Small Steps Out Of Massive Debt!

GeorgianaCavendish

Thank you so much everyone! I'm really glad to know that I'm not alone in the blogs etc inducing Christmas downers, and that my thread is helping people save money ... that's something I never thought I'd say! :eek:

GeorgianaCavendish

I received a letter from the Student Loan Company today and wondering if anyone has been in a similar situation and could help me out a bit? They said that as I've got 2 years of repayments left I would be better off switching from PAYE to Direct Debit repayments, so that I avoid overpaying.

The balance on my Student Loan is £10,765.93 (based on the last annual statement, including payments up to 1 April 2017). In the tax year ending April 2017 I repaid approx £4400.
Obviously deductions have been made from my salary every month, but HMRC send these once a year to the SLC. Current monthly repayments are £283 for normal months, with a higher deduction if/when I get a bonus (an annual event, when it happens).

Before receiving this letter, my plan was to wait until April 2018 to check the balance and then make a decision on whether I would be better off switching to Direct Debit payments.
(I think the "real time" balance on my Student Loan is around 8.5K, and I'm definitely not going to have paid that off by April!)

So, my very long-winded question is : would there actually be any advantage to my switching to Direct Debit payments at this time? By my own "back of an envelope calculations" I've got about 2.5 years of repayments left, so I'm not worried that I'm going to overpay anytime soon. I'm not sure if there are any other considerations to take into account?

DrSpendLittle

re: the student loan question, I read somewhere that you should only switch to direct debit in the final year of repayments. I can't recall the logic for that but perhaps it has something to do with it being taken out pre tax from your salary.

I plan to switch to direct debit for the last 12 months (we have a similar level of outstanding student loan debt) but I don't get bonuses at work.

However, for you, if you get a decent regular bonus at work, you'd get more of that as takehome if you switched to direct debits earlier, which could be a reason to shift over earlier.

DrSpendLittle

ps. you could use this nifty calculator to see how much you'd get paid with and without your SLC contributions being taken out pre tax and then add up the 'tax savings' over two years to see what the real maths is behind staying as it is vs. excluding it.

GeorgianaCavendish

Thanks DrS!

I'm quite torn on this issue because I don't always get a bonus, but this year I got a good one which I was able to put towards my debt repayments.

Part of me would like to continue repaying my student loan on PAYE so that any future bonuses are automatically partly allocated to Student Loan, the Student Loan is repaid sooner.
Another (and perhaps more sensible) part of me thinks that the Student Loan is a cheap debt and even if I don't get another bonus, it will be repaid within 2.5 years anyway. So why not make the switch to DD and allocate any potential bonuses towards repaying my commercial debt which is more expensive.

I guess this would also depend on whether the SLC would set my repayments at my "normal month" PAYE deductions, or would they base it on the past 12 months repayments (which included a bonus), or would they reach a completely different figure. Perhaps I should ring them to ask ...

DrSpendLittle

Aye, definitely ring them to ask as there are no guarantees as to how they'll split up the outstanding debt balance into monthly instalments, or how may instalments they'll ask for.

From my understanding, SLC debt is a good debt in the sense that it's super cheap and doesn't appear on your credit file. It would be a shame to clear it 'early' with bonus payments. But, it is taken into consideration when applying for a (re)mortgage and I can't recall what your status is on that front but do think about how / if a direct debit payment may be considered differently by lenders vis-vis PAYE deductions.

I can totally see your point - it would be a shame to use bonuses to 'overpay' SLC debt in place of commercial debt and I can thus see why you would want to shift to DD. I would too.

But, think 2.5 years ahead and consider how secure you job / salary is likely to be.... If your SLC is done through PAYE, its one less thing to stress about if the proverbial hits the fan.

