Martin Lewis

I have to be mindful that listening to this podcast is all types of different levels of financial sophistication.

If that's all a bit confusing for you, it's not for you.

I'm just going to add in an extra thought on this, because I know I suspect quite a lot of people are going to listen to the podcast to hear whether they should pay off their student loan with a 0% credit card.

The most important thing here is that equation of whether you are likely to clear your student loan before it wipes.

Now, Plan 1 loans that Tom had, people borrowed less and it has a lower interest rate.

So people who took Plan 1 loans are far more likely to clear it before it wipes than the most common type of student loan, which is Plan 2 loans for those who started university between 2012 and 2023 in England and Wales.

With Plan 2 loans, the repayment threshold is higher.

So you start repaying at around £29,000.

You repay 9% of everything you earn above it.

And you repay for 30 years.

And the interest rate is between the RPI rate of inflation, so 3.2% for this year, up to RPI plus 3%, which is 6.2% when you combine the two.

So the amount of interest being added is larger.

Now, while that might make you think you really want to use it to clear the loan, what it actually does for many people is mean they won't clear the loan in full within the 30 years before it wipes.

If you're not going to clear the loan in full in the 30 years before it wipes,

Paying off an extra £1,000 or £2,000 by putting that debt on a 0% credit card may actually result in no saving in what you have to pay on the student loan, because the student loan, the amount you pay, is dictated primarily by what you earn, not by what you owe.

What you owe is only an indicating factor in whether you'll clear it or not within the 30 years.

So the real reason I'm doing this is for those people who won't clear within 30 years, there is a risk that you would get a 0% credit card out to pay off some of your student loan debt, but paying off some of your student loan debt wouldn't actually reduce what you have to pay on the student loan in the 30 years before it wipes.

but would have built you up a £1,000 or £2,000 debt on a credit card totally unnecessarily.

I'm not going to go into great detail on it, but I think it's a really interesting point and I didn't want anyone to go away listening to my answer to Tom thinking, oh, I might do that when your circumstances are very different.

Now, Simon, the format says you need to have a caller or at least a voice message now.