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Not sure what the best course of action is and wondered if anyone had any advice?

I have a loan that I am paying off slowly. At the current rate it will take me another 3+ years to pay it off.

With my recent news :D I was thinking of moving into a new flat but that will take up most (if not all) of the extra money I am getting.

Would it be sensible to pour my extra money (I have also just finished paying for my car) into the loan (almost tripling the monthly payments) to get it paid off in about a year.

Then at the end of a year I have even more money to get a nicer flat.

I can make additional payments to my loan with no penalty.

Or possibly get a new loan to pay it off (but at a potentially higher rate)?

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Thu Apr 08, 2010 8:53 am
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Firstly, check you can pay off your loan like that. Unless it's a flexi loan, you'll normally only be able to make those fixed payments or clear the entire amount.

If you can clear the entire amount that would definitely be the most sensible course of action, as you're probably paying a pretty penny in interest at the moment, even with the Bank of England base rate being so low.

I would always advise (with the exception of a proper mortgage) trying to pay of the debt first before increasing your outgoings. I'm doing it at the moment with my overdraft / hi fi saving (ie the overdraft gets paid off before any money gets put aside for the hi fi).

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Thu Apr 08, 2010 8:57 am
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With the exception of a student loan it's almost always a better idea to pay off existing debt before acquiring any more of it.
As you say there is no penalty for paying of your existing loan more quickly the that's certainly what I'd do as a priority (plus you will also end up paying less than if you paid it off over 3 years as there will be less interest accrued on the loan).

I also would not get a new loan to pay off the old one unless you need to do so to consolidate multiple debts into one that would, overall, have a lower monthly repayment. From your post I assume that this is the only loan you are currently paying back so the consolidation argument doesn't make any sense.
I don't understand your last sentence. Why would you want to saddle yourself with a new loan just to pay off the old one, especially if the interest rate would be higher? Doesn't make any sense IMHO.

If you have debt to clear then it's normally worth doing that before saving money as well. There are exceptions of course, such as paying minimum payments on a credit card within any 0% period and putting the money you would be putting towards it into a high interest savings account so you can clear the debt in a oner once the 0% deal runs out (that only applies if the actual level of debt on the card is not increasing though), or within the fixed term of a mortgage that doesn't allow overpayments. Generally however paying down debt is the smart thing to do first.

In summary and based solely on the info in your original post, increase your payments to pay off the existing loan as quickly as you can without jeopardising any other financial commitments (mortgage, household bills, student loan if you have one e.t.c). Then, once it's paid off you should be in a better financial position to get your new flat.

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Thu Apr 08, 2010 9:10 am
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Would it be sensible? Yes
Is it the best option? Well........

I would just like to venture that these things aren't always black and white. Paying off debt is always fiscally responsible, but you have to try not to do it at the expense of living your life the way you want. I'm not saying get a new flat. Just think about what you want and what you're prepared to sacrifice to pay off that debt. Try to find a balance. Maybe some of your raise could go on debt, some on either the new flat, or maybe some other treat or something to look forward to. I find that when you focus on paying off debt - you focus on debt. And when you focus on debt it's easier to stay in it for longer.

Maybe that's a little too esoteric for most people, but it's true. Law of attraction. If you work out a manageable and balanced solution, there's less chance of you focussing on the debt and more chance of you just getting on with your life.

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Thu Apr 08, 2010 9:30 am
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davrosG5 wrote:
nt to saddle yourself with a new loan just to pay off the old one, especially if the interest rate would be higher? Doesn't make any sense IMHO.

I was thinking of this so that I had a fixed payment and it would definitely get paid off by a certain date rather than relying on me paying extra in.

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Thu Apr 08, 2010 9:38 am
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okenobi wrote:
Would it be sensible? Yes
Is it the best option? Well........

I would just like to venture that these things aren't always black and white. Paying off debt is always fiscally responsible, but you have to try not to do it at the expense of living your life the way you want. I'm not saying get a new flat. Just think about what you want and what you're prepared to sacrifice to pay off that debt. Try to find a balance. Maybe some of your raise could go on debt, some on either the new flat, or maybe some other treat or something to look forward to. I find that when you focus on paying off debt - you focus on debt. And when you focus on debt it's easier to stay in it for longer.

