Question Time: How to deal with mounting debt? What happens to ISAs when I die? Is student loan paid before or after tax?

0:00This BBC podcast is supported by ads outside the UK.

0:07Every day, millions of customers engage with AI agents like me. We work round the clock and have the facts at our fingertips. We're fast and effective, but incredibly patient. And we're built on Sierra, the leading AI-powered customer experience platform. No hold music, just answers and action. Visit sierra.ai to learn more. That's sierra.ai.

0:56The Martin Lewis Podcast

1:03Time pod in which I answer your questions about absolutely anything and everything within reason. This week you asked me, how do I deal with my mounting debts? Do you pay your student loan before or after tax? Can someone take over my ISA allowance when I die? Charlotte then told us her story of an easy student loan reclaiming success. And finally you asked me, how do I manage to do 26 ,000 steps a day? Play the theme tune. I gotta pay, so I'm gonna work for the world every day. I gotta mouth, I gotta feet, so I'm gonna make sure everybody eats. Hello, everybody, and welcome to this week's Question Time pod.

1:51And I know what you're waiting for. You're waiting for the man himself, the curator of questions, the podcast producer, he who puts everything together and orders it. But yes, ladies and gentlemen, big build-up time. Please welcome podcast producer Matt Burnham. Matt, please add clapping sound. Will do. Thank you very much for that intro. I love that. There you go. Thank you. You want me to get that once. That's your Christmas present. Done. Oh, I thought you were going to give me something else. There we are. What more could anyone get than acclaim on this podcast? There's nothing better. Also, all the advice you've given me.

2:27I do listen. Everyone gets the advice. I get the advice too. Thanks, Matt. You see, everybody, we do like each other, really, but please put me at the start when you're addressing your emails. Right, what's the first question? We will start from one from Instagram. Claire King is asking, the best way to deal with mountain debt? It's a really interesting question, and you're unspecific, so we have to think about what's going on. The first thing is, you know, debt is a symptom. It's not the problem in its own right. It's a symptom of the fact that you're spending more than you earn. So the place that you start is you do a money makeover.

3:02You go through everything that you spend money on in the first place and see, can I get the same and pay less for it? You know, that's my stocking trade. It's what I do. I'm sure you'll be able to work out good information resources on the Internet. They'll be able to help you do that that I'm not allowed to mention. Then once you've done that, I would go and do a budget. Once you've cut down everything so that you're paying less and getting the same and see, are you still spending more than you earn? If you are, then the next stage is that you need to cut back. So in a way, I tend to think about the first lot as pain-free savings.

3:32You know, if you're just changing your gas and electricity supply, so you pay£200 a year less, there's no pain in that. There's a bit of hassle in organising it, but there's no pain. But if you're having to cut back and not do something that you like doing, then they are painful savings. But if you're still overspending, then you need to do those painful because ultimately, when we look at life as a happiness recipe, being in debt and having debts mounting up is a massive unhappiness thing. and therefore missing out on something you enjoy a little bit in order not to be in debt will generally give you a bigger totality of happiness than it would have done otherwise.

4:07Does that make sense? You know what I mean about happiness? I know it sounds strange for me to talk about it, but we have to be honest. People sometimes think my philosophy is for people to spend, not spend anything. It's not. It's for you to have the best possible life that you can. And struggling with debt is a huge recipe for unhappiness. I chair the Money and Mental Health Policy Institute. the statistics if you have mental health issues you're over three times more likely to be in crisis debt than everybody else and the the clinical treatment time for depression for people who have crisis debts is exacerbated by up to to 18 months and the number of people who have suicidal ideation because of their debts is huge this is not you know it's not a trivial thing but it's not just money that's why actually you know the idea that take it on and you have to cut a bit back to stop the debts mounting up is really important and it's really important to deal with it.

4:54When I used to, years ago, I started my career and I used to do money makeovers, which I never thought was the best format for me, but TV people did. And you'd go into someone's house and they were in debt and you'd add it up and they'd never bothered to add up how much debt they were in. And I would, as part of it, because obviously you want to know what the situation is and you'd tell them and their faces would drop and they would go grow. And the point I always made, and this is really important, is you feel like you're in a worse position than you thought you were in. but in practice you're in a much better position than you were in because now we're dealing with it the nature of the problem hasn't changed the problem was always there but until now we weren't looking at how to tackle it and how to improve it so it's just going to get worse this is a good moment not a bad moment this is the moment when you're going to start to change your finances for the better and that's what I'd encourage don't put it off the longer you put it off like anything the more it festers, the worse it will get.

