What to do with £10k?

bp5678

I'm a 24 year old guy who graduated university 2 years ago. I'm living at home with family paying rent.

I was paying £9k a year at uni so I'm in £45k of debt (actually risen a little due to interest). So I'm in about £47k of uni/student debt. The rate at which I'm paying it back is very slow but also it's growing in interest faster than the rate I'm paying it back.

I was looking at saving up to move out and get on the property ladder asap. I've now considered using all of the money I've saved to try to clear as much of this debt as I can as quickly as I can.

Should I make my priority getting on the property ladder or clearing this debt?

I'm currently paying back the student debt as such a small % of my salary. I'm not sure what the percentage is but I think I'm paying back about £30 a month of student debt (based on my salary which is £26k).

I'm looking to save £1k per month.

The other idea I have is to put the money into some sort of investment.

So out of my 3 options: keep saving to get on the property ladder, clear student debt or invest.... which will give me the most money in the long run?

Zorillo

You could turn your £10k into £11k just by putting £4k into a LISA which you can use towards your first property purchase, in which case a Cash LISA is best, or your retirement, in which case S&S LISA is more suitable. You can deposit up to £4k annually, and get a 25% bonus up to £1k a year every year until you're 50. So that's up to £26k available for free to you.

I'd ignore the student debt. It can't hurt you, and you'll repay it eventually as your wage increases over time.

MaxiRobriguez

You pay 9% over the £25k threshold for the student debt, so you should be paying less than £30 a month. It's probably worth considering that you might not ever fully repay the debt as it's wiped off after 30 years, so paying it off now might not be worth it. See MSE's student loan repay guide (sorry, I can't link as a new user!) for more comprehensive guide on what/what not to do.

Which leaves property or investment, of which the former can and usually is part of the latter.

If I were you'd I'd focus on getting on the housing ladder. Renting means you lose 100% of what you give your landlord, which I suppose is thousands each year for young people now. Paying off a mortgage chips away at the debt and means once you're done paying you could if you were so inclined live rent/mortgage free for the rest of your life.

TheLastMongoose

I listened to a Martin Lewis podcast a week or two ago about the student loan repayment question. It was on Radio 5 Live. I would recommend a listen as they discussed it quite extensively. The punchline was as MaxiRodriguez said..dont pay it off as a priority as its a much less troublesome form of debt than anything else and will eventually go away on its own. Its more like a tax than a debt.

kidmugsy

Consider the following strategy:

(i) Put £4k into a Cash LISA in tax year 18/19. (The two providers are Skipton BS and Nottingham BS.)

(ii) Put any extra cash into high interest accounts such as current accounts and regular savers. You could look at Nationwide accounts to begin with.

(iii) Then in 19/20 repeat the process.

(iv) At work contribute enough to the pension scheme to ensure you get the maximum employer contribution. While you are saving for a house there's no need to contribute any more than that.

MaxiRobriguez

EJS_Superted wrote: »

I listened to a Martin Lewis podcast a week or two ago about the student loan repayment question. It was on Radio 5 Live. I would recommend a listen as they discussed it quite extensively. The punchline was as MaxiRodriguez said..dont pay it off as a priority as its a much less troublesome form of debt than anything else and will eventually go away on its own. Its more like a tax than a debt.

With a £45k debt on repayment plan 2, you'll always be paying at least 3%, which on £45k isn't insignificant.

At £26k starting salary, if you apply a 5% payrise every year (good luck) to the point you're earning £40k within 10 years, £60k within 20 years and almost £100k after 30 years when the debt is ready to be wiped off, YOU STILL WON'T HAVE PAID OFF THE DEBT.

It's best just to consider it a 9% tax on earnings above £25k for the next 30 years.

