If we have a lot of loans and we want to repay them, then we will need to make a decision as to which to start repaying first. This is not as easy as it might seem as there are a few different factors that we will need to consider when we are making this decision.
Which is the most expensive?
If you want to save the most money, then repaying the most expensive loan will be the best thing to do. Remember that when you are calculating the cost of the loan, you need to consider how much you are paying in interest and fees. Loans can vary a lot in how much they cost and it is worth carefully calculating this. £100 loans for example won’t incur much interest, but larger, £5000 upwards loans will. It can be the case that the loan that is the biggest will be costing us the most but this can depend on the loan type. As a mortgage will have lower charges compared to a payday loan, but we may still be paying more out in monthly interest for the mortgage because we owe so much more money. Make sure you calculate carefully and work out how much each loan is costing you each month.
Which is the smallest?
Some people like the idea of repaying the smallest loan first. They like to quickly get one paid off. That gives them a feeling of satisfaction and will motivate them to carry on and repay the next one as they know that they have managed to pay off one already. It can be a nice feeling to know that you do not have such a high number of debts. If you feel this will be motivating for you then it could be worth considering doing this.
Which is the biggest?
For some people the idea of getting rid of the biggest loan first is the most attractive. It can feel stressful having a big loan and therefore getting rid of that big chunk of debt can feel good. It will take longer to repay than other loans, but this could still be motivating for some people as they will know that they are getting rid of that big chunk of loan.
Which do we want to repay?
Sometimes we have a loan that we would like to get rid of first. It might be that we owe money to a friend or family member and feel that we want to get them their money back as soon as possible. It might be that we have a specific lender that we do not like for some reason and that loan feels stressful to us so we want to get rid of it quickly. There are all sorts of reasons why we might feel that we would rather repay one loan over another.
It is quite a big decision to make, but the fact that you have decided to repay loans is a really good step. It is wise to make sure that you have investigated the loans thoroughly though. You will find that some might have an early redemption fee. This is just a big name for a fee that is charged for repaying a loan early. Some loans do not have these at all, but some will have a small administration charge and others will have a much bigger charge. It is good to make sure that you will not get charged such a large fee that it is more expensive to repay the loan than to leave it. Of course, the cost of the loan may not be your main reason for repaying it, you might just want to be free of the stress of owing money, for example. But it is well worth thinking about this as most people will want to only repay a loan if it saves them money in the long run.
Many of us wish that we could spend a bit less money each month. It might be that we want to have a bit more left so that we can repay our loans, that we can increase the amount that we save or that we can just manage more easily. However, it can feel hard to reduce the amount that we are spending and we may even think that it is just too hard. There are some easy things that you could try out though and it is worth having a think about whether any of them might work for you.
It is a good idea to compare prices on everything that we buy. This is something that you might think that you are already doing, but we often forget a lot of items when we do this. It is easy to compare prices on the supermarket and see whether certain brands are cheaper than others. However, we need to do this with everything that we are buying. This means the big things such as rent, loans, insurance and utilities as well as tins of baked beans.
It is a good idea to start with looking at your bank statements and establishing everything that you spend money on. Then you can think about whether you can make these cheaper. If you can reduce the cost of the more expensive items you buy then you are more likely to see a more significant reduction in the money that you are spending, especially if you manage to reduce the cost of lots of items. You might think that you cannot reduce rent, but you could do if you move house. With loans, you might be able to change lenders and save money that way. With insurance and utilities you may be able to change providers and therefore save money. It can be worth checking these things at least every year and then you will be able to see whether you are paying more than necessary for them. Do not ignore the smaller things though, if you compare prices on everything you might be able to make significant savings across everything that you are buying.
Buy less unnecessary stuff
We often buy more things than we need. This might be because these things bring us pleasure, but it could also be because we buy them through habit, because we are influenced by adverts or by our peers or because we feel we should have them to keep up with fashions. It is a good idea to think about everything that we are buying and whether we really need it. Consider the items you are paying for and why you are buying them. Make sure that you check to see whether you need them or whether you already have something similar or think about whether you can do without them. It might seem like you will be going without and it will feel really hard to give up these things that we really like or want. However, if we are giving up things that we do not really have a good reason for buying, then it might be the case that we will not miss them anyway. We may gain far more pleasure from having the money and not having to struggle to manage each month, to be able to save a bit of money or pay some extra off our loans. Therefore, it is worth thinking hard about this. We can still buy things that we enjoy, but we just need to think about whether we really enjoy everything that we buy and if we can limit our spending to just buying the things that we like the best.
If you have a student loan, then you might be tempted to repay it early. There are different types of student loan and so what you do can depend on the type that you have if you have a career development loan or similar, then these can be expensive and you might want to consider paying these off early to save interest, they will also have to be repaid in full. If you have one of the original student loans then these may be better off being repaid early as well. The more recent type of student loans work very differently and it is these that we will focus on as they are the most common.
How do the loans work?
A student loan does not work in the same way as a traditional loan. All people are entitled to borrow money to pay for four years of study to cover the course fees (unless they have had a grant or loan in the past for study). The household they live in is also means tested and they may get money towards living expenses as well if it is thought that the family is not well enough to be able to afford to pay it. After the course is finished, the loan will need to be repaid. The repayments are taken out in the graduate’s tax code and is means tested so they only have to make repayments once earning over a certain amount of money and this will change depending on how much they earn and be capped at a certain level. After thirty years the debt is written off so anything remaining that they have not paid will never have to be repaid.