5:51If you've got financial problems, the sooner you deal with them, the quicker you'll be out of them, the more you'll move on to happiness in life. So let's go on to the practicals of debt. It tends to split into two different camps. There are those who are within the system. And so the three questions I'd normally give you are question number one, are you failing to repay your minimum repayments on any of your debts? Question number two. Are your total debts, not counting mortgage or student loans, bigger than a year's salary? Question number three. Are you struggling to sleep at night or having other mental health issues because of worries over your debt?

6:31If the answer to any of those questions is yes, then I would say you don't want to go within the system. You need to go and get debt help. If you answered no to all of those, then the first thing to look at is staying within the system. Staying within the system means going through all the methods of how you can cut the cost of your debts. If you've got credit cards, can you do a balance transfer to shift the debt to a cheaper place? If you've got a loan, can you rebroke a new loan so that it's cheaper or go to a money transfer credit card? It's complicated. Go do some reading on that one. Are you repaying the right way?

7:03Repaying the right way means you should list all your debts in order of the interest rate and repay the most expensive one first, just paying the minimums and all the others, because the most expensive one is the one that's growing more quickly. and hopefully having done a budget, you'll have more money to be able to free those debts up. Have you looked at your overdraft? Overdrafts are often 40 % and more than double the cost of many high street credit cards or about double the cost of many high street credit cards. So actually, many people pay their credit cards off using their bank account, but they're overdrawn.

7:33The bank account's more expensive. You should be paying the minimum on your credit card, leaving more money in your bank account. All of those things are important to look at. and then after a year or two and focused and hopefully you've done your budget if you're within the system you can get rid of those debts your credit score won't be affected by it and you should be in a much better position but it takes work and it takes discipline if you were in the other camp if you're in the camp where you said yes to any of those questions then don't listen to anything I've just said it's a totally different solution and what I would do then is I'd go and speak to one of the non-profit debt counselling agencies National Debt Line Citizens Advice Bureau Step Change and if you want emotional help too Cap Christians Against Poverty they are Christians who do it they do it because they're Christians rather than saying that you have to be a Christian to do it and that's part of the solution although some of the people there you know they often are praying and stuff but they are brilliant for the emotional support if you need that too and if you want someone who's actually going to hold your hand through this because you can't even cope with dealing with it the others are good at dealing with it they're good at helping you deal with deal with it that's how I differentiate them and you want to go and see them they might put you into a debt management plan they might look at solutions like an IVA they might talk to your creditors for you they'll give you breathing space to stop the creditors dealing with you and the biggest message I get from people who've been to non-profit debt counselling agencies is I finally slept last night so really which way you deal with your debts depends on you always try and look at are you spending too much on things always try and do a budget and check that you're not still spending more than you earn.

9:09Whether you then try and work debt within the system or you do outside the system depends on what you feel most comfortable with. And if you're really not sure and you're in panic and you don't know, well then hedge towards going to one of the non-profit debt counselling agencies. They're free, they're not judgmental, do not sit there thinking I just don't want to tell anyone they're going to tell me. They're not going to tell you off. They are there to help and support you through the journey to rehabilitating your finances which will hopefully give you a better life. matt at this point in the show it's a caller isn't it of course michael in andover is our first caller hi michael good afternoon hello hello michael what can i do for you it's martin here hello martin um i am within 12 months of finishing my paying off my student loan and student loans company has oh thank you uh the student loans company has given me the option of switching to paying by direct debit instead of it coming out of my salary.

10:01Yeah. I want to know is because it comes out of my salary before tax, I believe, is it better to stay on the... Carry on. Very quick answer. Is it better to stay as it is or switch to direct debit and avoid overpaying? So this is a common misunderstanding. The amount you pay is calculated from your before tax income, but you pay from your after-tax income. Does that make sense? That does. So, for example, which plan are you on, just so I know? You plan two or? Plan one, the before 2012. Oh, okay. So, the plan one threshold is currently£26 ,000. I think it's going to shift to around £27 ,000 from April.

