Question Time: Is cash king? Should you keep some mortgage debt? Can I reclaim student loan taken off my bonus?

0:00Hello and welcome to the cunningly named The Martin Lewis Podcast. I do wonder what that's going to be about. And this is our question time episode, in which I answer your questions about absolutely anything and everything within reason. Your questions this week. I've got lots of credit cards. Does that impact my credit rating? Is it true that I shouldn't completely pay off my mortgage? As if I do, it'll make it harder for me to borrow in future. I got a big bonus in April, but I paid a shed load of student loan on it. Is there any way to get that money back? What are my consumer rights at Argos?

0:37Does it count as an in-store or a distance purchase? And your last question was, why do I look so buff? Well, thank you very much. Play the theme tune.

1:03OK, it's time for Question Time. And as always, I am the act, but the ringmaster is the one and only podcast producer, Matt, who seems to continually be building his role. Hello, Matt. How are you and what you have for me? Hello, I'm good. I think I'm having what I'd call like a bad hair day, but I think most people would say it's always a bad hair day. Look, shall we let people into it? I haven't actually met Matt yet. We work remotely. We're going to meet next week for the first time. So I'm not quite sure what you look like. We've been working well together. It's been good, but we haven't actually met because you're in Manchester and I'm in London when we record this.

1:36But anyway, what have you got for me, Matt? Yeah, let's get some questions. First one is from Alan. He has emailed and you'll be pleased to know he said, dear Martin and producer Matt. So he didn't actually dear Matt. At least I got first. I know. But you always get the mention. I'm always in there. He has said, I've amassed quite a few credit cards over the years after taking out your top picks and other premonitions. Aha, good. I rotate between them and pay off in full. In full. By Direct Debit. Will having such a large amount of available credit impact my credit rating or should I reduce the number of cards I have?

2:10So let's start by saying there is no such thing as a credit rating. Each lender scores you differently based on its own wish list of what is a perfect customer. You get a credit score from one of the credit reference agencies, but that is just how they would see how a typical lender would score you. but each lender doesn't necessarily follow that. And of course, the credit reference agencies don't have the single most important thing in your application, which is your income, because there are also affordability scoring as well as credit scoring. So that's my caveats out the way. Now let's get into some of the nitty gritty here.

2:41So his worry is too much available credit, isn't it? And too many cards. That's what he's asking. Yes. Okay. When you apply, there are three things that you need to look at or lenders are looking at when you're applying for credit. there's the debt ratio, your credit utilisation and your disposable income. So let's look first at the debt ratio. This is how much unsecured debt, non-mortgage debt, you have as a percentage of annual income. Now what he seems to be indicating is he doesn't have much debt. He has a lot of credit. So he's got, you know, let's imagine five credit cards each with a£10 ,000 credit limit and he's only got two or£3 ,000 of debt on them.

3:20Presuming he's got a decent annual income, his debt ratio is likely to be good. The lower your debt ratio, the better, unless it's so low that you don't have much of a credit history and that can cause you a problem. So anything below under 20 % is excellent. Anything 20 to 40 % is good. So I think he's probably fine on the debt ratio. What he's talking about, I suspect, is the next one, which is credit utilisation. That is the percent of your available credit that you've used. So if you've got a credit card with a£10 ,000 pound limit and you've got a thousand pound debt on it, you have a 10 % credit utilisation.

3:57Now, the way to improve it is either you reduce your card or overdraft debt or, ironically, you get more credit. So, bizarrely, technically, the fact that he's got a lot of credit and not much debt gives him a good credit utilisation. Again, under 20 % is excellent, 20 % to 40 % is good, 46 % is okay, over 60 % is bad. So how much impact is that having? Well, probably not that much, because I need to complicate it yet a further step. Remember, you've got the debt ratio, unsecured debt as a percent of annual income, and credit utilisation, the percent of your available credit that you are using.

4:38Credit utilisation is most important for people with a high debt ratio. So if you've got a lot of debt and you're losing a lot of your available credit, that's bad. If you've only got a little debt and you're not using much available credit, or you're using a lot of it, it doesn't really make that much difference because credit utilisation only comes into play when you have a high debt ratio. So what I would say is actually, technically in some ways having all that extra credit is good because it gives you a high credit utilisation but if you start using too much of it it's bad and then there's a third category that doesn't really come into this which is disposable income which is the spare cash you have each month after bills and essentials now when on mortgage they will calculate it individually on a credit card it's often statistically calculated so it's not actually how much disposable income you have it's how much disposable income someone in your circumstance is statistically likely to have so there's not much you can do to change it.

