Stressing about your unpaid bills? Understanding debt is the first step towards clearing it! Here are 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 £170 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!
Trivia: What percentage of students will never fully pay off their student debt? Answer at the end!
A simple guide to debt
Student Loan debt is different
While we strongly believe that tuition fees are too high, and completely understand how scary it is to know your degree is costing you thousands. But 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 on the best terms you’ll ever get, and very different from loans you’d get from a bank. You don’t start repaying it until you’re earning over £25,725, and even then repayments will only ever be 9% of earnings over that threshold.
If you’re out of work at any point, your repayments will stop until you’re back to earning above the threshold.
Oh, and it’s worth knowing the debt will be wiped (no matter how much is left) 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.
Some debts will affect your credit rating
While Student Loan debt doesn’t affect your credit rating at all, other kinds of debt do and can have some pretty serious consequences if you don’t deal with it. 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 if it’s not looking too healthy, learn how to improve it!
Minimum repayments won’t pay off your debt
If you’ve got a credit card or store card, you’ll receive a monthly bill telling you how much you owe in total, as well as the minimum payment you should be making each month.
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.
Avoid payday loans
Payday loans can seem like a quick fix if you just need a bit of extra money at the end of the month, but their interest rates are extortionate and even a small loan can quickly spiral out of control.
Danny Cheetham took out a £100 payday loan when he was at university, but 10 years and a few more loans later, he was £26,000 in debt.
Read Danny’s story and his advice for students who find themselves in desperate financial situations. Always speak to friends and family members first, and consider whether a credit card is a more suitable option.
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 to 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.
Keep track of your spending
It can be frustrating if you’re trying really hard to get rid of that credit card debt but you just 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 income and outgoings, the easier it is to take control.
Use this guide to work out a monthly budget that takes into account paying off small debts here and there. We’d also strongly suggest you stop spending money on things you don’t need to be !
Remember not all debts are equal
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 need sorting first 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 you being cut off. As such, these should take priority.
Credit debts such as loans, cards and overdrafts are at the back of the queue – while paying these off is important (and missing payments will mean your credit rating takes a knock), the implications aren’t as drastic as missing other payments.
Seek debt advice if things get tough
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.
Answer to trivia: A whopping 80% of students will never pay off their Student Loan in full – doesn’t seem so bad now, does it?
Understanding debt is just one of many money lessons you should have been taught at school! Taxes might be boring, but getting to know how they work can save you a lot of dosh…