin/viewnews.cgi?newsid1157645184,28030,

Does this help?
Basically the interest rate is lower than real rate of inflation and salary rises so student debt benefits from debt-erosion, there are smarter things to do with the money for now, saving it as a higher interest rate will make you a bit of money , plus you'll have the money available so in event of redundancy, relationship breakdown, house move it's liquid and you won't need other forms of credit. It "doesn't matter" because it isn't counted for things like mortgages unlike most debt.
I agree psychologically it's a debt but if you ring fence it in the knowledge you are saivng money it might help - think of it like an offset account.

Thanks - I know it's not as 'bad' say as £14,000 unsecured loan or similar, but to me debt is debt. I don't like being told 'don't pay it' because I owe it

I have about £4,000 'spare' (savings + shares + bonus) which I was going to throw at it, and increase my payments to £250 a month. But that would leave me with little to save and I'd lose my £2,000 'buffer' for redundancy/relationship breakdown/savings for mortgage.

I think I'd be better off leaving it at £70 a month and being more frugal then putting the 'excess' £180 (the extra I was going to pay on it) into a high interest account or ISA. Long term it does make sense and I'll have to accept the loan for now.

Thanks so much for all your advice everyone. Without it I would have been stressing and focusing on the wrong things. I really appreciate it - DFW to the rescue again

Badgergal

I personally don't worry about it. I am in exactly the same situation as you, same age and similar amount of student debt from the SLC, and rather than pay it back with overpayments when I got a job, I saved up for a deposit to buy a flat using an ISA & high interest account. I'm glad I did although I understand how you feel about the psychological aspect of the debt, I am now of the mindset of thinking of it as just another tax, if you see what I mean, as in 'real' terms it is not costing.

That said, I recently got another job and the SLC payments appear to have stopped coming out of my payslip, unless they are included with the rest of the taxes (which they never were before with my othe jobs, they were marked as 'student loan'). The SLC hardly ever send me a statement either, which is annoying. Suppose I should check this out when I go back to work in the new year!