5:36So that's where having lots of available credit comes in on the standard credit score. But it must be said, different lenders do it different ways. Some lenders don't like too much available credit, but then equally cancelling cards and cancelling a lot of cards can be seen negative by other lenders because they like evidence of longevity. So my honest answer, having done all of that long answer, is I would ignore all of it and do what's right for you. If any of those credit cards are the likes of Barclay Card or MB &A, who tend to give existing customer balance transfer offers, in other words they allow existing customers to shift debt to them cheaply, you might want to keep them open.

6:14Otherwise, if you're not going to use the credit, though just so you can count as a new customer and get new customer deals in future, you probably want to close quite a few of the cards. Unless you're about to make major applications or there's a real use of your credit score at the moment, most of it, having done all this long explanation, I'm sorry to say, is a bit neither hidden or tither if you're not too much in debt. So hopefully that was a very long answer to tell you not to bother too much. Matt, what do you have next for me? I have a caller for you. Lovely, love it. Phil is in Burntwood.

6:45Hi, Phil. Hello. Hi, Phil. What can I do for you? What it is, Martin, our mortgage comes to an end in 2027. And I've had several people tell me not to pay it off and to keep some mortgage on there to make it easier to borrow money in the future. Is that a myth? Am I being misadvised? No, it's not a myth, but it's not hardcore either. I would say, personally, I would always prefer to pay down your mortgage when you can, because keeping your mortgage on means you're paying interest. And then if you want to borrow more in future, weigh up the options at the time. As long as you don't have a foreseeability of a change of income.

7:22And as long as you don't, you know, you're not expecting your credit score to change that much, it shouldn't be too much of a problem. Where this is coming from is if you already have a mortgage in place, you can usually approach your existing lender for a further advance to borrow more on that mortgage. And because they've already got a charge on your property, you know, they've got the right to take your property if you can't repay, then that process could be quicker and cheaper than applying for a brand new mortgage and you might not need solicitors, fresh valuations or extra legal work. So that's the reason that they're telling you.

8:01But the trade-off for that is, of course, you're stretching the time that you're borrowing for. And the longer you're borrowing for, the more interest there is, so the overall cost is higher. You're also relying that your current lender's rates will continue to be competitive rather than going out and testing the entire market. and you've obviously owned most of the equity in your property so your loan to value ratio is low anyway which would mean getting a new mortgage is pretty easy. I've spoken to a couple of mortgage brokers about this in the past and there are varying opinions on this. So my answer, and I don't mean it, it sounds a bit like the first question, is a bit, huh, if you know what I mean?

8:40If you want to keep it going, keep it going, just make sure it doesn't cost you too much especially if you think in the short term you might need to borrow more. But if it's a bit of a hassle, you're not planning to borrow more and you've got good foreseeability of financial stability and security going forward, then you might just find it easier to get rid of it. What do you think of the answer? I mean, I'm all for paying it off. I mean, the sooner the better for me. It's just that it's people putting out an idea in your head that it's hard to borrow money once you've paid it off, but you've cleared that up.

9:10Are you planning to get a new mortgage any time after that or any other type of borrowing? No, I'm not. and you do need credit cards or that type of stuff? We have no credit cards in this site, so we pay. If we haven't got the cash, we don't have it. Well, OK. Oh, you see, you've just... Phil, we were going so well. Now we might have to have a disagreement because you sound like a very financially savvy person to me. Oh, OK, yeah. OK, well, OK, no, let me change that. You sound like a sensible person. You don't sound like someone who's going to go and, you know, spend loads of money on impulse all of a sudden.

9:48Fair? That's fair, yeah. All right. So here's what I would say to you. Right now, and let's go, there's a credit card from Lloyd's that pays you 1 % cash back on all of your spending on it. Of course, if you were to borrow on it and you weren't to pay that off in full at the end of the month, you would pay interest. But if you set up a direct debit to pay it off in full, you neuter its borrowing ability as long as you never take cash on it and you don't go over the credit limit. Now, what that means is if you were to shift all your spending onto that card, onto a credit card, then for every£100 you spend, they would pay you a pound and the money is paid every January.