It seems there is no clear answer just now, but if it was me, I wouldn't want to make the switch 2.5 years ahead of time, I'd stick to 1 year ahead of time. However, I've been made redundant in the past and still have that anxiety over the immediate loss of income / debt repayment nightmare situation happening again. I'm quite cautious when it comes to long term financial commitments. Generally (and obviously not including CC debt )

GeorgianaCavendish

I just rang them ... If I switched to Direct Debits the monthly payment would be £373.51 for 23 months :eek: So that clearly makes staying with PAYE the obvious option for me at the moment

DrS, really good point about job security and committing to a long term DD repayment. I think that my job is secure but you never know, and if I lost my job I don't think I could find another £283 a month to cover the Student Loan repayment (let alone £373.51 :eek: )

They did say that this figure is based on their estimate of my salary (which was quite a bit higher than my actual salary as they took my bonus into account). I could change this by sending them copies of my most recent payslips and a letter from my employer, but I don't really think there is much point in doing this at the moment.

So I'm sticking with my original plan to see where I am in April 2018 once the 2017-18 repayments have been updated and then look at the situation again.

Thank you for all your help with this! It was so helpful to have a sounding board to help me come to a rational decision, not an emotional one!

wishingthemortgaheaway

Hi GC, let me share a tale with you about my student loan.

I got a similar letter to you. I thought 'stuff it, I'm salaried, they can sod off' I did sign up to the online student loan account though and I set up a recurring card payment of £36 a month to bring my repayments to a nice, round £200 (I graduated in 2004 mind). I also Tilly tidied to bring my pay off day closer.
Thanks to my payslips and the online account I knew exactly when my student loan would be paid.

May 2015 came along and my salary slip came in. I had £84 left to pay, I rang them up, paid the £84 over the phone and said 'stop taking my money from my salary'
'Oh, sorry madam, there's not enough time to stop the June payment'
Urgh student loans, never mind It will be paid back to me post April 2016 and I'll use the money as a little treat then.

Then I fell pregnant and thought, I won't chase this up now, it will be a nice little bonus when I'm on maternity leave.
September 2016 came and they sent me a letter saying 'we owe you money, ring to claim' so I did.
Approximately £300 was refunded to me. I thought it was odd, I was expecting about £180. But never mind they must be right, they wouldn't give me more money than they owed me.
(So I signed Pickle and I up to some baby classes I never would have paid for without this money)

Fast forward to 2017 and because 'hmrc have adjusted your paye contributions to your student loan and you owe use £180' grrrrr hisss incompetence.

Fortunately I was due a tax rebate due to Mat leave which paid the student loan bill and gave me about £30 to treat myself.

The moral of this tale?? Don't trust slc or hmrc

Good luck
Wish.

GeorgianaCavendish

Hi Wish, what an absolute nightmare with your SL! So much back and forwards, I don't know why they seem unable to talk to each other to get correct figures, yet communication works fine when it comes to deducting from salary!
Glad you weren't left out of pocked though, and hope you & Pickle enjoyed the baby classes

DrSpendLittle

GeorgianaCavendish wrote: »

I just rang them ... If I switched to Direct Debits the monthly payment would be £373.51 for 23 months :eek: So that clearly makes staying with PAYE the obvious option for me at the moment

DrS, really good point about job security and committing to a long term DD repayment. I think that my job is secure but you never know, and if I lost my job I don't think I could find another £283 a month to cover the Student Loan repayment (let alone £373.51 :eek: )

They did say that this figure is based on their estimate of my salary (which was quite a bit higher than my actual salary as they took my bonus into account). I could change this by sending them copies of my most recent payslips and a letter from my employer, but I don't really think there is much point in doing this at the moment.

So I'm sticking with my original plan to see where I am in April 2018 once the 2017-18 repayments have been updated and then look at the situation again.

Thank you for all your help with this! It was so helpful to have a sounding board to help me come to a rational decision, not an emotional one!

Glad you got this sorted! Sounds like the original plan makes the most sense to you, especially the :eek::eek::eek: inducing monthly payment!