Finance Question

LegacyUser

Hi all,

This is a financial question so mods feel free to move if you like.

I'm a female in my mid 20s, I owe quite a lot of money 13,900 to be precise. This was 21k so while its a disgrace that I owe this much i'm proud that i've got it back down.

Thing is I was gonna hammer away it paying nearly 700e a month and have it clear in a couple of years. But lately i'm thinking of getting a loan with the credit union and spreading it over 5 years at 213e a month for 10k, part of this debt is interest free so it wouldn't make sense to include it in this loan. This would give be nearly 400e extra a month I would have to use for saving possibly going back studying part time, going travelling, just generally having a better quality of life. I'm a believer that money can't buy happiness but being broke isn't all it's cracked up to be either. Just looking for opinions should I listen to my head and be broke for another couple of years or give myself some financial freedom albeit meaning it'll be another 3 years before I have this paid off.

Hi OP, it's a little confusing which part you mean is interest free? If your current debt is interest free then I think it would be mad to add a cost onto that?

You might use the 2nd loan money for saving but if the rate of return on savings is lower than on the interest on the debt this wouldn't be the best plan

Personally I would prefer to be broke for a shorter time and have the original loan totally gone sooner. you never know what might happen in a couple years and you might be glad you had it paid off then


if being "broke" is genuinely feeling you never have any money maybe you should contact MABS to discuss finance options and whether it's worth your while.

dearg lady

OP, who is your current loan(s) with? As in, bank, credit union, credit card??

By all means, if you can get a better interest rate, move it, otherwise I wouldn't be inclined to.

And I'm with Bluewolf on this, I'd rather be super broke for a shorter time, than kinda broke for longer, but that's a personal thing!

tenchi-fan

Your idea isn't terrible. Credit union loans can give a better rate of interest than your current loans and they're more flexible. I'd suggest increasing the term of the loan only if you have absolutely no social life because the repayments are too high.

I'll just point out a major flaw in your argument. You say you want to cut your repayments and spread the loan over the long term so you can "save" money. This isn't saving!! It's the opposite. Your "savings" will earn interest of say 2%, and you will be paying say 9% on your loan. If you really want to "save" money you'll just concentrate on paying off the loan.

If you decide to go to college in another couple of years you can take out a new loan & start paying interest on it in a couple of years rather than keeping a high balance until then.

LegacyUser

Thanks guys for your replies.

Just to clarify only 2,400e is interest free which is why i'd be taking a loan of 10grand.

I realise the interest on my loan would be higher than savings but what I mean is just to be able to put money by for a rainy day, holidays, college etc.

I have a car loan, credit union loan, bank loan and other interest free 2k is to an insurance company.

tenchi-fan

penniless wrote: »

I realise the interest on my loan would be higher than savings but what I mean is just to be able to put money by for a rainy day, holidays, college etc.

By all means extend the term of your loan. You will have a better quality of life. It's just like someone buying a car with a loan. You just need to know that it will cost you more in the long term.

I don't think you recognise the flaw in your logic by saying you want to save for college. Just say you need 5k for college.

Ignoring interest, say your loan is 10k. You expect to pay off 2k a year for 5 years. At the end of 5 years your loan is zero. Then you take out a new 5k loan for college.

If you cut your payments in half, your loan will be 5k in 5 years, and you'll have 5k "saved" for college. The only difference is you got screwed over in interest by paying interest when you didn't need to.

LegacyUser

tenchifan wrote: »

By all means extend the term of your loan. You will have a better quality of life. It's just like someone buying a car with a loan. You just need to know that it will cost you more in the long term.

I don't think you recognise the flaw in your logic by saying you want to save for college. Just say you need 5k for college.

Ignoring interest, say your loan is 10k. You expect to pay off 2k a year for 5 years. At the end of 5 years your loan is zero. Then you take out a new 5k loan for college.

If you cut your payments in half, your loan will be 5k in 5 years, and you'll have 5k "saved" for college. The only difference is you got screwed over in interest by paying interest when you didn't need to.

I presume u think i'm planning to go back to college full time, I was planning to go back part time in September by increasing my loan I would have enough money saved to go back and can increase my loan repayments once i've the money saved to go back.