Maybe that's a little too esoteric for most people, but it's true. Law of attraction. If you work out a manageable and balanced solution, there's less chance of you focussing on the debt and more chance of you just getting on with your life.

</deepness>


It's a valid point. I am aware I am at one end of the spectrum from having seen how much not being sensible with credit can screw up your life ;)

Also, the item I want is really, really not an essential in any way, shape or form.

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Thu Apr 08, 2010 10:04 am
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Fogmeister wrote:
davrosG5 wrote:
nt to saddle yourself with a new loan just to pay off the old one, especially if the interest rate would be higher? Doesn't make any sense IMHO.

I was thinking of this so that I had a fixed payment and it would definitely get paid off by a certain date rather than relying on me paying extra in.


Then I suggest you take it (partly) out of your hands by setting up a recurring payment that will go out on a fixed date from your bank account. You should be able to set up a regular recurring bill payment from your current account or ask the lender to increase you monthly direct debit (if that's how you currently pay off the loan). Either way you'd be paying a fixed higher payment than you are currently and would achieve your goal without having to get a new loan or remember to pay off more each month.

I certainly see the point okenobi is making and there is certainly something to be said for not letting paying of your loan rule your life. However, you've paid off a car loan and are looking to pay off this one as well so you seem to have a good handle on your finances.
By all means reach a happy balance between paying of the loan and enjoying your increased wages.
I would simply point out that expenditure has a habit of expanding to meet income so decide now how much extra you want to pay into your loan. If you leave too long you may find you've already committed to spending the extra money on something else and will still take three years to pay off your loan.

Another way to look at it is not to focus on the loan/debt so much as focusing on the new flat you want to be able to afford. Paying off your existing loan is a milestone on the way to achieving your ultimate goal. How quickly you reach that goal and how much extra fun you have on the way (that you wouldn't have if you hadn't had a pay rise for instance) is entirely up to you.

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Thu Apr 08, 2010 10:08 am
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okenobi wrote:
Would it be sensible? Yes
Is it the best option? Well........

I would just like to venture that these things aren't always black and white. Paying off debt is always fiscally responsible, but you have to try not to do it at the expense of living your life the way you want. I'm not saying get a new flat. Just think about what you want and what you're prepared to sacrifice to pay off that debt. Try to find a balance. Maybe some of your raise could go on debt, some on either the new flat, or maybe some other treat or something to look forward to. I find that when you focus on paying off debt - you focus on debt. And when you focus on debt it's easier to stay in it for longer.

Maybe that's a little too esoteric for most people, but it's true. Law of attraction. If you work out a manageable and balanced solution, there's less chance of you focussing on the debt and more chance of you just getting on with your life.

</deepness>

That's a very good point and one (I think) that has started me asking this question in the first place.

I would very much like to move into a new flat (renting) but it would literally take all my extra income to do that and I would be back in the place I was in a couple of months ago and not able to treat myself to anything.

By staying as I am and pouring money into the loan I will have a bigger reward at the end of it than if I was to move into a flat now and remain paying the loan for the next 3 and a bit years.

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Thu Apr 08, 2010 10:11 am
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Thanks for all the input :D

I think I now have a plan.

I just need to wait to see what I get at the end of the month (net) so that I can start putting some numbers together.

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Thu Apr 08, 2010 10:14 am
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jonlumb wrote:
okenobi wrote:
Would it be sensible? Yes
Is it the best option? Well........

I would just like to venture that these things aren't always black and white. Paying off debt is always fiscally responsible, but you have to try not to do it at the expense of living your life the way you want. I'm not saying get a new flat. Just think about what you want and what you're prepared to sacrifice to pay off that debt. Try to find a balance. Maybe some of your raise could go on debt, some on either the new flat, or maybe some other treat or something to look forward to. I find that when you focus on paying off debt - you focus on debt. And when you focus on debt it's easier to stay in it for longer.