10:27So instantly, everything is automatically cheaper for you. And there are very few exemptions on the Lloyd cards, which is why it's my new top pick. Because apart from unless you're gambling or doing overseas currency, pretty much all your spending is uncapped on it at 1 % for one year. The rate drops after a year. So it's a way of, you know, effectively when you pay on a credit card, the retailers have to pay the card firm a fee. This is a way of getting that retailer's fee into your pocket. So you're getting a reduction on what you pay. Probably a reduction pretty similar to the amount that the retailers had to increase the price in order that they could accept credit cards.

11:00Plus, the second thing, you say you pay on cash. Paying on cash is the least protected way to pay. You have absolutely no protection if you pay on cash. Bank transfer is pretty bad. Cards are the strongest. Debit cards and credit cards have chargeback protection, but by far the strongest protection is Section 75 protection. And that only applies to credit cards on only on items between£100 and£30 ,000. If you buy an item between£100 and£30 ,000 on a credit card, in most cases, there are some exemptions, the credit card company is jointly liable with the retailer if anything goes wrong. Or even if the retailer went bust, you can go to the credit card company.

11:40even if you only spent a penny on the credit card and the rest you could pay for in cash. So for me, I do all my spending on plastic because I get rewards and because I get cash back and because I get Section 75 protection. The reason I normally say to people you shouldn't do that is if you don't trust yourself to have a debt machine, you know, like a credit card could be if you get it wrong and you won't pay it off in full, in which case don't do it. But you don't sound like that type of person. So have I persuaded you at all? It's definitely something to look at. but it's drummed into me from an early age to pay your house off as quickly as possible.

12:15And then this spanner is thrown in the works. But what you said makes a lot of sense. But what I'd go is, if you have a credit card set up with a direct debit to pay it in full, and assuming that you have the money and you can make the payments, obviously, then for me, it's not actually a debt card. I mean, no more than the debit card is a debt card, because if you have a debit card, you can go overdrawn on it, and that's a debt card too. So if you have a credit card and it's paid off in full and you're getting cash back on it and you can afford to pay that, then because there's never any interest, as long as you don't withdraw cash, I would say that's your way to spend.

12:43So yeah, I would probably get rid of your mortgage, but maybe it's worth thinking about not continuing only to spend in cash because you're less protected and you're giving up a 1 % effective discount on everything you spend. I will let you mull on that one, Phil. That's great. Thank you very much. Cheers, buddy. Thank you. Bye-bye.

13:02Right, Matt, that was a bog-off question we just had there. Maybe a simpler one, hopefully next. Okay, question from Matt. Not me, different Matt. OK. Every year, I get an annual bonus in April. Yeah. Is this bonus exempt from student loan or is the way I can claim back part of the payment for that month? As you can imagine, the amount I pay towards my student loan in April is eye-watering. Wow, OK. Simple question, not a simple answer. Right. There are lots of different student loan plans. They depend on which UK nation you're from and when you started university. I'm going to take a guess that you're on the most popular loan, as in the one that most people are on, not that they like it, which is the Plan 2 loan, which is for those from England who started university between 2012 and 2022, because you've already left uni, so you probably are on that one, and I'm going to assume that you're in England because it's the biggest UK nation.

13:54If I'm wrong, then all that changes is the thresholds I'm going to talk about. The numbers I'm talking about are wrong, but the principle is still right. Now, for somebody on a Plan 2 loan, you repay 9 % of everything you earn above£28 ,470 a year. That's the sort of typical way it's phrased. But of course, critically, the money comes from your account each month. So if I just get onto my calculator and do 28 ,470 and divide it by 12, that tells me that you repay 9 % of everything you earn above£2 ,372 a month. I'm going to do what I think probably isn't your case first. If you had a bonus, if you didn't normally earn over£2 ,370 a month, but you got a bonus in one month that took you above that, so that you did make a student loan repayment in that month, because say that month you earned£3 ,000, so you pay 9 % on roughly£600, but at the end of the year your total earnings were still below£28 ,470, then you could reclaim it because you only have to repay the student loan if you earn over£28 ,470 a year on Plan 2.

15:19If you earn less, you don't have to repay. So any month where you have wrongly repaid, you are able to reclaim that money. However, if you earn over the threshold, the£28 ,470, then even if you disproportionately pay too much in a month, you aren't able to repay the excess in a month. People will get confused about this, so let me try and come up with a scenario. go. So if your normal earnings were£2 ,300 a month and you did that for 11 months, that would be£25 ,300. But then in another month, the final month of the year, in April in your case, you got a£5 ,000 bonus. That would mean your total earnings were£28 ,700.

