Newly single parent- pay off postgrad?

Chasedoolid

Hi all, 

I’m hoping for some advice on whether I should pay off my postgraduate loan or hang onto my savings.

I currently have a Plan 1 student loan which I repay at around £91/month. I’ve recently started paying off a postgraduate loan too, which is an additional £85/month. The interest rate on the postgraduate loan is 7.3%.

I happen to have £4,000 in savings, which would completely clear the postgrad loan. But here’s the dilemma: if I pay it off, I’d be left with no emergency fund at all. We’ve just gone from a double to a single income household, so I’m understandably nervous about having nothing to fall back on.

On one hand, the interest rate is high, and clearing the loan would free up £85/month. On the other hand, I know the importance of having a safety net — especially right now.

Would love to hear what others would do in this situation — pay it off or keep the buffer?

Thanks in advance!

DrEskimo

I would strongly advise to keep the savings as your emergency fund. The interest is not that high, but importantly it’s not a traditional loan where you are contracted to pay a fixed amount regardless of your income. 

If your pay lowers so does the amount you repay, to a point where if you lose your source of income entirely you don’t have to pay anything back. So the financial risk isn’t that high relative to other debts. 

silvercar

I’ll move this to the student board.

my advice would be to not pay off the loan, it’s more important to have some savings and once repaid you can never get this money back.

powerspowers

Agree! I’d pay it off slowly and keep your EF intact. £4K to access when needed is worth a lot more than £85 a month which would probably get swallowed up and you’d end up relying on consumer credit to meet a big expense. 

Would it be worth going through your budget now you have had a change of circumstances? 

Chasedoolid

Thanks for your advice,  it's really appreciated. Ive tried hard to go through my budget since the change of circumstance and take out anything unnecessary- my first focus was buying our home in my name so my daughter can stay living here, which is now all complete. 🎉 I'm now focusing on trying to earn a bit more money and really budgeting month to month! Thanks for all your help 🙂