24 going on debt free - how can I be smart with £?

ambitiouspanda · 4 March 2018 at 8:29PM

Hi, I’m 24. I have £3.7K in cc bills that I will pay off by May 2018. My student loan debt is £24K. I currently earn £45K per year. I rent in london. I want to be debt free.

I will clear off all my student loan by 2022.
I want to own my own home.
Most importantly I want to be financially smart.

I’ve been toying around with the use of getting whole life insurance, possibly getting a financial advisor etc. Do you have any tips or advice for me?

I don’t want to make silly decisions with my money. I want to be financially savvy and not live pay to pay. Any advice would be most welcomed! Thank you in advance!

Alexland · 4 March 2018 at 8:43PM

Is it worth paying off the credit card debt or could you roll it forward a few years by taking out a new credit card with a long interest free period? In the meantime you could getting interest on the money in 5% savers, etc.

Have you considered getting a Lifetime ISA for a 25% bonus on up to £4k per tax year towards a qualifying property purchase? The current tax year ends 5th April.

Are you making pension contributions at a sufficient level to get both full employer matching and meet your future needs?

Why do you need life insurance - do you have dependants?

From what you have told us I doubt you have sufficient assets to be of interest to a financial advisor. You would probably be better reading these forums and building and executing on a plan of action.

Alex

6022tivo · 4 March 2018 at 9:07PM

I wouldn't worry about paying off your student Loan, Corbyn will be promising to write it off to get your vote in a few years, so happy days.

Alistair31 · 4 March 2018 at 9:24PM

Even without Corbyns daft promises it may not be wise to rush into paying off a student loan.

tibbles209 · 4 March 2018 at 9:32PM

First I just want to say well done and congratulations for taking an active interest in managing your finances and planning your financial future at such a young age; if you remain motivated like this in the long term it will make an enormous difference to your wealth and financial security for your whole life.

While Alexland's advice about using your money to generate more savings interest than you would have to pay on your credit card debt is sound and makes good logical financial sense, there is also something to be said for the psychological boost you can get from relieving yourself from the burden of debt and starting with a clean slate. There's no single right answer to this one, so do what feels right for you.
While paying off student debt early is a bad move for a lot of people (as many do not pay off the full balance at all before its written off at the 30 year mark), if you are earning £45k at age 24 it is extremely likely that you would pay off your £24k debt, plus plenty more on top as the interest rate is so high. You say it will be paid off by 2022; I take it this means you are planning to overpay to clear it quicker?

Alexland also makes a very good point about pensions, and young people often do not consider these/realise the importance of them until much later, at which point it is much more difficult to build an adequate pension for a comfortable retirement. At your age a good target would be saving 15% of your gross income into a pension (inclusive of employer contribution). At the very least you want to make sure that you are putting in the minimum required to get your full employer's contribution as this is free money.

If you are aiming to buy a property in the future you should really look into Lifetime ISAs (again, Alexland beat me to it

). Trying to use as much of your £4k LISA allowance before the end of this financial year is in fact one thing I would recommend prioritising over clearing credit card debt more quickly, as you could get up to £1000 free government money towards your future house purchase, and then the same again every tax year until you buy. Have a read of the MSE guide; https://www.moneysavingexpert.com/savings/lifetime-ISAs

There are a million and one different aspects of personal finance to consider and it can be a little bit overwhelming to begin with. Once you are debt free, its worth starting to do a bit of reading about investing. At such a young age you have so much time for investments to grow, and starting earlier rather than later does make such a huge difference.

Sorry for the essay; I just think the potential when someone so young takes a serious interest in being smart with managing their finances is exciting!

Best of luck, I am sure you will do very well.

DrEskimo · 4 March 2018 at 10:03PM

What student loan plan are you on? As above, overpaying a student loan is generally not that advisable, but the interest rate is much lower on a plan 1, and for me (who has a plan 1 student loan) I really don't see any huge advantage in paying it early. Plan 2 when you're earning £45k (and have good prospects to earn more), then overpayment could be a good idea, but I would tend to make that my last priority.

For me, my priority would be to start building an emergency fund and pay off my credit card debt. Would start with £1k put aside, then start attacking the Credit Card debt. Whilst you could move debt to 0% interest and get better return on savings, for me it's liability that would be an unwelcome burden in any worse case scenario. Should the unthinkable happen and you lose your job, the last think you want is to be worrying about is credit card debt eating into your savings while you try to maintain other living expenses...

After that, I would continue to build the emergency fund and get it to around 3-6months of expenses.
Depending on your pension situation, I would ensure I am contributing a good amount to that, then start saving any additional fund towards a house purchase. Buying in London is not easy, and will only get harder and harder, so the faster you can get yourself on the ladder the better IMO.

I think those would be my short and medium term goals. Don't think you need to look at other things like life insurance, investments or those matters until after the house goal, but YMMV. For me, I would stick to just simple term life insurance, and set it to the amount of your mortgage when you reach that stage.

HTH

gallygirl · 4 March 2018 at 10:12PM

DrEskimo wrote: »

For me, I would stick to just simple term life insurance, and set it to the amount of your mortgage when you reach that stage.

As a single person there is no need to have life insurance. You won't be there to collect it

and the property will be sold to repay the mortgage.

DrEskimo · 4 March 2018 at 10:18PM

gallygirl wrote: »

As a single person there is no need to have life insurance. You won't be there to collect it and the property will be sold to repay the mortgage.

