When to use Savings to Pay off Your Loans

If you owe money then you may be advised to use your savings to pay off the loans. This can make sense but some people will be reluctant to do so. It is worth giving it some thought with regards to your own personal situation.

It is worth starting by looking at the loans that you have and how much you are paying for them. If you have overdrafts, credit cards or same day loans, then they are likely to be quite expensive (although there are interest free ones which are available). Take a look at how much you are paying with regards to interest rates and then look at the amount that you are getting on your savings. If you are paying out more money on your loans compared to what you are getting on your savings, then it makes financial sense to pay back the loan with the money that you have in your savings account.

It is difficult for some people to part with their savings though as it can take a lot of hard work and commitment to save up. It may be that the money is being saved towards a specific thing, perhaps a holiday, occasion or something for the home. If you have been doing this, then parting with that money to pay a loan and then having to start saving up all over again can be really hard. It is worth though looking at how much you are paying out each month on interest on those loans and see whether you are prepared to continue doing that and paying that price for having those savings.

You may think that the savings give you something to fall back and you will be right. However, if you pay off the loan, you could potentially use another loan to fall back on, maybe a credit card or overdraft, perhaps. This is not ideal of course, it is much better to build up your savings and use those and hopefully manage your money so that you are not in this situation. However, sometimes we get ourselves into situations where we struggle financially, sometimes our own fault and often not our own fault and so we have to rely on things like this to help us.

If you want to get out of debt fast, then using your savings to pay it off or some of it off makes total sense. You may just think that you should get on and do it. However, there may be something that will hold you back. Sometimes a loan will have an early redemption fee. That means that you have to pay a fee for paying it off early. It could be a small amount, perhaps just a month’s payment or even less, but sometimes it can be larger. It is worth checking out how much it is so that you can calculate whether it really will be cheaper for you to pay it off early or not. If you work out how much you will pay in interest over the remaining term then you will be able to know whether it will be cheaper to pay it off or not.

Of course, your reasons for wanting to pay it off may not be purely financial. You may dislike having a debt hanging over you and want to get it cleared. You may feel that you want to move on and be debt free and therefore you will do anything for this regardless of whether it costs you more money.

So it is worth giving this situation some thought. Consider the costs of paying off the loan early and how much money you will save compared with keeping you savings or whether in fact it will cost you more money. Think about how you feel about the savings and the debt. Does the debt worry you and would you rather be rid of it or do you feel it is fine paying extra for the debt because you want to have those savings that you have worked so long for. It can be a hard decision and it is worth thinking about all of the different options available and the costs as well as your emotions to decide what to do for the best.


How to Use Your Overdraft Sensibly

An overdraft is something which many people have with their current account. It allows you to borrow money by spending more than there is available in the account. You can arrange with your bank so that you can borrow a certain amount of money when you need it.
This can be an extremely useful option to have to fall back on. If you are running short of money and need to pay a bill quickly, then being able to use the overdraft can really help. It can also give peace of mind if you fear there is a risk you may need some extra money as you will know that it is there if you need it.

However, an overdraft should really only be used as an emergency fund. It should not be something that you use regularly. This is not what they are designed for. They are there in case you need them, but they are not large amounts of money and they should just be used to keep you going until you get paid again. However, many people will use them as if they are a savings account, thinking that the money is just there for them to spend on whatever they wish. Unfortunately this is a rather expensive attitude to have. An overdraft is an expensive way to borrow money and the longer you leave it unpaid, the dearer it is. If you go beyond the agreed amount with your borrowing, then you will end up paying even higher charges and interest. It can be easy to get into financial trouble by taking a long time to pay it back and using it too regularly. There are people that have problems where they get paid and clear the overdraft but almost immediately go overdrawn again as there is not enough money left to be able to pay for their bills. This is why it is important to manage your overdraft properly.

It is wise to keep track of your spending carefully and make researched decisions when it comes to whether you should be using your overdraft or not. Bearing in mind how much it costs it is worth thinking about whether you should really use it whether you have savings you should use instead or whether you should just wait and spend the money when you have it. Obviously this will depend on whether you have any savings that are easy to get to and whether you need the item you are buying or whether you can go without or delay your purchase.

For some people the overdraft can be too much of a temptation and it may be wise for them not to have one at all. When you go to the cash machine, it can say that you have a certain amount of funds available but that figure includes he overdraft and it can be really misleading and make you feel like you have a lot more money available to you than you really do. It can help to make you feel that the money is yours to spend, rather than it being there to use in an emergency if needed. Therefore it is worth thinking about whether you might be tempted in this way or perhaps get confused as it can be confusing. If so, you may be better off not having an overdraft facility.

There is a risk though that if you have no arranged overdraft and do go overdrawn you will have to pay even more in fees and interest because an unauthorised overdraft is even more exensive. Consider whether this is a risk for you.

So whether you should have an overdraft is a very personal thing. It is important to know whether it will be a temptation to you or not. It can be a great thing, allowing you to have some money if you need it in an emergency and as long as you are aware of how much it costs and that you will need to pay it back and if possible very quickly. They can be very useful and something that many people use to support them when they do need some extra money or to give you peace of mind.


How to Finance your Education

An education is something that many of us take for granted and it can lead us to a great future. However, these days an education is not free after the age of eighteen and this means that if you do want to give yourself the opportunity to have a high earning potential, you will need to pay for your education. There are some opportunities for loans and grants and it is worth understanding what they are so that you can assess the options available to you.

Most people know about student loans. These are available to cover four years of higher education and they will cover the total amount of course fees and also give some money towards living expenses, with the exact amount being means tested depending on parental income. Even a full loan may not be enough to cover rent and food so the difference is expected to be made up by the parents giving the children money or the students working or using savings that they have already. The loans can seem like a scary option because they get the student into debt but they are not really a loan and similar schemes in other countries are not even called loans. After graduating they will be repaid in the tax code of the graduate and whether they have to pay and how much is determined by their earnings, so this is means tested again. After thirty years the agreement ends which means that three quarters of graduates do not pay back the full amount that they have borrowed as they have not earned enough money. These tend to be the most common option for financing higher education.

If you have already had four years’ worth of student loans or you had a student grant in the past, then you will not be eligible for a student loan. This means that if you want to do a second degree or a PhD or any other additional higher education, then you will need to look at alternative ways to finance the course. This can be available in the form of a Career Development Loan. These are offered to anyone who can prove that a course they are undertaking ill improve their career. They are very different to student loans though. They have a high interest rate and repayments have to be made even if you have no income. They are very much like any other type of loan, but they may be dearer.

It is possible that it could be cheaper to fund education, if you cannot get a student loan, through a personal loan. It is worth comparing prices to see whether there are any available that you can take out, considering you could be in full time study and therefore not earning that will be cheaper. One major to consider though is repayments. With a career development loan you do not have to start making repayments until you finish your course. With a personal loan you will have to start making repayments right away and therefore will need to find money each month to be able to do this. This could mean that you will have to borrow more money, over a longer term so that you have enough spare to make the repayments, which could end up making the loan pretty expensive. It is worth doing some calculations to see if it really will be worth it.

You could consider saving up and using your own money to pay rather than getting a loan. If a student loan is available, then this may not be the best option as you may end up paying less by using a student loan if you do not pay it back in full. Unless you think that you will be a top earner for all of the thirty years after you graduate, it is unlikely that you will repay the full loan. However, it is always worth saving up some money towards it as you never know when you may need more money than the loan provides. It is also a good healthy habit to get into and you may want it to pay for other big purchases in the future even if you do not use it for your education such as a deposit on a home or a car.