Maybe that's a little too esoteric for most people, but it's true. Law of attraction. If you work out a manageable and balanced solution, there's less chance of you focussing on the debt and more chance of you just getting on with your life.

</deepness>


It's a valid point. I am aware I am at one end of the spectrum from having seen how much not being sensible with credit can screw up your life ;)

Also, the item I want is really, really not an essential in any way, shape or form.


I understand your viewpoint Jon. I've worked for Natwest and seen what happens to people. I've also been in debt myself for at least the last 7 years. I'm currently working to pay it off. So I'm speaking from experience. Cutting pack doesn't always work. Slow and steady, so you don't have to think about your debt is the best bet in my experience. That's why loans are better than O/D or credit cards, because they don't require your involvement. But different people see it different ways, just wanted to make that point.

As for the nature of your purchase, I completely disagree. Music is a fundamental part of our existence and I know you feel the same way as I do on that. Consequently, decent equipment to maximise enjoyment is (to a point, at least) fairly essential. I'm passionate about that.

Fogmeister wrote:
Thanks for all the input :D

I think I now have a plan.

I just need to wait to see what I get at the end of the month (net) so that I can start putting some numbers together.


Glad to hear it. But don't wait, just go to http://www.listentotaxman.com and work it out for yourself :)

Let us know what you decide.


Thu Apr 08, 2010 10:47 am
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okenobi wrote:
Glad to hear it. But don't wait, just go to http://www.listentotaxman.com and work it out for yourself :)

Let us know what you decide.

Thanks for that! Good website :D

Got a second question now though regarding SAYE payments.

The payments I put aside each month go towards a share save thing and come straight off my pay slip under deductions.

Should these be taken off before or after the tax calculation of my wage?

e.g. say I get £x a year and pay £y to savings each month.

Is my gross wage PA then...

(x - tax free amount) * 0.8 + tax free amount.

OR...

(x - tax free amount - y * 12) * 0.8 + tax free amount + y * 12.

The second way would be slightly higher than the first.

This money malarky is too confusing.

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Thu Apr 08, 2010 11:07 am
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Fogmeister wrote:
okenobi wrote:
Glad to hear it. But don't wait, just go to http://www.listentotaxman.com and work it out for yourself :)

Let us know what you decide.

Thanks for that! Good website :D

Got a second question now though regarding SAYE payments.

The payments I put aside each month go towards a share save thing and come straight off my pay slip under deductions.

Should these be taken off before or after the tax calculation of my wage?

e.g. say I get £x a year and pay £y to savings each month.

Is my gross wage PA then...

(x - tax free amount) * 0.8 + tax free amount.

OR...

(x - tax free amount - y * 12) * 0.8 + tax free amount + y * 12.

The second way would be slightly higher than the first.

This money malarky is too confusing.


That's more difficult I'm afraid. I'm familiar with the scheme as we had it at Natwest and I dealt with a lot of Tesco employees at the time. That will ruin the piss easy calculation you've just made on the website :)

I think it's going to require some mathematical jiggery-pokery (until somebody cleverer than me shows up). I would plug in your current numbers, then compare them with an actual payslip. You should then be able to get a fairly good idea of what the difference between new numbers from the website and actual pay would be. Bear in mind that your sharesave contributions shouldn't change, just the tax and NI.

I would also suggest that your contributions are probably taken from the gross (i.e. pre tax), as this will leave your employer with less NI to pay on whatever remains.


Thu Apr 08, 2010 11:56 am
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Just asked around the finance type people and the SAYE payments are taken after tax deductions :(

I feel a lot better now that I have decided to do something and have a fairly short term goal of paying off this fracking loan!

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Thu Apr 08, 2010 12:11 pm
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Fogmeister wrote:
Just asked around the finance type people and the SAYE payments are taken after tax deductions :(

I feel a lot better now that I have decided to do something and have a fairly short term goal of paying off this fracking loan!


Ruuubish!

Yay!


Thu Apr 08, 2010 1:26 pm
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I would just over pay the current loan. The property market may fall in a years time anyway so being debt free would be better and then accumulate a bigger deposit for that flat.

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