To pay off loan or not?

Wardee

Hi all,

January 2019 I was £23k in debt but July's payday at the end of the month will finally put me in a positive net worth. I still have a loan of £6800 which I have been overpaying whilst saving mainly to keep up morale. I have now saved up enough to be able to pay off the entire amount which I've been told is an early repayment figure of £5900. If I do this I will have zero savings and be completely wiped out BUT I will be officially debt free from August. I do still have credit cards and overdrafts etc if any struggle or large bill did arise but I'm not sure how much if would affect me mentally paying such a large sum off and 'starting over'.

What would you all suggest I do as I'm in two minds right now. Thank you.

Floss

Why not make an overpayment of say £3k, which will still allow an emergency fund of £2900ish and would mean no need to rely on credit card debt if there were any unforeseen expenditure. Then you can overpay the balance until it is done.

MovingForwards

How much is your loan payment each month?

That plus the money you've been saving each month(ish) would rebuild your savings in how long?

How much are you saving each month(ish)? Maybe forget saving it and use it as an overpayment to bring the loan down. When it gets to about half, then pay it off.

It's taken me about the same amount of time, to save about the same amount of money. I'd feel uncomfortable paying most of it out, but would calculate the above to see what options there are and which made me feel more comfortable.

kimwp

I'd second making a chunky overpayment from your savings then overpaying the loan with what you were overpaying and also saving.

I'd probably do it so that the number you had in savings was a nice round number - £2,000. That's plenty for "normal" unexpected spends and  you have credit cards etc if there's a big emergency.

kimwp

And well done on tackling your debt!!!

Brie

Well done for getting this sorted.

For me having zero owed is more important than a savings account as it means I'm no longer paying interest.  You've got the back up of CC & overdraft if necessary(not my first choice for anything) in an emergency but if you've cleared nearly £23k at a rate of £700? £800? a month you'll have your savings back in no time.

kimwp

kimwp said:

I'd second making a chunky overpayment from your savings then overpaying the loan with what you were overpaying and also saving.

I'd probably do it so that the number you had in savings was a nice round number - £2,000. That's plenty for "normal" unexpected spends and  you have credit cards etc if there's a big emergency.

Crunched a few numbers based on the amounts you've saved and paid off - I think this strategy would get you to debt free with £2,000 in the bank for the start of 2023.

EssexHebridean

Oh wow just look how well you've done! 

Agree with those saying don't wipe the lot - an emergency fund is a wonderful thing and the power of having one must never be underestimated! 

How much is your monthly surplus now would be my first question - have you already rolled any other debt payments you were making into the monthly payments to the loan, or just throwing money at savings? Second question - How much longer would it take you now to save the balance of the money needed to clear the loan and still leave the suggested chunk in the savings? 

Wardee

Thanks for all the positive comments all, interesting mixed responses as I was expecting most replies to say pay off in full to be done with it. Monthly loan payments are just under £200 so it would be great to have that gone finally but it's difficult to know where I'd be in another 6 months times as I have done a lot of extra hours to reach this goal.

Like you say I did work out roughly that I could carry on overpaying (I fixed it at overpaying the monthly amount every week and saving all leftover funds) and it would take me up until Christmas time or so but it would mean continuing to work long and extra hours to cover both saving & overpaying. On the plus side though I could potentially save another £4k-5k by that time and have the loan paid off come 2023. If I paid the loan off, continued overtime and heavy saving I'd be back to where I am now in 6-8 months I'd guess so it all seems to have the same end product just depends if I want to be officially debt free or not?

Thanks once again.

enthusiasticsaver

I think for me it would depend on what interest rate you are paying on the loan.  Saving £900 in interest in paying it all off would be a big incentive to get rid of it.  Presumably with the loan payments  and what you were paying in debt repayments you will soon build up savings again. If the interest rate is not too bad though there is no harm in hedging your bets and maybe paying off half and keeping half back as an emergency fund. It all depends on how you feel about being debt free. If you want it gone then repay the loan.  If you are happy to have it ticking away in the background just carry on as you are.  Do you have any big spending plans coming up like a new car or boiler needed? 

I appreciate you have done a lot of overtime to get  rid of as much debt as you can and that is only sustainable short term really so you deserve a pat on the back for sorting this out within three years.

Wardee

Sorry I should have mentioned the interest rate which is 9.4%. Does this change anyones opinion? I've saved £750 in interest so far by overpaying which has helped bring my net worth down on top of wages.

Personally I am swaying more towards paying off in full and just taking the hit but then I feel I'm not heading advice from you knowledgeable lot in which the majority have said to part pay as you never know what is around the corner. I think I'm more 3.5 years in the making and am slightly giddy at knowing any money I make can finally be all mine!

I have no plans for a new car (touch wood) or boiler (I rent) but I would love to be able to buy my own house one day but that just seems an impossible feat now which is a massive shame without years worth of saving (which I will continue to aim towards) as I'm frustrating at being stuck in the rent cycle but I suppose that is life.