Yes very true...!

I was sort of making the assumption that by this point, the OP will have a special someone to buy a place with...was a daft assumption to make/not make clear!

Forget the life insurance (unless you are buying a property with someone :money:).

Alexland · 4 March 2018 at 10:26PM

DrEskimo wrote: »

Yes very true...!

I was sort of making the assumption that by this point, the OP will have a special someone to buy a place with...was a daft assumption to make/not make clear!

Forget the life insurance (unless you are buying a property with someone :money:).

Even if you do have a partner and/or dependents the amount of cover you need will depend on not just the mortgage balance but their future needs and the amount that would be released from your pension, etc.

ambitiouspanda · 4 March 2018 at 11:21PM

Alexland wrote: »

Is it worth paying off the credit card debt or could you roll it forward a few years by taking out a new credit card with a long interest free period? In the meantime you could getting interest on the money in 5% savers, etc.

Have you considered getting a Lifetime ISA for a 25% bonus on up to £4k per tax year towards a qualifying property purchase? The current tax year ends 5th April.

Are you making pension contributions at a sufficient level to get both full employer matching and meet your future needs?

Why do you need life insurance - do you have dependants?

From what you have told us I doubt you have sufficient assets to be of interest to a financial advisor. You would probably be better reading these forums and building and executing on a plan of action.

Alex

Hi, I really don’t like cc or I am yet to see the benefits of one. I’ve noticed that 1 month of spending can result in 2 months of repaying. So just imagine the setback it can have. God willing I will not touch a credit card again after paying this one off.

Where can I sign up for this 5% saver? What bank is offering this? ALSO, what bank is offering this 25% bonus? I’ll sign up for one before the tax year comes to an need. I believe there are some restrictions regarding opening Isa accounts. Is the cut off Jan-Dec or Apr-Apr?

My employer doesn’t match my contribution. I checked but I’ll double check again tomorrow morning. I’m not sure what my financial needs are yet for the future. I don’t have a husband or kids yet. Do you recommend any sensible amount I should put asides?
In regards to the life insurance I thought it would be a sensible idea as my parents who are 50+ recently got one. Yes you’re right about the financial advisor!

Thanks in advance! :A:money:

ambitiouspanda · 4 March 2018 at 11:35PM

tibbles209 wrote: »

First I just want to say well done and congratulations for taking an active interest in managing your finances and planning your financial future at such a young age; if you remain motivated like this in the long term it will make an enormous difference to your wealth and financial security for your whole life.

While Alexland's advice about using your money to generate more savings interest than you would have to pay on your credit card debt is sound and makes good logical financial sense, there is also something to be said for the psychological boost you can get from relieving yourself from the burden of debt and starting with a clean slate. There's no single right answer to this one, so do what feels right for you.
While paying off student debt early is a bad move for a lot of people (as many do not pay off the full balance at all before its written off at the 30 year mark), if you are earning £45k at age 24 it is extremely likely that you would pay off your £24k debt, plus plenty more on top as the interest rate is so high. You say it will be paid off by 2022; I take it this means you are planning to overpay to clear it quicker?

Alexland also makes a very good point about pensions, and young people often do not consider these/realise the importance of them until much later, at which point it is much more difficult to build an adequate pension for a comfortable retirement. At your age a good target would be saving 15% of your gross income into a pension (inclusive of employer contribution). At the very least you want to make sure that you are putting in the minimum required to get your full employer's contribution as this is free money.

If you are aiming to buy a property in the future you should really look into Lifetime ISAs (again, Alexland beat me to it ). Trying to use as much of your £4k LISA allowance before the end of this financial year is in fact one thing I would recommend prioritising over clearing credit card debt more quickly, as you could get up to £1000 free government money towards your future house purchase, and then the same again every tax year until you buy. Have a read of the MSE guide; https://www.moneysavingexpert.com/savings/lifetime-ISAs

There are a million and one different aspects of personal finance to consider and it can be a little bit overwhelming to begin with. Once you are debt free, its worth starting to do a bit of reading about investing. At such a young age you have so much time for investments to grow, and starting earlier rather than later does make such a huge difference.

Sorry for the essay; I just think the potential when someone so young takes a serious interest in being smart with managing their finances is exciting! Best of luck, I am sure you will do very well.

Hey! Thank you. I am trying

God willing, I will not use a credit card again. It’s a vicious circle. If you spend £1k this month you spend 2+ months repaying it on average because life gets in the way. I thank God for wisdom because I can honestly say I spent that initial £5K cc bill on utter rubbish. I can’t see anything worthwhile or intelligent in my room. :eek::rotfl:

Yes - I plan on clearing my student loan quicker. I’m not sure if it’s a smart idea but I’m on plan 1/pre 2012 and I’d rather keep £3.5K in salary than have everything deducted to £2.5K etc. I’m thinking about when I have kids (God willing). Every penny will count.

Pension - is that 15% per year? I suppose that’s the only logical answer :rotfl: I’ve asked my employer if they match the pension contribution but HR said no. I’ll ask again tomorrow.

Life time ISA - if I was to open one now I don’t think I’d have any money to put in there. Should I open one up anyway so that the terms would ultimately benefit me with the free £1K? I’m definitely going to have a read.

I really want to invest but don’t know how to go about it. But as you suggested maybe a thought for when my debts are paid by April/May!

Thank you again! You’re so kind!

24 going on debt free - how can I be smart with £?

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