Advantages of repaying early
Interest is charged on the loan which means that the longer it takes the graduate to repay the loan the more interest they will be charged. So if they repay it early, hey will save that money that they would have paid in interest. Although the loan does not have an impact on your credit record, it can be an influence when you are taking out a mortgage. This is because a mortgage lender will not only look at your income but also take into account how much disposable income you have, which means how much money you have to spend, once taxes etc have been taken out of your pay. They will want to make sure that you have enough money to cover all of your bills as well as the mortgage repayments and so the fact that you are taxed more highly to repay the loan could have an impact and therefore if you have repaid the loan, this could help.
Disadvantages of repaying early
Repaying the loan early is a risk as you might be repaying more than you actually need to. As anything that you do not repay by the end of thirty years is written off, it means that you could repay more than necessary. This will depend on your circumstances though. If you go into a career that pays highly, then you could start repaying right away and you may easily repay all of the loan before the thirty years are up and therefore it will be better to repay it early if you can However, if you have low paid jobs, work part-time or even take time out of work (perhaps to care for family) then you will not be repaying it all the time and there is a greater chance that you will not need to repay the whole amount. You therefore need to try to predict which will be the best option for you.
If we are thinking about making sure that we have some employable skills, the we might look to doing a course that will help. This might be at any age, we could be a student decided on A-levels or an older adult thinking about a career change. It can be difficult to decide on what courses to do. Whether we have to pay for the course or are able to do one for free, we need to make sure that we make full use of the opportunity and make use that we use our time effectively.
Look at what jobs are available
It is wise to think about what jobs are needed to be done so that we can start to think about whether the courses we are going to take will be useful. Decide whether you want to work locally to where you live as that could restrict your options, or whether you are happy to live a bit further away from home or commute somewhere as this will influence what jobs you can do as you will have a bigger range of companies to choose from with regards to the jobs available.
Look at what courses are available
It is also a good idea to look at the courses that are available to you. You will find that there will be some restrictions on what you are able to study due to your education level. You will not be able to study for a doctorate if you have no GCSE’s! You may also be restricted by your location as you may have to travel to be able to do certain courses and so you will need to consider this as well. You should be aware though that you might have the option of online study which could open up options for you a bit more.
Consider the cost
Some courses will cost more money than others. It is worth thinking about how these costs might be paid for. You will find that there are some courses that are completely free, some that have a small fee and some that are very expensive. It is a good idea to find out about the costs and think about how you will finance the courses. It is wise to try to take advantage of free courses if you can and also look into student loans, grants and bursaries to see what help you can get with the costs of your studies.
What will you enjoy
It is a good idea to also think about what you will enjoy with regards to your studies. There are lots of different courses available but you do not want to waste your time and money doing something that you will not enjoy. This is because you will be more likely to be successful and score well at any exams or assessments if you are doing something that you are enthusiastic about. It can therefore be worth thinking about this. Take a quick look at the curriculum and perhaps some past papers as this will help you to know more about what you will be studying and what you will need to do in order to pass the course. This will enable you to make a more informed decision about whether the course is the right one for you to do.
There is a lot t think about and it is worth spending a lot of time considering all of these things. The decision you make can have a big impact and so it is important. You may be paying for the course and it will have a big influence on your future so you want to make sure that you make the right choice.
It can sometimes be the case that we can predict that there is an economic crisis coming or we feel that it is likely that there will be one in the future and we want to prepare for this. It might feel like something that is difficult to do, but there are things that you can do. If you feel that prices will go up, that you may lose your job, that your income generally will go down or that you might have to help out family members generally then you may need to think of things you can do to prepare.
It could be a good idea to start by seeing if you can reduce the money that you owe. If you can pay off some of your debts, then you will have less to worry about if your income is reduced or prices go up. Even if you just pay back a small amount this could help you. Even if you are not in a position to repay any, do your best not to increase your debt. Also be careful as sometimes you will find that there is a charge for repaying your loans early so make sure that this is not more than you will save in interest by repaying them. Also, occasionally it will be cheaper to keep the debt and put the money into a savings account which has higher interest than you are paying on the debt, this is extremely rare though.
Save up money
Having some savings behind you can be a good backup in case you lose your job or find that you do not have enough money to buy things. If you have debts it is better to pay those off but if you do not, then having some savings can be a good idea. If you can put a bit of money aside each month then you will be able to build up some savings. This can be really handy as you will then be able to use it if you are short of money.
Get CV up to date
It can be a really good idea to get your CV up to date. You need to think about the fact that you might lose your job and therefore might need to apply for other things. Also think about looking to see what sorts of jobs are available. This will allow you to make sure that your CV is directed towards the area of jobs that you are likely to apply for.
It might be a good idea to change or update some of your skills in case you need to move jobs. Look out for opportunities to do courses within your organisation, but you may also be able to courses outside of work as well. There are lots of free courses available online, which are quite basic but can still give you an opportunity to start your learning and you can then move on to more relevant things if you can afford it.
It is a good idea to have a think and prepare for what you think might happen in the future. If we are prepared then it will give us peace of mind. If we are not sure whether there will be an economic crisis but we are prepared anyway then this can be really advantageous. This will mean that when it does come along we will be well prepared and if it does not then we will have less debt and more savings anyway which will be an advantage at any time. We might also be able to take advantage of any courses we have done and find a better paid job anyway so we could better ourselves.