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Archive for May, 2014

Why I Paid Off My Student Loan And How I Did It

Hey All!

So as most of you know, I paid off my student loan?! “Good grief why would you decide to do something so radical and how on Earth did you do it?!” Good questions. Since I’m genuinely serious about helping out my fellow student peers I’ll be completely honest. And part of that honesty is to speak ONLY from my own experience. Each student, whether post, current or prospective, has their own life circumstances and those without a doubt need to be taken into consideration when discussing finances. Many will say I got lucky, and to many I will say “You’re the one who has control over your debt.” But ultimately, it comes down to what are your values.

So why did I pay off my student loan.

Personally I believe there are rights and responsibilities. I have a right to education but a responsibility to my government and country to pay what I owe. I live in a country where the government thinks it’s great we have opportunities to learn but they have said it doesn’t come free. I took out my loans, ticked all the boxes and signed the contracts saying I want the money and yes I understand the conditions. From the minute I even contemplated university at the age of 14 years old I know this would be the way I would be able to receive my education and what was expected of me.

Over the course of my life I have probably spent more time moaning about taxes, lack of jobs, limited housing, elderly care, health care systems, benefit cheats and goodness knows what else than any other subject. Maybe not… but daily I have commented or had lengthy discussions about how I don’t have what I want in life. Every 4 weeks I see nearly a 1/3 of wages disappear. Doesn’t seem fair really. I worked so freaking hard for it.

But then here’s the other way for me to look at it. Why should I take thousands of pounds from the government, contribute to the country’s national debt and then complain when they can’t give me what I want. Actually, it’s not about what I want. Why should I demand all my life for this and that, and then expect YOU to pick up the pieces. In fact, demanding what I believe is my “right” and not being humble enough to accept my rights in life comes with responsibilities makes me a no more than a hypercritic.

On top of all that, my loans impact my savings, my mortgage, it adds 20 plus years of stress… Why in my right mind would I want to do that to myself? When it comes to a mortgage, yes, it is affected by my loans. My parents looked at getting simple £80,000 house as an investment. They looked at putting the mortgage in their name, and then in my name. My monthly mortgage repayments would be nearly double what they were expected to pay simply because I had a loan in my name. But please, don’t take my word for it… Go down to your bank and look into it all yourself.

Others told me I should put money aside as savings, earn interest on my savings, which would in theory give me more money and in theory pay off my student loan faster. I did my research on that too. I went into Nationwide, RBS, HSBC and NatWest branches to discuss the many different ways I could save. The options are limited at best. The highest interest rates on accounts only allowed you to put a certain amount of money in it and only at limited times. E.g. £150 once a month. I wanted more flexibility. Even then, the best interest rates were only around 3%. The same as what my loans were accumulating. But what people have never mentioned to me is 3% interest on a £150 payment is very little in comparison to 3% on a £15,000 loan. My savings will never catch up to my growing loans. Let me put it very simply: £150 over 12 months is £1800 in savings. Let’s say for argument’s sake the 3% interest is added at the end of 12 months, I have earned £54. Now, add 3% interest on to my £15,000 loan, my loan is now £450 more. 9 times more than I earned. Like I said, I will never ever catch up doing that.

Now here’s the other thing. “Why pay your loan off Akila when you could just wait 20 years and it’ll be wiped off?” Let me ask something, when have you ever said “I believe what the government tells me?” You may then say “But both you and those loaning you the money have signed contracts”… Yes we have. Does anyone absolutely 100% know what they’ve signed up for? With all due respect, the government is NOT going to loan out millions and millions of pounds and simply wipe it off. In fact I heard student loans have put the country in nearly a trillion pounds of debt. Even those earning over the wage threshold won’t have paid back much of what they owe. Would you allow that to happen if you loaned out all this money? No, I’m 99% sure you wouldn’t. 6 months ago it even hit headlines recently that student loans will be sold off to loan repayment companies.

There is absolutely nothing certain in life except death. It is mathematically, scientifically and economically impossible for anyone to guarantee “here’s your student loan, good luck paying it off and after X amount of years we’ll wipe it.” If our economy collapses, what’s stopping the “contract” from being revoked with “sorry guys, we’re desperate, you owe us, cough it up”? Retirement changed, taxes changed… You can’t even have an empty bedroom in your home anymore. The government is always threatening and finding ways to stop giving us money and take more money away from us. Of course, I agree this might all be speculation but like I said, why in my right mind would I want to put myself through the stress of uncertainty?

So here is how I did it.

Half way through my final year at university my loans stood at around £15,000. At its peak the interest my loan was earning was over £39 a month. When my final loan instalments came in I realised I didn’t actually need it and so paid that and some more back. That was £3000 which dropped my loan to around £12,000. My interest was still £15 a month. Over the next year I was on 0% interest and so didn’t pay anything off. Then January 2012 I decided that whatever came into my bank account I would use 10% to pay off my loan. For 7 months I was unemployed and on Job Seekers, £5 a week doesn’t sound like a lot but it added up. As of August 2012 I started working for a supermarket and still every month when I got my pay slip I took 10% and paid off my loan. Again it doesn’t sound like a lot but again, it does add up.

All this time while I was taking 10% and paying off my student loan, I also had 6 other savings funds. After I paid my parents for the rent, took £100 for myself to live off for 4 weeks (food, petrol, entertainment, clothes, hair, make up etc), and took 10% to pay off my loan I then put 10% in each of these funds. Why did I do this? Well for example, one of my funds was for a car. Eventually I was able to pay nearly £2000 for a car, insurance and tax without batting an eye lid. For me I chose to do things like that so that I always had the money there when I needed it rather than panic about when I needed it. And you know what, I lived a full life for how “little” I lived on. I went on holidays, I bought clothing, I went to the cinema, I had takeaways, I had nights out… I was never without because, in my opinion, I played it smart. So in November 2013 I looked at my savings and looked at my wages and decided to go all out. Like a game of Poker, I put all my chips in. But unlike Poker knew I couldn’t lose. I took any money I had in those funds and used the entire lot to pay off all I could of my loan. And then over the next months I paid rent, took my £100 and put all my wages towards my loan. By April 2014 I paid off the entire loan.

Like I said, each person has their own circumstances. I paid rent but for the first year it was very little. It increased by 100% the following year. I live in an area where it’s possible to have a car and I’m not paying for sky-high travel costs. My job at the supermarket was fantastic in that I worked hard and got myself opportunities to go from 16 hours at £6.34 to 39 hours at £8.30. Yes I was very blessed and very lucky. But don’t forget at one point I was unemployed and had a lot of debt. I don’t believe for one minute that taking control of ones finances is limited to those with money. Whether it’s student loans, mortgage loans, money lending loans… I believe it comes down to values.

I know that is, for many, provocative but I genuinely believe if you really want to get out of debt you will do what is necessary. But it’ll only happen if it’s a real value to you to do so. Your desire to be debt free will trump whether you have a take away once a week or once a fortnight. It will trump buying a move when it first comes out to waiting a couple of months. It will trump whether you spend £20 on clothing each month or £100. I never ever thought I could do this but I did. And so can you. The 10% rule can be applied to any loan and any saving! I may literally have “zero” in my bank account, but I sure as hell have zero debt in my name also 😀

If you want advice or help with your finances there is a lot of support out there!

CAP (Christians Against Poverty) – https://www.capuk.org/

HM Revenue & Customs – http://www.hmrc.gov.uk/payinghmrc/problems/debt-help.htm

StepChange – http://www.stepchange.org/

 

Over The Finish Line!

Over The Finish Line!

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