16:11Wow, that worked out well. I was that as I went and that worked out well. So you would think you should repay 9 % of 300 quid because you're on 28 ,700 and repay 9 % of everything above 28 ,470. So you would think you're to pay 9 % of everything of 230 quid, which is what? It's about 20 quid. That's what you would think. But it doesn't work like that. Because you've earned enough to go over the annual threshold, then you repay by the month. And I'm afraid you would have to repay on that April where you weren't£5 ,000, 9 % of roughly£2 ,600, which is about£220. And you would have repaid that in the month.

16:51Now, you may say to me, yeah, I repaid£220 in that month, but I'm only just above the annual threshold. So can I not claim back the difference between what I paid in that month and what I would have paid if you calculated it over a year? The answer, I'm afraid, is no. If you're under the annual threshold, you can reclaim it all back. If you're over the annual threshold, then it's worked out on the month. And that is why it is a very complicated structure, which is why it's quite complicated for me to explain it. So the answer to your question, I suspect, is if you're already earning over the total you pay in a year, even though you pay disproportionately too much because of a bonus in one month, then my answer is all you can do is spit and swear.

17:35You can't get the money back. That's a shame. It is. That was complicated. You're roughly in the right age group for all that student loan repaying stuff. Did you understand it? Yes, I think so. Good, good. It's just a complicated structure. Very complicated. We've had an email from John. He has said, dear Matin, does that work? Are you happy with Matin? Matt in. Oh, I see. So Matt and Martin. No, it's Martin. All right. I think I like Matt in. Anyway, John has emailed in. He said, after listening to the episode on student loans, I was inspired to apply for a refund as I had a couple of years where my salary probably dropped below the threshold.

18:17Brief unemployment plus a temporary gig getting paid minimum wage for a graduate role. I was expecting maybe 100 quid if I was lucky. I got an email a few days ago notifying me that I was due a£1 ,100 reward that'll cover a trip to Cyprus I'm planning with some of my friends. Oh, wonderful. I love a success story and it fits very well to the previous one. So that's someone who's overpaid and there are lots of other reasons that you could have overpaid as well too. And people always say, but should I get the money back? Because it's a loan and normally you should try and pay off a loan as quickly as possible.

18:47And you should listen back to the student loan podcast full episode I did, which explains that it really doesn't work the way most people expect. On plan two loans, the ones I've just been talking about, only two thirds of people are likely to pay in full within the 30 years before that particular plan wipes. For all those that don't, you won't pay the full amount of interest. And so therefore, taking your money back and having it in your pocket is generally beneficial because it may not even reduce what you'd pay in your future. That overpayment may not make any difference. You'd still be repaying 9 % above the threshold for 30 years.

19:22In which case, you may as well have the money in your pocket so you can spend it if you have overpaid it, which sort of does make sense. And also, of course, if you had any other expensive debts, it would be far better to use that money to pay off your high-cost credit cards or your loans than it would be to have it sitting, reducing the amount of student loan that you owe, even though, because reducing the amount of student loan that you owe may not reduce the amount that you have to pay in future. If you don't understand that, go back and listen to the other pod because it's complicated. Yes, absolutely.

19:50My question I've got on this, if you contact them and say, am I due a refund? Does that have any effect on anything? You won't get penalised for doing that or anything like that? No, I mean, you are not allowed to get back voluntary overpayments. You can only get back where you have wrongly paid too much money on your student loan. And they will not give you the money if you have not wrongly overpaid too much money on your student loan. So it does not penalise you in any way. The only issue would be that if you were going to clear it before it wipes, then by taking the money back, of course, there is interest accumulating on that money.

20:26And if you didn't have a better use of that money and you were going to clear it before it wipes, then you may be worse off by taking the money back. Although for most on Plan 2 loans, that isn't likely to happen. Understood. Thank you. Where are we going next, Matt? As you know, I like to put a silly one in each week. I've picked out quite a good one, I think, because I was watching the TV the other day and saw you on another show, which I won't mention. On another channel, probably, not on the BBC. No. Shock horror. And someone else, I think, saw, because Rosie White said, are you working out at the gym?

