Student loans and personal loans

noraas1984

Hi all, been a long time reader here and finally wanted to seek your advice!

So this is my situation. I have a student loan with around £4.5k remaining to pay, currently repaying through PAYE around £200 a month, I earn £44k.

I have a personal loan from years ago that still has 7k left to repay, I was stupid at the time and took a loan at 13.3% apr with rate setter. I am repaying £300 a month and have 26 payments remaining approximately. Luckily I can repay without penalty and change the monthly payment amount if I want to.

I am trying to clear as much debt as I can as quickly as I can as I'm sick of it, so I had an idea, but wasn't sure if it was worth doing. Pay my student loan off with a 0% credit card. This would then free up £200 a month and more as I am getting a salary increase shortly. I could then increase payments to my silly loan and pay off £500 a month which would reduce the amount of time I have left to pay. I would save about £500 interest if I pay back the loan early too.

I realise I'm probably not saving myself a great deal of money, but I want to be debt free as fast as possible. I don't have much expendable each month at the moment as I am getting married in August so have to pay for that, and otherwise don't spend a great deal. I own a property in London with my partner and repaying mortgage etc. After August I can chuck nearly all my salary at this after bills etc.

Many thanks :j

National_Debtline

Hi Noraas1984 and welcome to MSE,


I can understand what you are trying to do, however, you need to be careful. One plus side of leaving your student loan as it is, is if the unforeseeable happens they will reduce or stop your payments from your salary when your income falls under the threshold. Student loans are designed with this structure so it won't be classed as a default and it will have no detriment to your credit file. However, if you use a credit card to pay this off you won't have that advantage and you will still have to find your minimum payments whatever happens.


I appreciate the above scenario seems unlikely from what you have said, but I do think you should get some financial advice from a independent advisor before doing anything. You seem to be in a rare position where refinancing may actually help, however, you need to do this right, otherwise (as other posters will tell you) this can easily go wrong. Try and speak to the Money Advice Service (0800 138 7777) or an independent financial advisor (be careful of costs).


Laura
@natdebtline

smdabs

Hi Noraas1984


From reading your post, I am unsure as to why you would pay off the student loan with an interest free credit card instead of the personal loan?


Should you be able to obtain a credit card with the balance of the personal loan, you could potentially pay this off instead and then make the repayments on the credit card which would likely be much lower (due to the fact you won't have the burden of interest). Alternatively, if the offered to you is lower, at least use those funds to pay off the bulk of the personal loan. Again, the overall repayment is still likely to be lower due to the fact there would be no interest charged on the balance of the credit card.

Given the level of interest you pay on the personal loan, I would suggest that this is the balance you tackle first as it is most definitely the more expensive one. Not only that, as Debtline have said above - the student loan gives you the freedom (and assurance) that if the worst case scenario happens and you lose/lower your income, the repayments change with your circumstances and therefore you do not default and destroy your credit history.


The only concern I would raise is that should you go down the route of the interest free credit card, you need to make sure you can pay off the balance within the interest free period otherwise the rates usually sky rocket back up to the 17-20% marker.

noraas1984

Thanks for the above. I'm not sure why I didn't think about that option, paying off the loan with the credit card. I guess it's subject to getting a limit of 7k which I find unlikely.

I guess I could apply and see what is approved. I do actually have a barclaycard with a 10k limit and a zero balance, they're always giving me balance transfer offers but rarely on cash transfers. Also they tend to put 4% rate for doing so.