Pay off student loan or pay into pension?

AutumnLeaf

Hello,

Long time lurker finally trying to sort out my finances once and for all!

My question relates to paying off debt versus investing in a pension.

The background:

I'm due to receive a bonus of £2500 in November. I have two outstanding debts - £750 on a credit card which is mostly expenses I'll be getting back on pay day so can clear easily and £2160 outstanding on my student loan.

So my question is: do I pay off the loan and start making monthly contributions to my pension OR stash the whole lot in my pension and start making payments to my loan?

For various reasons, I've never actually paid anything on the student loan. It's so low as it covers fees for one year (from a Scottish university for the year of transition to no fees! :mad:). It's not a huge concern but I'd like to get it done and dusted.

I'm 29 and have made pension contributions on and off for 5 years.

Finances in reasonable shape otherwise. I have a mortgage with OH and an emergency fund which gets topped up every month. My job isn't hugely secure but I'm confident I wouldn't be out of work for long and OH earns enough to support both of us in the short term.

MSErs - over to you...

*Foolish*

I'd pay off the loan, then it's gone and not in the back of your mind. It's good to plan for the future, but even better if you're debt free If you can make overpayments into your pension then you could do so over the years instead of the lump sum.

somethingcorporate

How much do you earn? how much do you normally contribute to your pension? how much is in your pension at present?

Personally, I'd get the SL cleared just to get rid (I have only a bit left myself) but it may not be the best for you, especially if you are a higher-rate tax payer.

This also assumes you have 3-6 months cash stashed for emergencies.

AutumnLeaf

Thanks very much for the replies.

In answer to the questions:

I am most certainly not a higher rate taxpayer! I earn £22k pa.

There's a few thousand in a pension with a previous employer. I was hoping to save around £180 p/m into my pension going forward.

We have 3 months' outgoings saved for emergencies.

somethingcorporate

If I were you then I would clear your debts - it'll make you feel better Especially given it is your November no.1 goal.

AutumnLeaf

Thanks Somethingcorporate. Just checking I wasnt missing some very obvious benefit to doing it the other way round. I will feel better. Now if only Goal 3 was as easy....

*Foolish*

AutumnLeaf wrote: »

Now if only Goal 3 was as easy....

I'm with you on that one! :doh: