10k - pay off student debt or save in some way?
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Hammerhead17
Posts: 9 Forumite
Hi All,
Just looking for some ideas with what to do with 10k I've just been given (gift from father).
Debts:
£5,639.62 - post 2012 student loan (only did 4 years part time for the equivalent of year 1 course, not intending to carry on as expecting to be able to do a degree through work apprenticeship scheme). Student loan company wouldn't tell me my interest rate but the website seems to indicate it will be 6.1%.
£574.14 on the credit card (0% until September 2020, planned purchase with repayment plan already factored into monthly budget).
I have actually spent £560 already on furniture for my place (own a maisonette with partner).
Engaged to be married - we've already factored in the money for the wedding into our existing savings plan so don't need this.
I'm torn between:
- paying off my student loan and putting the rest into an easy access ISA
- putting a whole bunch into a long term savings account and keep the rest for emergencies/wedding extras. I have heard it's good to keep 3-6 months salary in emergency savings.
I feel like I should pay off the student loan but I'm nervous about not then having enough for emergencies.
Thanks for your thoughts.
Just looking for some ideas with what to do with 10k I've just been given (gift from father).
Debts:
£5,639.62 - post 2012 student loan (only did 4 years part time for the equivalent of year 1 course, not intending to carry on as expecting to be able to do a degree through work apprenticeship scheme). Student loan company wouldn't tell me my interest rate but the website seems to indicate it will be 6.1%.
£574.14 on the credit card (0% until September 2020, planned purchase with repayment plan already factored into monthly budget).
I have actually spent £560 already on furniture for my place (own a maisonette with partner).
Engaged to be married - we've already factored in the money for the wedding into our existing savings plan so don't need this.
I'm torn between:
- paying off my student loan and putting the rest into an easy access ISA
- putting a whole bunch into a long term savings account and keep the rest for emergencies/wedding extras. I have heard it's good to keep 3-6 months salary in emergency savings.
I feel like I should pay off the student loan but I'm nervous about not then having enough for emergencies.
Thanks for your thoughts.
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Comments
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I would clear all debts. Martin Lewis suggest this as well. Clear debts, then save. The longer you have the debts, the more it will cost in the long term. I personally would want to be debt free ASAP. At least you know it's all gone and dealt with.
I know someone will say open a 1.5% easy access or switch and get 5% regular saver, but your debts are higher than what you'd be saving.0 -
Have a good read of https://www.moneysavingexpert.com/students/repay-post-2012-student-loan/.
For most people paying back the student loan early is a really bad idea because:
- You may never earn enough to actually have to pay back your student loan before it gets wiped. In this case the interest rate is irrelevant.
- A student loan is the best type of debt you can ever have. It doesn't go on your credit report. You don't have to keep paying if your circumstances change such that you are no longer earning above the repayment threshold.
If you are confident you will earn enough to pay back the student loan in full, it might be worth clearing it.
Otherwise, I would put the £10k into a stocks & shares ISA and leave it alone. Choose a balanced low cost investment fund, such as a Vanguard fund. The long term returns will be far superior to cash savings rates.0 -
I find the 'best type of debt' a bit oxymoronic because no kind of debt is good.
The argument about not earning enough to pay back is flawed. Presumably people go to uni to earn more in their lifetime, so they would naturally earn more to pay it back. I take the view that uni is a choice, and a choice should be repaid. It's not up to the general taxpayer to pay for peoples tuition.0 -
20SmthngSver wrote: »I find the 'best type of debt' a bit oxymoronic because no kind of debt is good.
The argument about not earning enough to pay back is flawed. Presumably people go to uni to earn more in their lifetime, so they would naturally earn more to pay it back. I take the view that uni is a choice, and a choice should be repaid. It's not up to the general taxpayer to pay for peoples tuition.
You are entitled to your opinions, but most people would choose not to repay a debt that is going to be cancelled anyway. And in terms of self-interested financial advice, your comment is extremely unhelpful.0 -
Hammerhead17 wrote: »Hi All,
Just looking for some ideas with what to do with 10k I've just been given (gift from father).
Debts:
£5,639.62 - post 2012 student loan (only did 4 years part time for the equivalent of year 1 course, not intending to carry on as expecting to be able to do a degree through work apprenticeship scheme). Student loan company wouldn't tell me my interest rate but the website seems to indicate it will be 6.1%.
£574.14 on the credit card (0% until September 2020, planned purchase with repayment plan already factored into monthly budget).
I have actually spent £560 already on furniture for my place (own a maisonette with partner).
Engaged to be married - we've already factored in the money for the wedding into our existing savings plan so don't need this.
I'm torn between:
- paying off my student loan and putting the rest into an easy access ISA
- putting a whole bunch into a long term savings account and keep the rest for emergencies/wedding extras. I have heard it's good to keep 3-6 months salary in emergency savings.
I feel like I should pay off the student loan but I'm nervous about not then having enough for emergencies.
Thanks for your thoughts.
Firstly, put the money to repay the credit card debt into the highest-interest account available. That way, it will be available when the 0 per cent deal ends and will work for you in the meantime.
Repaying your student loan is not really a priority. If you anticipate any other expenditure for which borrowing might be necessary, save your money for that rather than repaying the student loan: any other debt will be on worse terms.0 -
That's not true. Most people would never be able to buy a house without a mortgage. Most businesses would never get off the ground without a loan.20SmthngSver wrote: »I find the 'best type of debt' a bit oxymoronic because no kind of debt is good.
It is a statistical fact that the overwhelming majority of people who take out the full student debt will not earn enough to pay it back before the debt gets written off.The argument about not earning enough to pay back is flawed. Presumably people go to uni to earn more in their lifetime, so they would naturally earn more to pay it back. I take the view that uni is a choice, and a choice should be repaid. It's not up to the general taxpayer to pay for peoples tuition.
Remember that student loans are repaid at 10% above an earnings threshold. You don't pay anything below that threshold. Just like an income tax band.
That is why student debt is, for most people, more like a "tax" than a "debt". Hence Martin's campaign to rename the student finance system as a "tax" or a "graduate contribution system".
Your political views are legitimate, but it is not in the Op's best interest to follow them. If your view is that the Op should choose to pay more back to the exchequer than the tax system requires him to, that's fine, but let's be clear that this is the effect of your suggestion !0 -
Voyager2002 wrote: »You are entitled to your opinions, but most people would choose not to repay a debt that is going to be cancelled anyway. And in terms of self-interested financial advice, your comment is extremely unhelpful.
The day will come when all those who refuse to repay their student loans through selfish means will impact the others who are coming behind them.
A lady was on here the other day getting divorced and up to her eyes in debt, one of which was students loans which finally caught up with her. The time now ripe for her to repay and guess what she was on the verge of getting divorced and completely broke.
If only she had paid off those loans when the time was good, but like all selfish people, she felt that delaying the inevitable was more important than repaying the taxpayer's money.
Life is a circle, we as humans need t be very careful what we do, because things always return to get us when we least expect it.
My advise to the OP, you borrowed the taxpayer's money to go to university, fate saw to it that you have been given some money, show some integrity and repay the student loan and start your marriage life with a clean slate. The choice is yours.0 -
The day will come when all those who refuse to repay their student loans through selfish means will impact the others who are coming behind them.
A lady was on here the other day getting divorced and up to her eyes in debt, one of which was students loans which finally caught up with her. The time now ripe for her to repay and guess what she was on the verge of getting divorced and completely broke.
... erm ... what are you talking about? Are you from a country other than the UK?
Student loans in the UK are only repayable is country are only repayable when you are earning more than £19k.
The repayment is 9% of what you earn over £19k and is deducted by your employer from your wages, just like income tax.
It is not possible for student debt to "catch up with her" because you can't be behind with your student loan repayments. And if you are "broke" repayments aren't due anyway.0 -
The day will come when all those who refuse to repay their student loans through selfish means will impact the others who are coming behind them.
A lady was on here the other day getting divorced and up to her eyes in debt, one of which was students loans which finally caught up with her. The time now ripe for her to repay and guess what she was on the verge of getting divorced and completely broke.
If only she had paid off those loans when the time was good, but like all selfish people, she felt that delaying the inevitable was more important than repaying the taxpayer's money.
Life is a circle, we as humans need t be very careful what we do, because things always return to get us when we least expect it.
My advise to the OP, you borrowed the taxpayer's money to go to university, fate saw to it that you have been given some money, show some integrity and repay the student loan and start your marriage life with a clean slate. The choice is yours.
Any debt that doesn't get repaid has the capacity to impact on others - that's always been the case, never mind only impacting on the future.
If the poster who was getting divorced and is now broke had paid her student debt earlier (when not actually required) she would be even more broke now!
You have as good as told OP that they are lacking in integrity for not paying their student debt. They haven't said anything about not paying their student debt, just that they aren't sure whether to pay it now.
Thank you, however, for acknowledging it is OP's choice; of course what you really mean is they should do as you say.0 -
Most answers here seem to be stock answers, which is ordinarily fine but I think we need a different response when the outstanding student loan is less than £6k.
You need to factor in your salary.
On £6k loans, it's a lot more likely that you'll repay in full. At current rates, a salary of just over £30k will mean repayments of £450 per year and you'll clear £6k excluding interest within 13 years. Which means you would end up paying all the interest, so it does matter.
If you think you'll end up repaying the loans based on your salary, I'd definitely repay them now and avoid the 6%+ interest.
I'm on plan 1 loans so interest rate is 1.75% currently, but on my current salary I'll clear my £16k remaining debt within the next 14 years (inc interest), so I'm not losing out if I repay the loans early (subject to opportunity cost of investing that money instead).0
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