From the moment you pick up a UCAS form, you’re told about the costs involved. With tuition fees, course books, accommodation costs and living expenses to pay for, you simply have to accept that you’ll graduate with debt.
But what people don’t mention is the real debt that you need to worry about. The kind of debt that affects your credit rating and can put the brakes on your life. Instead of finishing university a care-free graduate with the world at your feet, you could become a financially-stressed graduate with bills in your hands.
Now that maintenance loans have replaced grants, it can be hard to make your money stretch far enough to cover living costs. So, it’s likely that at some point you may need to rely on some extra credit to help you get by.
However, if used in the right way, taking out credit can benefit you. The trick is to be smart. Use it properly and it can help you build your credit rating, so when the time comes to buy a house or a car, you’ll be in a great place.
Here’s our advice on using credit and how to avoid graduating with lots of debt…
Advice About Overdrafts
Advice About Credit Cards
Advice About Store Cards
Even long after you’ve graduated, your overdraft will become that little friend you visit from time to time. An agreed overdraft with your bank means you have a little extra cash in your bank account that you can use when you’re a bit short on funds. But there’s a few things you should know first…
Choose the right bank account
Make sure you choose the right student bank account for you. There are many accounts that offer some fab perks, including 0% overdrafts. This means if you dip into your overdraft, you won’t get charged. This makes 0% overdrafts more attractive than credit cards and much easier and less stressful to manage.
Avoid going over your agreed overdraft
An agreed overdraft means your bank has agreed to you accessing a certain amount of cash. If you go over this, you could be charged a daily fee, so this can easily spiral out of control – especially if you have additional direct debits, card payments or any other transactions due.
Using a credit card means you are buying items on credit, so essentially, your credit card provider is loaning you the money. Most providers will give you an interest-free period on purchases, but if you don’t pay the balance in full at the end of each month, interest will be added to this amount.
Go for a 0% interest rate card
If you’re applying for a credit card for the first time, you may not qualify for a 0% card. Instead you’ll have to get a card with a higher APR (interest rate). But if you keep up with repayments and build your credit rating, you’ll be able to get a card that doesn’t apply interest to purchases – giving you more breathing room and flexibility with repayments.
Set yourself some rules on when you’ll use it
It’s easy to feel like to you have access to lots of free money when that bit of plastic is in your hand. But it’s important that you only use it when you are really desperate and not when you fancy a new outfit or getting a round in.
Put it somewhere safe
If you carry your card with you, the temptation to spend can be hard to resist. However, if you have to physically retrieve it from somewhere safe, you’ll think about your purchase more and it will help you keep to your rules on spending.
Only spend what you can afford
If you are going to use it, make sure you only spend what you know you can afford to pay back at the end of the month. By doing this, you will build on a strong credit rating and avoid building up unnecessary debts.
Don’t miss a payment
Missing a payment will certainly mean that interest will be added to your balance, so it will take you longer to repay. If you continually miss payments, this will negatively impact your credit rating and could stop you from getting credit in the future. It’s also worth noting that if your credit card is issued by your bank, they can access your current account to reclaim money owed to them. Not great when you’re already living on limited funds!
Pay in full, rather than a minimum amount
Okay, so a minimum payment is better than no payment at all, but paying the minimum amount every month will do you no favours in the long run. Interest will accumulate, and that small purchase will grow to become a big debt that you have to repay.
Store cards are similar to credit cards in many ways. They allow you to buy something on credit; then you pay it back. And just like a credit card, if you don’t clear the full amount at the end of the month, interest will be added.
Being sensible is the new cool
Of course you’ll want to look good and treat yourself to new outfit from time to time – and that’s absolutely fine. But it’s important that you view store cards as a luxury item, not a necessity. If you are going to get a store card, limit yourself to one. This means repayments will be easier to manage and stay in control of.
Make sure you can afford it
Imagine buying a top for £20, and then having to pay £5 extra every month just for owning it… you probably wouldn’t buy it, would you? If you’re going to treat yourself to something new, make sure you’re able to pay it off in full at the end of the month, otherwise interest will be added and it will just take you longer to repay. Imagine all the money you could’ve spent on clothes instead of wasting it on boring interest!
Make your payments
So, just like a credit card, missed payments will affect your credit rating, interest will be added and your debts will quickly spiral. Don’t forget, you’ll still have to pay interest if you only pay the minimum amount, so make sure you clear that balance as soon as you can afford to.
Leaving university with debts may be unavoidable, but with the right information and a healthy attitude towards your finances, you can make sure you graduate without bad debt weighing your pockets down.
Money Advisor helps people who get into debt to manage their repayments with as little disruption to their everyday lives as possible. Their specialist advisors handle calls from people in all walks of life, including those who amassed debts while at university.
For more money and funding advice, head to our very special dedicated section…