Hi Money Minder,
I’ve got this Plan 1 student loan with an interest rate at 6.25% (Sept 2023 – March 2024) and still owe £14,195.91. Monthly, £168 gets deducted from my account, with about £74 going towards interest. Do you think it’s a good idea to use my savings to pay it all off at once?
The interest rates just seem so high!
My savings total around £83k, and I make £50k a year. I can put away £400-500 monthly, and thankfully, I don’t have any other debt besides this student loan.
A little about me – I’m in my late 30s, living with my boyfriend in a rental. We plan to buy a property in the future. If I do pay off my loan, I’d like to invest in a stocks and shares ISA and save the money I used to put towards the loan each month.
I’m not exactly a financial whiz, so I’m looking for the best advice possible.
Thanks,
Financially Confused!
Response from THE MONEY MINDER:
Hello There,
It sounds like you’re in a good position to consider paying off your student loan in one lump sum from your savings. Given your current interest rate of 6.25%, it may be beneficial to pay off the remaining £14,195.91 to avoid paying more interest over time. However, before making this decision, it’s essential to weigh the pros and cons carefully.
Considering your monthly expenses and income, it seems like you have a stable financial situation. Paying off the loan would free up the monthly £168 that you could then redirect to a stocks and shares ISA account, which can potentially provide a higher return on your investment compared to your student loan interest rate.
It’s important to also consider your long-term goals, such as buying a property with your boyfriend. Paying off the loan could improve your debt-to-income ratio and strengthen your financial profile when applying for a mortgage. Keep in mind that having a buffer of savings is always a good idea for emergencies or unexpected expenses.
In making your decision, evaluate the overall impact on your financial goals and assess if paying off the loan aligns with your priorities. If you choose to proceed, consider speaking with a financial advisor to ensure it fits well within your overall financial plan.
Remember, making financial decisions can be daunting, but seeking advice and understanding your options can help you make informed choices. Good luck with your decision, and feel free to reach out if you need further guidance.
Farewell from THE MONEY MINDER.
