What you should know about debt

stay ahead of the debt

by | Last updated 25th Apr, 2017

Life as a student has it’s perks, but one of them is not an endless bank account, no matter how big your overdraft and student loan is p.s. overdraft and your student loan are both forms of debt.

The first step to getting out of debt is to understand it! So in case your uni don’t have that Learning about debt 101 course, check out our helpful tips below.

5 tips you need to know

1. Student loan

Firstly the myth that student loan is not a debt is FALSE. However it is a different type of debt. It’s the best debt/loan you may ever have, even though it’s never enough to put bread on the table everyday.

You don’t pay your repayments until you graduate and earn over £21,000. If you ever earn less than the £21,000 mark you will stop repayments until you hit or exceed the threshold again. The best part of this debt is that if you can survive it for 30 years it will vanish, no questions asked.

If your worrying that the repayments are going to be so high once you start earning over £21,000, don’t be. The repayments are not that high at all, they are quite fair, so even though it may take you a good while to clear it or wait till that 30 year clearance mark to hit, it will be the best debt you take out.

Annual income (before tax):Monthly salary:
Monthly Repayment:
Up to £21,000£1,750£0
£22,000£1,833£7
£25,000£2,083£30
£30,000£2,500£67
£35,000£2,916£105

2. After Uni knock-on-effect

You’ve graduated, Congratulations! Now remember everything good we just said about your student debt? Well yea…..it’s not looking so hot right now.

As we said, the student loan debt maybe the best debt you’re in, however this only applies to the loans you took from student finance and not your own bank account and other loans you may have taken.

If you are in an overdraft, you better start thinking about how you’re going to clear it. IT’S NOT FREE MONEY, IT’S LOANED MONEY. After you graduate you may be put into a graduate account where you have a certain amount of time to payback your overdraft which is somewhere around the 1 year mark for most banks. Check your bank on its overdraft repayment terms and if you have been put in a graduate account or a normal current account.

The longer you leave your debt, the longer it will keep kicking you in the shins and eventually even start affecting your credit score. Pay it off quickly so you have one less thing to worry about. If you have a credit card which is looking quite heavy, make sure you’re paying it off at the same time or at least making your minimum payments.

3. Minimum spends

Credit: Sean MacEntee - flirk.com

Credit cards, your best friend on that shopping spree or that night out. Your worst friend a few days later when your account updates and tells you, that the £50 shopping trip/ night out was actually a £200 fiesta.

While minimum credit card repayments are great to keep your party funds as high as you can, there not great to moving forward and clearing your debt. Just because you are meeting your minimum payments, does not mean you’re clearing the debt.

Try to take a percentage of any income you gain to paying off your debt and aim for it to be higher than your minimum repayments.

4. Not all debts are equal

The most important thing to realise with debt is that not all debts are equal. Your student loan debt is not the same as your credit card loan or your overdraft debt.

Your student loan is a good debt (or at least a better debt) as the way you pay it back is dependent on if you are earning over a certain threshold.

Next we have your overdraft debt that is due to lose its 0% interest soon vs your credit card debt. In the best case scenario you should pay off your overdraft before interest starts taking effect while still repaying a good amount of money towards your credit card debt or at least meeting the minimum monthly repayments. If you can’t keep meeting the minimum payments while paying back your overdraft check if your credit card account still has any initial incentives active, such as 0% interest for the first 12 months or so. If this still does not work out, see if you can transfer your credit card to another bank. This all depends on the terms of your contract, but if you can move banks, you may find new credit card incentives to help you leave the credit card debt at the bottom of the pile until you pay your overdraft off.

If you have to go for moving credit card schemes and keeping that debt further back in the to-do list, be warned that this will have a knock-on-effect later again if you don’t start to pay it back. This could also damage your credit score as you are taking longer to meet minimum repayments. Make sure you talk to your bank about your options.

5. Do you need help?

Are you struggling to get out of debt? Don’t start panicking just yet. There are loads of people out there to help you figure it out. Email us if you would like to chat to a friendly voice for a students experienced form of action.

There are however bodies and authorities that can help if you want more professional help. All universities have some sort of a student support centre. There is a small chance that if you can prove that your financial difficulties are affecting your course, that you can receive a grant to keep you on your feet.

Also look into debt charities as they offer free advice to help you get through your own personal situation.

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OUR KEY TIPS

 

1. Don't think that you can figure it out after you graduate. Deal with it as soon as you can!

2. Have a plan on how to pay off debt.

3. Know the priority of each of your debts.

4. If you don't know how to get out of debt, look for help such as our website or even from your university or charities.

Have you fought your way out of debt? Comment below and let us know how you came out on top!

 

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