10:44So, we'll use that figure. Let's say you earn£30 ,000. I'm sure you earn more and you wouldn't be clearing off the student loan at this point, but we'll go because it's nice easy maths. £30 ,000 is what they would calculate your repayments on. That's£3 ,000 above the threshold. You pay 9 % of the£3 ,000. So you pay£270 a year roughly, although it does depend on what you earn a month, but we won't go into that. However, the£270 is taken off your salary once tax and national insurance have already been removed. So you're paying it from your after-tax, not your before-tax salary. Therefore, you are not at any disadvantage when you get into the last two-year period where you can shift to paying by direct debit rather than paying off the payroll.

11:27And for those who don't know, the reason you'd shift to paying by direct debit is because the complication between student loans company and HMRC doesn't often tell employers when to stop taking the student loan payment in time. So people end up overpaying and then have to get the money back. Whereas in the last two years of paying off, If you switch to direct debit, it means you will only pay the student loan company what you owe the student loan company and won't have to claim any back. Does that answer your question? That does. Can I ask a follow up question? You can. You're allowed. That's the advantage of being a caller.

11:57You see, all those of you who just write your questions in, you can't ask a follow up question. But you called Michael, so you get to ask a follow up question. I'm not saying I'll answer it, but you can ask it. Thank you. If I switch to the direct debit, and if I get a pay rise over the next whilst I'm paying it off, am I obliged to increase my repayments or can I keep repaying at my current, in your example,£270 a year?

12:22So I think that what you're asking me, are you obliged? I've never had that question before. But you you will have an obligation to keep the student loan company informed of your financial situation. So as you're asking me this in a podcast, official capacity, I could, the only answer I could give you is that you should inform the student loan company. Understood. Thank you. Cool. Yeah. I mean, and ultimately, the truth be told. So on a plan one loan, your interest rate is set at the rate of inflation. Yeah. So unlike those people on plan two loans. So that actually, you know, once you get rid of this, you've got rid of it.

12:59I mean, ultimately, you could argue the rate of inflation is lower than you could earn in savings. so you could put some money in savings to slightly offset it rather, and it would be beneficial to you. But you're going to be talking a few pence, and you may as well just get rid of this and then get on with your life, I think. Yeah. And how old are you? May I ask how old you are, Michael? I'm 36. So you're 36. So you've actually repaid it pretty reasonably, pretty quickly. We've often discussed when I do in the main podcast, was university worth it for you? So here you are at the point where you're nearly going to pay off the student loan.

13:31Looking back, was university the right decision for you? It was. It led me to get a graduate job. My degree directly led to a job and I've enjoyed my time at university. I enjoyed my job since and I haven't noticed really, haven't really noticed my student loan repayments because it's just been another tax on my payslip. Couldn't have said it better myself. Thank you so much for calling. Thank you for your time. Thank you for answering my question.

14:02OK, so, Matt, this has to be you reading out a question at this point. Yes. The custodian of questions, he has his fixed route. He is a great man and he likes structure and order. So you're going to read me a question, I can tell. He does. And he also likes when he is mentioned in an email. OK. So that's why I picked this one. No, it's not. So it starts with... I bet it is, though. By the way, if you want more chance of getting on air, clearly Matt is the one who selects the questions. So putting him in there will help. But if you want chances of getting a good answer, then make sure I'm first.

14:37Simple rules should work with life. So you should like this one because it's from Lindsay and Lindsay has started with good morning, Martin, in brackets and Matt. I think that's a perfectly appropriate and right way to do it, Lindsay. Yeah, maybe don't need the brackets, but anyway. I think the brackets are fine. Let's carry on. Firstly, let me say what a great podcast you present. It's very informative and entertaining. I'm slightly worried that the great podcast you present is addressing Martin and Matt. That's slightly worrying. Would you not say it's double-headed? No, I think it's one and a half-headed.

15:09Okay, okay, that's fine. That's fine. I'll take that. I'll take that. He says that your podcast is very informative and entertaining and saves him money as well. Nice. Sorry, I'm still laughing at getting stuck over. Oh, my word, what do I say? How do I say this? I'm not a lot of prat. Don't we just carry on reading this bit? Carry on, carry on. In my view, one of the best podcasts on radio. Quite right. Having Matt see of Q as your comedic foil works really well and makes for some lighthearted relief among some of the more serious discussions. How meta is it that we're laughing at the description of us doing what Lindsay likes us doing?

15:44We're doing it right now. That's very meta. Carry on, yes. I feel like we're Ellis and John. I mean, it's... Oh, well, carry on. Okay. Here's his question. Let's actually get to that. If both himself and his wife have a relatively large sum of money in cash ISAs, each under their own name, what happens to the ISA wrapper when one of them dies and ownership of the sum transfers to the remaining spouse? He goes and says, if we had, say,£250 ,000 in an ISA and I die, would my wife then have£500 ,000 in an ISA under her name? Or would she have to find an alternative place to invest and each year transfer a sum into the ISA wrapper in line with the current allowance at that time?

16:24They're both just into their 60s. He's in the 40 % tax bracket and his wife is in the 20 % tax bracket. Wow, well done on that, Lindsay. That's a lot in cash. ISA is always worth, remember, you've still got a long time to go looking at whether some of it should be in investments and in the shares ISA as well. But let me answer the actual straight question here. So the rules are quite interesting. You can effectively leave your ISA allowance to your spouse. Spouse means married or civil partner. It doesn't mean common law partner. And what happens when you do? Well, yeah, I mean, in practical terms, in most cases, you'd sort of leave them your ISA and then they would get the ISA and it would be in, and they get what's called an additional ISA allowance.

17:08So technically what could actually happen is you could leave the assets in your ISA to somebody different, but your spouse would still get an increased ISA allowance by the size of your ISA, which would be called their additional ISA allowance. Though in practice, you're probably going to leave the assets in your ISA to your spouse and it will just all be relatively simple. So what you're concerned about is if I leave the money will my wife suddenly have to pay tax on the money that was in an ISA? No she wouldn't. If you left it to anyone other your wife then yes they would and the ISA would be frozen but then after a time once all the probate went through it would no longer have ISA status.

17:46At that point it would come out of the ISA status but as you're leaving it to your spouse then yes she would get it. Worth Noting that money left in an ISA is still subject to inheritance tax, though. The ISA does not exempt it from inheritance tax. So if you were due to pay inheritance tax, which you may well be with those type of money in ISAs, then it would still be inheritance tax. It counters, you know, whether it's in or out of an ISA, it still counters assets for inheritance tax reasons. That was a long one. Yeah. Did it make sense? It made sense to me. Good. Well, that'll do. I mean, that's a nice low bar.

18:19I'll take that.

18:23Now, mighty custodian of the questions, it's the fourth question in This Is The Fun One. Have we actually got one from a listener this week rather than a Matt question? Finally, I don't have to think of one on the spot. Good, and by the way, if you do have any questions on anything or everything that we're talking about, that's always the promise of the podcast. Of course, most of them about money, but you can ask me other questions too and Matt will always select one each week. This is a little bit of scans and a cider, not what we normally do. then just get in touch to martinlewispodcast at bbc.co.uk.

18:55And as I always say, you can address it to dear Martin and then you can put in brackets and map and that's fine. Or you can dear Matt because I am the one who reads it. Anyway, Daryl in Bristol has sent this in. Dear Martin, ever since your jaunt on the Taskmaster New Year's treat, I've followed your inspiration to keep moving. Well done. So far, I'm on 300 plus days at 10 ,000 steps a day. However, I just cannot see how a busy person like you can achieve 20 ,000 plus a day. How would you achieve such movement for so many years? Oh, Dal, you've had such an interesting time because my hope is this year I'm going to top 26 ,000 a day as an average over the year.

19:32And I'm just currently averaging, at the end of each day, I'm currently averaging 26 ,070 steps. And I actually have a graph plotting what I need to do, how many steps a day I need to average to get over the 26 ,000 figure, which is currently, as we're recording this, about 24 ,950 a day. If I can average that for the rest of the year, I'll hit over 26 ,000 and I am militantly on this so that, you know, if I'm not hitting that, I am walking around and my wife just looks at me like I'm crazy. And she's probably right. I'm walking around at the end of the evening, going round and round to make sure that I'm hitting that minimum because I want to get, I've done 25 ,500, never got over 26 ,000 and I'm so close.

20:10But if we ignore the current complete lunacy of the way I'm doing it at the moment, The answer is you have to reframe your life. Now, I am a very busy person and I am constantly walking, but I'm also in the luxurious position that when I do meetings, I normally have someone with my team with me and I'm generally the person who's doing more talking than listening. That's just how it works because I'm the head of an organisation and most people I tend to have meetings with, it's the way round. So I do, unless I actually need to see something, I do a lot of my meetings while walking. So, for example, on the way walking to the studio for the podcast, producer Matt and I had a call about what's going to be in, because we do both the podcasts on the same day, what we're going to be talking about.

20:53We go through and we do our production meeting there, the same as I do a production meeting when I'm walking to the studio for my TV show. And then I had a call with a member of my team going through for about 20 minutes, a meeting, and all of my time, my rule is if I'm talking, I'm walking. So that means even if I'm sitting at my desk, if I make a phone call instinctively, I don't even have to think about it anymore. I stand up and I start walking around the room when I'm making a phone call. And the walking, talking thing really helps, as does the fact that I do 50 minutes of cardio every morning.

21:23So that means I'm already starting my day once I've done my cardio on about 6 ,000 or 7 ,000 steps. And it basically just, the real answer is I realised as I'm saying this, it's become obsessive and focus your entire life around your steps and it's easy. Maybe I should stop next year. How are your knees? My knees, it's the running that gets my knees. And I run a lot. I use a cross trainer now. I only run once or twice a week. And I do cross training is my cardio on the days I don't run. Because at 53, my knees just couldn't take that much running. But they're all right. Also, there are other things, tips, like have two or three different pairs.

21:56I mean, I wear special shoes that can take walking. I'm not special special. You know, I go out and buy normal branded ones, but ones that are good for walking. But don't wear the same shoes every day. Your feet adjust and that can be dangerous, I've been told. so I wear different shoes on different days so that they're never quite the same and all that type of stuff. But yeah, where am I now? It's not great today, I'm not going to tell you. As we're recording this, it's 2.27pm and I'm only on 11 ,000 steps so I have a long way to go but then I'll be walking home from the studio and then I'm going out for this evening so I'll be walking out and walking back and it'll get there.

22:30Do I sound mad? I mean, yeah, but you've always been... I'll tell you the truth. The truth about the steps, and I need to be honest, it is an obsession and it's one I could stop, but it has had such material benefits for my health. I'm thinner, I'm stronger, my back problems are much better from it, my shoulders work so much better, it gives me a little bit of a break. Sometimes I listen to my audiobook and it has benefits for mental health as well. That is an obsession I deliberately cultivate because I feel it's good for me. So there. Where are we moving to now? Now, Matt, the other week I said it would be a caller at this point and you said, no, it's not a caller.

23:11It's a success story. So I'm now hedging my bets and going for that at this point, it's either a caller or a success story. OK, it's both. A caller with a success story. OK, good. We have Charlotte. She's in Reading and she's on the line. Hi, Charlotte. Hi, Matt. Hi, Martin. Hello. Hello. How are you? Good. Nice to hear from you. I always like a success story. What have you got for me? uh well I was listening to the podcast a couple of weeks ago um listening to you talk about uh people who may have overpaid their student loan um and it sort of got me thinking that I might have overpaid mine in 2023 when I was on my maternity leave so I went online um I used the calculator and sort of worked out that it'd be unlikely that I'll ever pay off in full yeah um so I thought it's worth requesting the refund um so yeah logged in went to request a refund it was a lot easier than than I thought it would be took me no more than five minutes and then I had an email a couple of days later to say that I'd get receive a refund of£790.

24:17Wow nice. Yeah so I just wanted to say a huge thank you really it's the easiest five minutes you know work I've ever done. Oh well that's brilliant well I mean it was your money that's the point so just to explain for people who don't know so this is this is the main reason most people have overpaid student loans is that there's a rule that says you only have to repay your student loan if you earn over the annual threshold in the tax year. So I'm guessing you're plan two, are you? Yes, I am, yeah. So plan two, the threshold is around£29 ,000. So if you don't earn over£29 ,000, you shouldn't repay anything.