8 things you need to know about debt
Understanding debt is the first step towards clearing it! Here's some straight-up facts to help you get your bank balance back out of the red.
Managing your money is one of the most challenging obstacles involved in uni life, particularly as students have an average monthly shortfall of £221 when trying to survive on their maintenance loans.
And while life as a student involves plenty of steep learning curves, unfortunately not everything can be taught in lecture theatres or found in textbooks.
It's unlikely your uni course will involve any modules on how to avoid getting into debt, or how to deal with debt you've already accrued… so that's where we come in!
8 things you need to know about debt
Student loan debt is different
Whilst we strongly believe tuition fees are too high, and completely understand how scary it is to know your degree is costing you thousands, it's worth knowing that in the grander scheme of things, your student loan debt isn't something worth worrying about!
Your student loan is likely to be the best loan you’ll ever get, and they’re very different from loans you’d get from a bank. The main reason being that you don't start repaying until you’re earning a reasonable wage, and even then repayments will always be 9% of anything you earn above £25,000 a year.
If you're out of work at any point, you won't be expected to keep up with repayments until you're back earning above the threshold.
Oh, and it's worth knowing the debt will be wiped (no matter how big it is) after 30 years.
If you need a bit more reassurance about why you shouldn't be worrying too much about student loan debt, read this.
Lingering debts leave a mark
If you get into trouble with debt at university and don't take the time to address it, this could have a knock-on effect on your credit rating for the next six years. Therefore, it’s important to make sure you pay your debts on time whenever you possibly can.
Having a bad credit rating can have an impact upon all sorts of important things, from mortgage applications to taking out a mobile phone contract. It’s a good idea to do some digging into your credit history/rating, and most importantly – how to improve it!
Minimum repayments won’t clear the balance
This amount will usually be enough to cover the interest, but will barely be enough to make any sort of dent into the balance, meaning you'll struggle to pay it off at all.
Aim to pay over and above the minimum amount (the more you can stretch to pay off now, the less you'll pay in interest over time) or, even better, clear the whole balance if you can.
Overdrafts aren’t free money
Being given your first student overdraft can feel a little bit like you’ve won the lottery. Unfortunately you do have to pay it back, so try not to get too carried away!
Once you’ve graduated, it’s likely your student bank account will transfer into a graduate account, which will gradually decrease your interest-free overdraft year by year in order to encourage you to pay it off gradually.
Make sure you check up that you've been transferred into a graduate account otherwise you could end up having to fork out loads in bank fees. Remember that you don't need to be loyal either. You should compare graduate bank accounts and switch to the best one.
Housemates aren't always reliable
Moving into a new house as a student can be an exciting time, but working out how to pay the bills can be as stressful as it is dull as dishwater.
If you’re the responsible type, you might find yourself being nominated as the one to make the necessary phone calls to register the bills, or even being the sole housemate responsible for collecting cash from everyone and paying the bills on behalf of the house.
However, it's worth knowing that if you’re the only housemate named on the bills, unfortunately you'll be the one they’ll come looking for if payments fall behind.
Make sure that everyone's names are on the bills so that your housemates are motivated to pay their fair share.
It helps to reassess spending
There can sometimes come a point when you're doing what you can to get your finances to balance up, but you don't seem to be getting anywhere.
Taking some time to reassess how you're spending your cash and where it's all going can massively help ease your debts, as the more familiar you are with your incomings and outgoings, the easier it is take control.
Remember not all debts are equal
Credit: Images Money – Flickr
If you have a few different debts to deal with, it’s important to prioritise which need to be paid off first. The easiest way to work out which debts are most important is to think about what will happen if you don’t pay.
Missing rent payments could lead to you being evicted, and utility bills not being paid could lead to being cut off. As such, these should take priority.
Credit debts such as loans, cards and overdrafts are at the back of the queue – whilst paying these is important (and missing payments will mean your credit rating takes a knock), the implications aren't as drastic as missing other payments.
There's help available
If you’re struggling to deal with your debt, don't suffer in silence! Our ultimate guide to getting out of debt as a student is a good place to start, as we've included lots of helpful advice to get you moving out of the red and back to black.
Your next step should be to see what support is available on campus. All universities have some sort of student support service (although they might have a different name). If your uni thinks your financial difficulties are putting your studies at risk, they could help you with a grant from their ‘access to learning’ fund.
Debt charities also offer free and impartial advice. Stepchange have a free ‘Debt Remedy' tool that takes your financial information and offers a solution tailored to your personal situation.
If you've recently pulled yourself out of debt and have any great tips you'd like to share, we'd love to hear 'em. Please share in the comments below!