Controlling And Getting Rid Of Student Debt
by Anna Aronic
Most of the students nowadays fear debt (Education Guardian, 2006).
However, debt is not necessarily a bad thing, if you can control
it. Learning how to control it early on pays dividends for the rest
of your life, as the likelihood is, you will owe some money to someone
until retirement, be it a mortgage, loans or even leveraging a business.
Simple corporate finance rule of thumb states that individuals and
businesses can benefit from a correct ratio of debt in their portfolio
(Brealey et al., 2003, p. 532).
The first rule of controlling your debt is not to spend too much.
Students have a lot of different discounts available to them, so
you need to get a student card as soon as you join the academic
institution to be eligible for the discounts. In turn this means
that your purchasing power increases as you buy the same basket
of goods for less. For example, your Debt Reduction Team offers
a wide range of discounts that are available not only to you but
also to your friends and family (SDRT, 2002).
Your two biggest expenditures (except for alcohol) are likely to
be accommodation costs and books. It is advisable to stay in university
halls as long as it is possible. Sometimes applying early on and
negotiating will allow you to secure a place in the second and third
In Britain books are extremely expensive, so do not rush to buy
everything on the reading list. The best way to save on books is
to use the library and it is always worth signing up to libraries
outside of your university which will give you access to books when
they are not available in your own library.
Also, if you are living in halls, students in the year above you
are likely to have the books that you require. If you do want to
buy books, check university book sales or the internet for second-hand
bargains. However, if you do have to buy a brand new book, be very
careful with it and do not break the back or loose the receipt,
as this will allow you to refund it (usually within 10 days) if
you decide that the book is not for you.
Other ways that you can save money are:
- "Shop for food with friends - buying in bulk can save money
and means that you can take advantage of the 'buy one get one
free' offers" (NatWest, 2006)
- "Use your NUS or ISIC card and also look in your Student's Union
for a number of one-off offers that are available" (NatWest, 2006)
- Before buying goods ask fellow students if they know where to
get them cheaper
Considering that you have minimised your spending, the methods
of efficient borrowing will be discussed below.
New students usually borrow from the Student Loan Company (SLC)
to fund their fees. This company will allow you to borrow up to
£3,000 per year and the debt will need to be paid back once your
income is £15,000 or more per annum (City University, 2006). The
SLC's interest on the loan only increases in line with inflation
(retail price index), therefore you will only pay what you have
borrowed, plus inflation. The repayments will be linked to your
income at 9% (DFES, 2006, p. 8). SLC loans are primarily used to
pay tuition fees, but of course, you will also need some spending
The majority of students will open a credit-card account. However,
what you need to be aware of is that a credit card's interest is
a lot higher then those charged for a loan. Therefore, there are
other sources of finance that you can try first, such as Student
Accounts that are provided by most of the high-street banks. Student
accounts will allow you to borrow at 0% interest (up to a certain
amount) during your university years and 1-3 years afterwards. Most
of the high-street banks compete to get students as their customers,
so make sure you check all of the available offers before settling
for an account.
However, if alternative resources have run out then opening a credit
card might be the only option left. In this case you should be looking
for a credit card with 0% on purchases. Most of the credit cards
will have a shorter time-frame on 0% purchases than on balance transfers,
so you need to find a credit card that will give the maximum time
on free purchases.
Zero per cent on purchases means that the cardholder pays no interest
on anything that they purchase with the credit card for a certain
period of time and after that timeframe expires, a standard rate
of interest is incurred on the balance (RBS, 2006). The best deals
on credit cards can be found on the internet. There are two things
that you can do once you reach the end of the 0% period:
- transfer the debt to a new credit card provider; or b) pay
off the debt. Otherwise the debt will start rising out of control.
In the first scenario there are a few things to watch out for.
First of all, when you transfer the balance the amount of 0% purchases
will go down. For example, if a new credit card offers a £2,500
limit and £2,000 is transferred from the original credit card,
then only £500 is left for purchases.
- Secondly, there will be a fee for transferral, which ranges
from 2% to 6%, which needs to be taken into consideration when
choosing the best deal. Thirdly, if the credit card offers a £2,500
limit and £2,500 is transferred, there will be no money left to
spend, which will force you to open another credit card. Furthermore,
most of the credit cards will have a certain cash withdrawal limit,
which is much lower then the credit limit offered. You should
be aware of that limit, and bear in mind that you will incur credit
card charges every time money is withdrawn. So, the best thing
to do is to have a plan of how to pay some of the spending off
whilst 0% on transfers and purchases is still available.
There are a lot of different ways of earning money whilst at university,
which will not interfere with the lecture attendance. Most universities
and some agencies will allow a student to work around their timetable,
furthermore there are a large number of companies on the internet
that will allow you to work from home at your own pace. For example,
a student once told me that the best way to earn money while at
university is to look outside of university jobs. In her case, she
did bar work at the club during semester time and temped full-time
for an agency during summers doing administration work. On completion
of university not only did she have a positive account balance,
but also had good working experience to display on her CV.
Considering that you have some money coming in and 0% on purchases
is available to you, you can put this income into a savings account
(cash ISAs is one of the best ways of saving, while still allowing
you to withdraw at any time). Therefore, your income is earning
you money, but the credit card is not charging interest.
Once the credit card has to be paid off, the required amount is
withdrawn from the savings account and the credit-card bill is nullified.
However, what can you do when there is no income coming in? Unfortunately,
you will need to rely on debt. As has been explained previously,
you will need to make sure that you transfer credit balances before
interest payments are incurred. However, there will come a time
when you will run out of money available to you and this will require
you to have some income coming in.
As stated before, there are a lot of different ways of earning
income whilst at university. Furthermore, bear in mind that most
future employers will look favourably on previous job experience,
even if it is not related to the job that you are applying for.
Getting rid of debt on completion of university is also not as
difficult as it's made out to be, if you can apply the correct discipline.
- The first thing that needs to be done is to understand exactly
how much money is owed (this can include credit cards, loans and
- Secondly, debts need to be put in order of priority. For example,
if the credit cards are incurring 14% interest, whilst 4% is charged
on your loan, then paying off the credit cards should take priority.
If you do not have the income to pay off all of the credit cards
straight away there are a number of things that can be done:
- transferring the balance to a 0% credit card;
- speaking to your bank and asking them for terms to consolidate
your credit cards (more then one quote should be obtained)
c) calling other debt consolidation companies and seeing what
they can offer (Clear Start, 2006).
Similar stages can be applied to other debts, in order of priority.
If steady income is available (which is higher than the amount spent
per month) then debt is not necessarily a bad thing. If spending
is controlled, then you can pay off outstanding debt, and benefit
from alternative debt available. For example, if you spend against
your credit card at 0% per year, then your outgoings can be put
against the credit card, but income can be put into a savings account
allowing those savings to be used to pay the card off at the end
of the free period, so retaining the interest.
Some students think that they can default on a student loan. Defaulting
on a student loan is very difficult. The loan will be automatically
written off by the government after 25 years, if not paid (DFES,
Although the above work outlines different ways of maintaining
and controlling debts, it should be noted that bad debts and an
inability to pay may be registered with credit reference agencies,
which in turn will decrease your ability to obtain a mortgage in
the future (Dwelley, 2006). Therefore, it is important to control
your finances at all stages: during university and afterwards.
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