Hi all,
First post, woo! Started reading Mr Monevator and am trying to get my finances sorted, starting, of course, with debt. I am very debt averse, the only debt I have is my student loan.
I went to university in Australia, which follows a student loan system similar to that of the UK. We take out a 'HECS' debt from the government (since rebranded HELP). It paid for all of my university costs, which was great because I got suckered into doing a 5-year double-degree course. I've since learned the very difficult lesson that this was completely unnecessary, but no point crying over spilt milk etc. This loan is indexed against inflation, and is repaid automatically once you start taking home more than $54,126AUD. The repayment rates go up as you earn more, and the payment is taken before tax so you don't even notice it. See
this table for more details. Pretty cushy, right? For me, this sat right in the realms of a 'low interest rate loan' (maybe even lower than low?), as outlined by MMM in a comment on the
Emergency Debt blogpost:
Student loans – especially those at low interest rates – are one exception. It’s much less of an emergency to pay off a loan like that (while you might not delay child-raising, you’d still be wise to live a very frugal lifestyle until you get back out of the red).
Fast forward 6 years (wow, really that long?) and I'm sat on the other side of the world in my country of birth, sunny England. I've been here for nearly 4 years now. I'm not paying off anything towards my student loan, because I'm not paying any tax in Australia. Who cares, right? It's indexed at inflation and it doesn't transfer on death, and they're not going to chase me for it. I'm living the dream.
Crap.So now they're chasing me. Fair play, I owe the money and I should pay it back. However I'm worried that this debt is now more of an emergency than it would have been if I was back in Australia, making the before-tax repayments.
I have to declare my income with an Australia tax return every year (which I'm sure will be fun, yay), and then based on that income they will determine how much I
have to pay back. This means I'm going to be declaring my
gross income, which will determine the % I have to pay back, but I'm going to have to pay back out of my
net income.
Some numbers:
My income is £46,500 p/a, and my debt is $35,807 (which is roughly £18,000). According to the repayment table, I need to pay back 7%, ~£3300. Further complicating this amount is the fact that I get quarterly bonuses, which will increase my yearly pay and therefore increase the amount I need to pay back (maybe even pushing my up a repayment bracket).
The loan has indexation applied, 2.1% last year.
So, the ultimate question. How should I treat this loan? Should I drop everything and focus on paying this out completely ASAP? Or should I still treat it as a low-interest loan and just make the 'regular' repayments? I've tried doing the maths, but the situation is a bit to complex for my baby financial brain to compute.
Any help would be greatly appreciated!