Different types of debt, where do you stand on student loans

twisting

Hi all
I read a lot but rarely post, but I'm in debt-busting mode at the moment so I'm intending to be here more often as it's really motivating.

Debt-wise, my DH and I have:

A fairly big mortgage on a house that needs a lot of work.

We have 2 cars on car finance - one will be paid off by Nov under the regular payment (sooner if we can overpay obviously) and we intend getting rid of the other one when I don't need to drive our youngest to school any more (long story) which will be in about 14 months. I'll be able to just use public transport then.

We owe a family member £10k (interest free) which is complicated but they would like it back in 5 years from now

I have £20k in student loans. £13k on Plan A (1.5% interest) from the 1990s, (I have repaid some of it, it was higher, but since having kids have rarely been in repayment due to working PT) and £7k on Plan B which is more recent when I retrained, and this is accruing interest at 6%.

We have already repaid our overdraft and my DH's student loans. We don't have any credit card debt etc. We're not defaulting on anything.

Basically I'm just starting a new job that I retrained to do, so we're getting serious about sorting out all this debt.

What I'm wondering is what you would work on first/would you work on it all simultaneously?

My DH thinks we should just make the minimum repayment on my student loans but I'm only just over the repayment threshold so at that rate, it would take me 14 years to repay, which at 6% interest for some of it, that seems ludicrous to me.

Really appreciate any insight anyone can offer.:money:

[Deleted User]

The best advice would probably be to leave the student debt to run its course, As for the family loan you really need to start saving in order to have the cash in 5 years time, so £40 a week minimum.
You really need to sit down and work out where your money goes each month then allocate whats left to where you think its best directed.

twisting

Thanks venison.

We have already figured out what we spend our money on, I've been tracking it for about a year and we've cut out a load of things, what's left is stuff that my husband and I can't agree on (e.g. Sky..)

What we spend is basically this per month:

Car payment £135
My son's football team £20
Elec and gas £78
Council Tax £183
Life Assurance £106
TV license £12
Water £54
Mortgage £735
Other car payment £195 (this will be paid off by Nov 18)
Landline/broadband £22.50
My son's mobile £12
Piano lessons for my son and daughter £40
Petrol/diesel £300
Food, pet food, cleaning stuff, toiletries, loo roll etc £350
Savings £25
Sky Sports £34
Charity £10

Childcare is variable depending on my shift times but £100 a month is about average

Miscellaneous e.g. haircuts, shoes, clothes, parking if we go somewhere, prescriptions, fundraisers at school, fun stuff £300 (this is what I set aside for all those types of things, what we don't spend goes to savings)

This comes to £2687.50

We're a family of 5 people - 2 adults, 2 teens, a younger child, 2 pets.

Our income is variable (because I get some enhancements on some types of shifts) but about £3500 a month with 2 adults working FT. So, we have some room to make a decent dint in our debt but after paying off the car that's due to be repaid by Nov, I'm not sure what we should tackle.

InsertWittyName

The only things that stick out are:

Life Assurance £106
TV license £78


You should be able to get life assurance at considerably less cost (I pay £18 per month for just over £500k of cover).
TV license should be ~£12.

twisting

InsertWittyName wrote: »

The only things that stick out are:

Life Assurance £106
TV license £78


You should be able to get life assurance at considerably less cost (I pay £18 per month for just over £500k of cover).
TV license should be ~£12.

So yes, sorry, the TV license is £12, that's a typo!

Life Assurance is high for us (it's a couples policy) because I have a few health conditions and strong family history of some serious conditions plus my mum died of heriditary condition in her forties, which seems to make LA companies want to charge a fortune for my portion of the policy - DH's portion is similar to yours.

Cakeguts

Do the car payments allow for the insurance as well as the finance payments? What about house insurance?

Your car payments and the petrol/diesel to run them is only £100 less than your mortgage. If the insurance isn't included then you are probably paying as much to run two cars a month as you are on your mortgage? I don't know what the car you are thinking of keeping is but can you find something that is very economical to run?

My mobile phone costs £7.50 a month. Does your son have a PC as well as the phone? Does he need such an expensive mobile? I assume he is still at school so doesn't need a lot of apps to buy things on? There is nothing in there for your daughter's mobile?

twisting

Cakeguts wrote: »

Do the car payments allow for the insurance as well as the finance payments? What about house insurance?

Your car payments and the petrol/diesel to run them is only £100 less than your mortgage. If the insurance isn't included then you are probably paying as much to run two cars a month as you are on your mortgage? I don't know what the car you are thinking of keeping is but can you find something that is very economical to run?

My mobile phone costs £7.50 a month. Does your son have a PC as well as the phone? Does he need such an expensive mobile? I assume he is still at school so doesn't need a lot of apps to buy things on? There is nothing in there for your daughter's mobile?

Hi Cakeguts. Home insurance and car insurance x 2 both get paid for the year upfront, so they're currently paid until Feb 2019. We take the money for those from the miscellaneous £300 fund.