Even if you get an inheritance and are able to pay off the debt in full, it's not worth doing, because in that scenario above you'll have paid about £40k total in interest over 30 years.

bp5678

MaxiRobriguez wrote: »

You pay 9% over the £25k threshold for the student debt, so you should be paying less than £30 a month. It's probably worth considering that you might not ever fully repay the debt as it's wiped off after 30 years, so paying it off now might not be worth it. See MSE's student loan repay guide (sorry, I can't link as a new user!) for more comprehensive guide on what/what not to do.

Which leaves property or investment, of which the former can and usually is part of the latter.

If I were you'd I'd focus on getting on the housing ladder. Renting means you lose 100% of what you give your landlord, which I suppose is thousands each year for young people now. Paying off a mortgage chips away at the debt and means once you're done paying you could if you were so inclined live rent/mortgage free for the rest of your life.

In that case, is there any way to stop paying the loan back now? Am I OBLIGED to pay it as soon as I go over £25k salary per annum?

bp5678

Zorillo wrote: »

You could turn your £10k into £11k just by putting £4k into a LISA which you can use towards your first property purchase, in which case a Cash LISA is best, or your retirement, in which case S&S LISA is more suitable. You can deposit up to £4k annually, and get a 25% bonus up to £1k a year every year until you're 50. So that's up to £26k available for free to you.

I'd ignore the student debt. It can't hurt you, and you'll repay it eventually as your wage increases over time.

Sorry I should've fully explained....

I have about £8k in my current account savings. And then about £2k in a Help To Buy ISA (I add £200 each month to it).

When I decide I'm going to buy,, I'm going to move this money over to a LISA account.

bp5678

kidmugsy wrote: »

Consider the following strategy:

(i) Put £4k into a Cash LISA in tax year 18/19. (The two providers are Skipton BS and Nottingham BS.)

(ii) Put any extra cash into high interest accounts such as current accounts and regular savers. You could look at Nationwide accounts to begin with.

(iii) Then in 19/20 repeat the process.

(iv) At work contribute enough to the pension scheme to ensure you get the maximum employer contribution. While you are saving for a house there's no need to contribute any more than that.

(i) Out of Skipton and Nottingham BS, is one better than the other?

(ii) I'm currently with Nationwide Flex Direct. So I have nearly £10k at 5% interest (although this interest is only up to the first £2500 I think). Is there a better account for me based on those figures? I'm going to join other banks for the signing up perks/benefits however I'll use the Nationwide account as my account to give me the most interest.

xylophone

So I have nearly £10k at 5% interest

You don't, given what you have said above. (£8000 in Flexdirect current account and £2000 in Halifax HTB).

You are aware that the 5% interest (up to £2,500) in Flexdirect current account ends after a year, decreasing to 1%?

https://www.thenottingham.com/lifetime-isa/

https://www.skipton.co.uk/savings/isas/cash-lifetime-isa

Interest rate on both above is 1%.

You are aware that there is a Regular Saver at 5% available if you have a Flexdirect account?

First Direct offers a 5% RS to current account holders and HSBC offers a 5% RS to Advance current account holders.

bp5678

xylophone wrote: »

You don't, given what you have said above. (£8000 in Flexdirect current account and £2000 in Halifax HTB).

You are aware that the 5% interest (up to £2,500) in Flexdirect current account ends after a year, decreasing to 1%?

https://www.thenottingham.com/lifetime-isa/

https://www.skipton.co.uk/savings/isas/cash-lifetime-isa

Interest rate on both above is 1%.

You are aware that there is a Regular Saver at 5% available if you have a Flexdirect account?

First Direct offers a 5% RS to current account holders and HSBC offers a 5% RS to Advance current account holders.

You're right... I don't have £10k in there (sorry I wasn't specific when I said 'nearly £10k').

Yes I'm aware that the interest rate decreases after a year on the FlexDirect. It'll be a year as of March which will be when I look to change.

So between Skipton and Nottingham, there is very little difference in terms of the ISA?

I didn't know about the regular saver. Let me look into it as it makes sense if my current 5% interest is capped at such a little amount (as well as the fact I'm going to leave the FlexDirect account in March anyway).

Thanks and sorry for the slow reply.