12 months (or less) left on plan 1 student finance - settle with 0 % Purchase credit card?

PragmaticDan

Hi,

I have a plan 1 student loan and I've received a letter from SLC declaring that I'll have my debt paid off in less than 12 months. 

The outstanding balance on the student loan is approx. £2800
I have short term savings of £2500 (a pot which i typically dip into for frivolous spending e.g clothes, restaurants)

Initially, I did the math wrong and calculated, based on a payslip that had a bonus in there (yay - very lucky) and a much higher than usual student loan repayment, I could save a lot of money by paying off the outstanding balance using a 0 % purchase credit card.

When in reality, my PAYE SLC repayment is £229, which would be paid off in 12 months.
But... that would be the same if I had the £2800 balance on a credit card, paid off over the same 12 month period?

Perhaps I still have something wrong with my maths. But surely, paying the debt off 0% would financially benefit me more, than the loan's current interest rate of: base rate + 1 % = 6.25% ??

Many thanks,
Dan

p.s I have read and watched:
https://www.moneysavingexpert.com/students/student-loans-repay/

But I'm not sure what the right course of action would be in this case.

GrumpyDil

Will the SLC accept payment by a 0% credit card? 

sparks_2023

The great thing about the loan is that if your income drops ( potentially unexpectedly ) you don't have to make any repayments. That is worth its weight in gold in uncertain financial times - personally I wouldn't transfer it to a standard debt.

CliveOfIndia

It's unlikely that SLC will accept payment by credit card.

But even if they do, it's almost certain that your credit card would class it as a cash advance, meaning you'd be hit with a cash advance fee plus interest - cash advances would not qualify for the 0% promotional offer.

PragmaticDan

Thanks for your replies.

I will double check the payment terms with SLC. If I remember correctly it's just the long card number, expiry and security code like most payments.

CliveOfIndia

PragmaticDan said:

Thanks for your replies.

I will double check the payment terms with SLC. If I remember correctly it's just the long card number, expiry and security code like most payments.

It would also be a good idea to check with your card issuer - as I mentioned earlier, you could well find yourself having to pay a cash advance fee and a high rate of interest.

Stuart_W

Remember that if the unexpected happens - such as redundancy, or sudden change in health rendering you unfit for work, you don't pay your student loan back if your income drops or ceases. Your credit card balance would remain payable, including minimum monthly payments each month during the interest free period and then probably very high rates after the interest free period.

I have a remaining balance on a student loan from 2002, despite having paid off my mortgage in full. Probably an unusual scenario, but I prioritised other debts with spare cash each month, and now having switched to part time work am below the threshold and may never pay it back.

If you really want to clear it, I would consider that you use your savings and then set up one of the high interest regular saver accounts to pay that £229 each month you're currently used to paying to the SLC. In a year, your savings are back and you've got the high interest paid on your savings rather than high interest charged on your loan.

Because of the slow communication between HMRC and SLC you will probably end up overpaying and then get a refund when you've cleared your loan. It all eventually sorts itself out but do bear in mind if you pay it off with SLC your employer will still make deductions until they receive notification not to take student loan deductions, which may take some time.