In 2018, the average university graduate left with around £36,000 in student loans. While that feels like a huge amount, it doesn't have to be overwhelming if you follow these top tips on reducing debt, organising your money and planning to meet your financial goals.
Settle up your accounts and bills
There are immediate practical steps to take when you finish your final year, including tidying up your finances and ending joint financial agreements with students you have been living with.
Finalise rental property payments and calculate what each member of the household owes in rent and bills, divide and settle up. Then cancel any direct debits and credit agreements that relate to your former address.
Switch your student account to a graduate account
Switch to a bank account more suited to your new needs. It's time to research graduate bank accounts to find the right one for you and ditch your student bank account.
Many graduate bank accounts allow you to transfer your overdraft to your new bank account and some offer extended interest-free periods of up to three years, giving you time to repay the debt paying little or no interest, so you benefit from uni perks for another three years. Use that time to wean yourself off overdrafts – hopefully for good. If you're not sure where to start, try browsing for accounts on comparison sites like comparethemarket.com and Uswitch.
Ditch unnecessary expenses
Adulting means budgeting, we're sorry to break it to you. Write out an income and outgoings schedule and identify areas you can cut back on to keep costs down.
If you have a car, decide if you can live without it. Insurance, tax, MOT and servicing costs exist even before you pay for the first tank of petrol, so unless you need it for a job, then ditch the car for now.
Get clued up on how to borrow responsibly
If you've left university with debts then your main goals should be making repayments, reducing interest and fees, and if you need to borrow further then you should make sure you're wised up on how to source the best deals.
Switching to a graduate current account ususally means further interest-free periods on transferred balances. If not, see whether you qualify for other forms of borrowing that could be cheaper such as balance transfer or interest-free purchase credit cards or personal loans. Don't dive into any of these without knowing the responsibilities they come with, so check out our article on the borrowing pitfalls to avoid before you hit the 'Apply' button.
Research the costs associated with finding a new place to live
Rental and tenancy agreements come with lots of fees and detailed terms and conditions. You may need to borrow to pay for a deposit, month's rent in advance and agency fees. In other words, committing to renting is often a lot more expensive then simply being able to afford the monthly rental payment - check out this article on how to avoid getting caught out by rental costs.
You'll also have to undergo a credit check, so it's important to make sure your credit score is accurate and as healthy as can be. If you're not sure what you're looking for then have a read up on how to check your credit report and correct any problems.
Start building your savings pot
Once all your bills are paid, start thinking about how much you can afford to put away by investing your money where it works hardest for you. Always use spare money to repay high interest debts first as they'll cost you more than you can earn from current savings rate.
Remember, student loans are a separate financial agreement and you don't need to start repaying them until you are earning more than £26,500 a year (if you graduated after 2012).
If you can save, choose the highest paying accounts, but bear in mind whether you need to access your funds as higher-paying savings accounts tend to restrict withdrawals. The government-backed LISA is another option enabling savings for your first home or retirement.
Finally, don't panic! – You might be facing debt, but so are friends and colleagues and you'll be in a position to earn more over your whole career.
It takes time, but the key to managing this period is to budget, build your credit rating so you qualify for credit at low rates, repay debts on time and work hard to increase your earnings and gradually the debt millstone will subside.
Find out your credit score - Credit Reference Agencies (Experian, Equifax and TransUnion) can give you free access to your credit score. It might seem scary but once you know where you stand, there's lots of steps you can take to build your score up.
Update your budget - What you budgeted weekly or monthly for your student life might not cover it for graduate life, especially if you're now renting or travelling to work. Re-assess your in-comings and outgoings and be realistic about what you can afford. If you've just landed your first job, remember that your power isn't in spending - stick to your budget and "future you" will thank you.
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