Both of our cars are very economical to run, we chose them for that reason, my husband and I both just do a lot of miles. £300 is the budget we set for petrol and diesel but we don't always spend that much, but often we do. The car payments are a pain and we regret them - our main car will be paid off fairly soon and then we'll drive it into the ground. The £135 payment includes servicing on the second car which I use for work and taking my daughter to school. I can't get rid of it ATM as I could get to work on public transport, albeit a bit of a convoluted route, but I can't get my daughter to school and back without a car. She will be leaving that school in just over a year so we've decided to just bare with it for now as we can cover the cost, it's just a drain. Once she can walk to school like my sons, we will give the second car back to the garage.

Re: the mobiles.

I have 3 kids - 2 teen sons, one younger daughter.

My daughter doesn't have a phone, my younger teen has a phone he bought with his Christmas money and he gets £5 credit for emergency calls/texts every 3-4 months. My elder teen's phone is paid for but he gets a giffgaff top up each month. I am gradually bringing him lower on the data, he used to have their £20 unlimited data plan, he's now on the £12 plan, I agree it could be lower, we are getting there slowly. He doesn't have any paid activities unlike my other 2 kids, so it's a bit of a compromise.

You'll see that neither my husband nor I have a mobile payment - I have a free SIM from landline that I never go over the free package on, and my husband gets his phone with his job.

I think by most British standards £12 a month on phones between 4 phone using people is fairly moderate - I've seen much much higher on here - but I will keep encouraging my son to use less data which is what makes it high. He has ASD so change doesn't come easily.

twisting

Hi all
Just bumping for opinions about what to pay first and/or whether to try to pay of student loans sooner or just do the PAYE thing over potentially 14 years....Thanks in advance.

indesisiv

Personally I would concentrate on clearing the family member debt. Leave the student loan until after.
Don't forget to look up the details for cancellation on your first loan. IIRC its something like 25yrs after first eligible to pay off last loan or something like that. So worth looking at it to see how close you are to being able to cancel paying it back fullstop.
Once you have dealt with the family I would save up the balance, then pay the student loans in lump sums. That way if anything bad happens and your income drops you still have the funds if needed (as you would stop paying the loans if your income dropped)

Hope that sort of makes sense?

DrSpendLittle

Leave the student loan for now because it is dirt cheap and is contingent on your income (i.e. you have no income, you need not make any payments), whereas the other unsecured debt is not and has more signifiant financial implications if you do not make payments. If life gets in the way, which it always does, and for some reason your income reduces, you don't want to be in a position where you've paid off your student loan in place of unsecured consumer debt. Student loan debt is 'safer' from a financial point of view.

I'm in a similar situation. I hope to be consumer debt free by this September but I currently have an outstanding Plan 1 Pre 2020 student loan of £9700, for which I make a £156 per month payment. Using this calculator, I should pay it off by 2020. But, I may pay it off sooner than that, just to get it out of my life. However, before I do that, I will have paid off all existing consumer debt and have a fully funded emergency fund of 3-6 months expenses. I will then pay it off and use the £150 that I pay on my student loan to purchase a private pension (as an addition to my state and workplace pension) as I want to retire early.

DrSpendLittle

DrSpendLittle wrote: »

Leave the student loan for now because it is dirt cheap and is contingent on your income (i.e. you have no income, you need not make any payments), whereas the other unsecured debt is not and has more signifiant financial implications if you do not make payments. If life gets in the way, which it always does, and for some reason your income reduces, you don't want to be in a position where you've paid off your student loan in place of unsecured consumer debt. Student loan debt is 'safer' from a financial point of view.

I'm in a similar situation. I hope to be consumer debt free by this September but I currently have an outstanding Plan 1 Pre 2020 student loan of £9700, for which I make a £156 per month payment. Using this calculator, I should pay it off by 2020. But, I may pay it off sooner than that, just to get it out of my life. However, before I do that, I will have paid off all existing consumer debt and have a fully funded emergency fund of 3-6 months expenses. I will then pay it off and use the £150 that I pay on my student loan to purchase a private pension (as an addition to my state and workplace pension) as I want to retire early.

Sorry, I didn't really your first post fully. Hmmm, I see your other debt is not interest accruing. I would still pay off family member first, then tackle the higher interest student loan, then the lower interest in that order.

Check out Dave Ramsey. He argues that good financial management is 20% maths / head knowledge and 80% behaviour. His snowball method is not based on paying off the highest accruing interest debt first but rather, on paying off the debt smallest to largest, because he values the behaviour change that comes from making quick, small wins early on in the debt repayment process.

If you can pay off family member and 6% interest student loan in 5 years, then you could prioritise 6% SL debt, but life always gets in the way and you don't want to be in a position of letting family members down because you repaid SL debt first. Is the 6% interest worth the risk of poor familial relations? Only you can make the decision, but for what its worth, if wasn't 100% certain I could pay family debt and 6% SL debt in 5 years, I'd prioritise family debt first.