21:01Because you're looking rather buff these days. And I will say, we did notice that your arms were looking a bit bigger. I don't know if you've got a smaller T-shirt or... It's probably a smaller T-shirt. Well, first of all, thank you very much. um have i been working i do i have actually i i am i am 53 years old i have been obsessed by steps for many years over the last few years i've increased the amount of weight training that you do when you get over 50 to try and stop losing testosterone doing weights and resistance workout is really important for you so yeah i do i'm i used to go and do weights about three times a week i now i'm doing it about five or six times a week although sometimes only for 10 or 15 minutes but the biggest thing I've changed which has probably changed my arms and I would anybody else who is able to do this and is obsessive like me so you can stick to something once you agree to do it it's since the beginning of July I on top of doing my cardio every day and on top of doing weights about five times a week I do 60 press-ups every day without fail and 60 60 three sets of 20 although sometimes if I'm showing off one set of 40 and two sets of 10 and I have a little press-up boards you can get them for less than 10 quid that puts your hands in different positions when you do your press-ups and I have found that I think it's a really good compound exercise that you can do anywhere even when you're busy really quickly and I've actually found that for upper body it also does your core a little bit at the same time it's really good so I suspect the reason I'm looking buff is due to the press-ups and of course if you've got questions you would like to pose to me whether they're good ones or Matt's funny ones yes we will accept more and Matt would like you to feed in with silly questions then you can email martinlewispodcast at bbc.co.uk and they will go through to Matt what's next?

22:53we'll get another caller up we have on the line Mitch in Wellingborough are you there Mitch? yep hi Martin hi Matt hello mate even you're higher matting as well now i see hi mitch all right matt can answer the question then no go on um so yeah my question is around uh your consumer rights and returning items that aren't faulty yeah now my so i understand that when you order something online you have 14 days in order to uh notify return then another 14 days to return yeah correct thank you um and when you're in store you don't have any rights unless it's in the company's policy or it's faulty yeah or it's faulty yes um however what if you go into a shop say an argos i hope i can name it yeah it's fine if you go into a shop uh say an argos and it is um you order at the kiosk uh so you don't actually see the physical item beforehand hand you then pay for it at the kiosk you then go to the till and have it brought out to you what are your rights then very interesting so normally when i'm not being particularly specific i i tend to say this depends on whether you've seen the item in advance right and whether you've got it so that if you were to do normal click and collect in store that you ordered online and then you collect in store and you just pick it up you're in many cases you it counts as an online order because you've just been, you know, you've just got it.

24:25But if we're being really technical, distance contacts are those that are concluded without any face-to-face contact. Now, Argos deems that when you collect an item in store, that is the point of the collecting the item where the contract is concluded and that counts as a face-to-face contact. So in Argos specifically, because of the way it works, you don't get that distant selling unless they are delivering it to you at home. Does that make sense? It's because of the face-to-face element. In most stores, if you just do click and collect, and then you go and pick it up in the store and you're not seeing it, it's fine.

25:06But because of the way it works in Argos, they're handing you to face-to-face, then it doesn't count as distant selling. So it isn't about whether you've seen the goods. It's the face-to-face element that is technically the element of the law. Anyway, under the Consumer Contract Regulations 2013. Okay, yeah, perfect. Yeah, so basically be careful. you know the summary of that treat treat argos like you're buying any other shop it's just an in-store purchase that works a slightly different way right and check the item before you go out of there and you just say i just want to check it before you go through it but of course the key is remembering that if it were faulty if you got it home and it was faulty then you've still got all your normal sad fart and satisfactory quality as described fit the purpose and that's the reasonable length of time sad fart right yeah okay brilliant thank you cheers mate thank you so much for calling thank you and that's it for this week's question time don't forget to subscribe so you know when we release a new episode we're going to be putting out a new question time episode every Monday alongside the regular podcast which stays on Thursdays aren't you lucky two doses of money saving tips and tricks every week and if you want to send in one of your questions just email martinlewispodcast at bbc.co.uk ta-ta I got meals, I got to pay So I'm going to work for a while I got a house, I got a fee So I'm going to make sure everybody eats Martin Lewis is the founder of MoneySavingExpert.com But of course, other consumer and price comparison websites are available You can get in touch with Martin's podcast production team by emailing martinlewispodcast at bbc.co.uk The offers and rates mentioned in the podcast are correct at the time of recording.

26:52However, if you are listening on demand, it's worth double checking as details can date. Remember to subscribe on BBC Sounds and leave us a review however you listen.