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Student debt advice

The average graduate leaving university in 2006 had a debt of £13,252 according to high street bank Natwest - a figure that is set to rise significantly when those paying university top-up fees graduate.

For the vast majority of students, debt is an accepted fact of higher education. But knowing what debt to get into and what debt to avoid can make a difference that will affect students for years after they graduate.

Prospective students shouldn’t be put off by daunting debts - they just need to ensure that finances are managed properly and debts kept to a controlled minimum.

Government student loans

Official Government student loans are by far the best form of debt to get into. No profit is made on these loans and the current interest rate is only 2.4 per cent.

You won’t start paying back your student loan until the April after you graduate and then only once you’re earning more then £15,000. You pay nine per cent on anything over your £15,000 allowance, so, if you’re earning £18,000 in your graduate job you’ll be paying nine per cent of £3,000 - the equivalent of around £5.19 a week - and this will be by far the cheapest loan you’ll ever have.

Student bank accounts

These will offer zero per cent interest on overdrafts so they should be your second port of call for borrowing money. However they do start to charge commercial interest rates once you’re no longer a student so you need to make sure it’s not a debt you’ll be carrying around for years. Also, make sure that you don’t exceed your agreed overdraft limit as this will cost you.

Any other debt

All other debt should be avoided if possible as it will carry a commercial interest rate, and your debt will be going up the entire time that you’re not working.

Free money

There are loads of bursaries, scholarships and funds available to students today - many of which are left unclaimed each year. You don’t need to be an above-average achiever, or in extreme poverty to get them, so make sure that you speak to your university and apply for any that you qualify for.

I’ve already graduated

If you’ve already accumulated your student debt, graduated and started your first job, you need to think about the best way to minimise the amount of interest you pay. There are various ways in which you can continue to keep outgoings down - the main way being by taking an active interest in your finances. According to debt charity Credit Action (2007), 80 per cent of 16-24 year olds don’t keep track of their finances.

You need to develop general good housekeeping when it comes to your finances if you want to get out of debt as soon as possible.

Budget

Writing a realistic budget - and sticking to it - is the best way to keep control of your finances. While you might want to keep up the student-style partying once you’re on a salary, don’t go out splurging your paycheque as soon as you get paid each month. Have your big night out at the end of the month, just before you get paid so that at the worst you can only spend what you’ve got left, rather than a whole month’s wages

Switch

Moving your amenities to new providers can save you hundreds of pounds a year. By switching your broadband, home phone, gas, electricity and financial services to more suitable packages and providers you can really cut your monthly outgoings. Click here to compare and switch your gas and electricity, home phone, broadband and digital TV.

Put your money in the right places

If you are able to save some money each month, make sure that you put it into a high-interest savings account, or an ISA - which is tax free. However, if you have credit card debt, make sure that this is paid off before you start saving - the interest you pay on a credit card will be far more than anything you’ll make in a savings account.

Compare the leading savings accounts here.

Savings

If you do manage to put some savings aside when you have extra money then you’ll have peace of mind and something to fall back on if you lose your job, or run into unforeseen financial difficulties.

Compare the leading savings accounts here.

Pick a card

But not just any card. If you have to use a credit card, use one that offers cash back, or money off something you would otherwise buy. And don’t take out any store cards. Although the introductory offer might be tempting, they charge very high interest rates - in the region of 25% on average - so they are definitely a danger in your wallet.

Find out about the leading reward credit cards.

Self assessment

You need to review both your finances and your budget on a regular basis. One in five 16-24 year olds don’t know, within £100, what their financial situation is (Credit Action, 2007), but you need to keep track of where your money goes.

Don’t be wasteful

Treating yourself every now and then isn’t a waste, but signing up for a year’s gym membership that you won’t use is. Before you buy something - especially where you commit to a year of payments - ask yourself if you can afford it and if you actually need it.

Direct debit

Setting up direct debit payments for your monthly bills is a good idea. Set them so that the money leaves your account the day after you get paid; that way you have ensured that the essentials are covered. You could even do a monthly food shop online on the day you get paid.

Falling behind with repayments

Most creditors will arrange some sort of affordable repayment scheme if you’re unable to keep up your payments. But you have to tell them that you’re struggling - you can’t just ignore letters from credit companies as you slip further into the red.

Professional help

If your debts are really getting out of hand, then seek advice from the Citizens Advice Bureau, National Debtline or the Consumer Credit Counselling Service.

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