Leaving university is a daunting step in any young person’s life. Some graduates may decide to move back in with their parents in order to save money, others may decide to move to another city to look for work. Some may have a job lined up for straight after graduation but for others, finding a job can take more time.
No matter what your situation, it is important that you have a good grip on your finances so you don’t end up getting yourself into further debt. Setting up and sticking to a budget is a good way to help you manage bills and expenses once you graduate. It’s likely that you will have some debts when you leave university. These could be made up of household bills, student loans, credit card bills, overdraft and store cards. It’s important to prioritise these debts appropriately in order to manage your money effectively.Pay off final household bills
If you’ve been living in a shared house, it’s probably that you will have certain bills that are split between you and your housemates. Your first priority is ensuring that the final bills for the household are paid as any outstanding monies could affect your credit rating.Prioritise credit card and bank loan debts
Earmark some of your income to start reducing any high interest debts you may have, for example any credit card bills or bank loans. Ensure you are making at least the minimum payment and that you don’t miss any monthly payments. As with your household bills, missing payments on your debts will affect your credit rating and could hurt your ability to borrow money in the future.Shop around for a graduate account
If you are overdrawn on your current student account, then you should look for the account offering the biggest and longest-lasting interest-free overdraft. This doesn’t mean borrow more on your overdraft! By not having to pay interest, more of your payments can go towards clearing the actual debts. You should aim to gradually reduce your overdraft during the interest-free period so that by the time interest becomes payable you have already paid off the overdraft.
If you are lucky enough to be in credit with your finances when you graduate, then you’ll want to focus on accounts with pay top rates and other benefits that may include cash back, travel or mobile insurance etc. These accounts usually require you to have a regular income of more than a set amount. For example, First Direct offers a current account which pays you £100 on joining but you need to pay in at least £1000 a month to qualify for this account.Repaying your student loan
You won’t start repaying your student loan until your income is over £21,000 per annum, pre-tax. Your annual payment is worked out as 9% of your total earnings over £21,000. So if you earn £22,000 you will pay 9% of £1000 that year, which is £90, so about £7.50 a month. If you are employed, your loan repayments will be taken from your pay at the same as your Tax and NI contributions, so it’s unlikely that you would ever have to make a direct payment to pay off your student loan. If you are self employed, then you would have to work out your repayment amount at the end of each tax year when you do your self assessment. After 30 years, any and all remaining debt is wiped, so if you never get a job that earns above the threshold, then you will never repay the loan. If you have been paying off the loan, but still have an outstanding balance after 30 years, the outstanding balance would be cleared. For this reason, we would not recommend paying off your student loan early as you may end up paying more than is necessary.Student loans do not affect your credit
In contrast to credit card bills or overdrafts, having money owed on your student loan will not appear on your credit file. Although a lender may still ask you if you have a student loan, they will be using this information as part of their “affordability checks” to ensure you can make mortgage payments or similar.© Ocusfocus | Dreamstime.com