Good luck with your finals too
http://observer.guardian.co.uk/cash/sto ... 74,00.html
You passed! Time to learn about money
You have your degree - and maybe a job - but you still have those debts. Isabel Hardman reports
Sunday June 24, 2007
The Observer
The news that HSBC is scrapping interest-free overdrafts for graduates means that thousands of students set to end their studies this summer will have to shop around for new accounts. Until now, the high street banks have extended an interest-free overdraft facility to graduates for up to three years, encouraging most to continue with the same bank that they have used during their undergraduate course.
But the HSBC move now means that graduates will need to do more homework to make sure their finances are in first class order.
Find a good bank account
Abbey, Barclays, Lloyds TSB, Natwest, Royal Bank of Scotland and HSBC offer specialised graduate bank accounts, to which their student account holders are automatically upgraded around graduation time. Other banks, such as the Halifax, continue to make their student accounts available for one year following graduation, after which the customer is offered a standard current account.
Andrew Hagger of moneyfacts.co.uk explains: 'By taking the time to shop around, [graduates] could find an account that suits their circumstances and save some money into the bargain. As long as you have proof of qualification and have managed your account within your agreed overdraft limit, there is no reason why you shouldn't switch to a better deal.'
If you are graduating with debts, your priority should be to find the cheapest overdraft facility. Abbey, Lloyds TSB and NatWest offer an interest-free overdraft of up to £2,000 in the first year following graduation, while Barclays customers can apply for up to £3,000. However. HSBC's standard graduate service now charges a flat rate of 9.9 per cent interest on all borrowing. HSBC says it has taken this step to 'help these graduates come to terms with their debt and establish a cost associated with borrowing, albeit a reduced one, sooner rather than later'.
Although you may be attracted by the incentives from providers such as Lloyds TSB and Royal Bank of Scotland, do you really intend to use the discounts offered on holidays, restaurants and DVDs, or that complimentary car breakdown cover? Some accounts, such as HSBC's Graduate Plus, charge £9.95 a month for packages that include a number of freebies and preferential rates on borrowing and savings.
But Hagger points out that 'charges may soon eat away any initial gain. And remember, they only have any value if you are going to use them'. If a graduate does choose to move to another bank, they are usually required to present proof of graduation and sometimes proof of permanent employment or a firm job offer.
Make a budget
With a much bigger income than you ever had as a student, it might be tempting to splash out on a car or expensive clothes, but think about the essentials first. The average graduate starting salary of £20,000 may seem enormous, but it will disappear much faster than you would imagine.
Work out a monthly budget for everything you expect to spend money on once you start earning. This should include repaying credit card balances, overdrafts and loans; paying rent or a mortgage; and bills, food, travel costs, clothes and council tax. Factor in any money you expect to spend on holidays and socialising as well. Lloyds TSB provides a simple budget calculator on its website. A monthly budget can help you to keep within your agreed overdraft limits and avoid unmanageable debt.
Be strategic about your debts
Graduates leave university with an average debt of £9,000, according to the Student Loans Company, and an additional £1,000- or £2,000-worth of debt in the form of overdrafts and credit cards. Such a large amount of money owing can seem daunting to graduates who are only just starting to earn, but this can be broken down into more manageable chunks.
Repayments should begin with the most expensive first - often credit card and store card debts - in terms of interest. Once those debts have been cleared, new graduates should concentrate on paying back their overdrafts and any loans they may have accrued during their studies. Most graduate accounts offer an interest-free overdraft facility that decreases gradually over the three years following graduation, so cash-strapped final-year students are rarely forced to immediately repay their overdraft in full.
Student loans charge a very low rate of interest, and should therefore come last in a graduate's priorities when paying back debt. Repayments do not commence until your salary goes above £15,000, at which point 9 per cent will be deducted automatically from your monthly payslip.
Don't ignore your problems
Some graduates struggle with large amounts of debt, especially if they don't find a job straight away. Emily, 22, found herself overwhelmed by the amount of debt she faced when she graduated last summer. 'I didn't get a job for seven months, and in that time I racked up a £500 credit card bill and maxed out my overdraft. I was living at home, but I was still having to pay travel expenses and for new clothes for job interviews. It was a bit of a nightmare and I panicked. Ignoring the problem made it worse, so that, even now I do finally have a job, I've spent an awful lot of time and money just paying off debts and trying to placate creditors.'
Lisa Colclough at Citizens Advice says: 'We are seeing an increasing number of students and graduates coming to us with debt problems. It is vital that those in debt do not ignore the problem, as it won't go away.'
If you find yourself in severe debt after leaving university, it is important to contact your bank and other creditors as soon as possible. Colclough says: 'They will be much more understanding if you don't delay contact, and you may be able to ask for a period of grace. If you don't contact them, they will just see you as a non-payer, which will lead to problems.' Citizens Advice can help you to draw up a realistic budget and work out a viable strategy for repaying debts. You can also contact Credit Action or the National Debtline for free advice.
Colclough adds that graduates should 'think twice before taking on any new credit and make sure that they will be able to cover repayments'.
The same applies to graduates who have started work, but have yet to be paid. If you are unable to pay your rent because your salary has yet to arrive in your bank account, tell your landlord immediately. As long as they are aware that the situation is temporary and that you will be able to pay shortly, they may be happy to make an agreement with you, or accept a post-dated cheque.
· Credit Action is on 0800 138 1111; the National Debtline number is 0800 808 4000; or go to
www.adviceguide.org.uk
