Student debt unravelled

Why debt isn’t all bad – and how to manage it

Baffled by borrowing? Read our guide to debt – the good, the bad and the ugly – and get tips for staying on top of it

These days, borrowing money – whether it’s from your bank, mum and dad or a student loan – is generally unavoidable. But borrowing, and the debt that comes with it, isn’t necessarily a bad thing. It’s all about how you manage it.

Let’s bust some of those borrowing myths and take a look at different types of debt – plus how you can stay on top of each one.

‘My student loan debt is huge – paying it back when I graduate will be tough’

Wherever you’re studying in the UK, it’s likely, if you’re a UK resident, that you’ve taken out a student loan to cover your tuition fees (and probably a loan to cover living costs, too). With graduates in England leaving university with considerable debt, it can be difficult to imagine how or when you’ll ever be able to pay it back.

Don’t panic. You won’t be expected to pay it off the minute you’ve thrown your cap in the air at graduation.

Student debt is different to other types of debt – you only begin repaying it when you’re earning above a certain threshold. In England and Wales, it’s currently £21,000 (for students who started undergraduate courses on or after 1 September 2012)1 and it’s expected to go up to £25,000 in April 20182.

Repayments only increase when you start earning more and they pause if you stop earning. It’s also worth noting that student loan debt doesn’t affect your credit score or appear on your credit report (though if you’re applying for a mortgage, loan or credit card, you may be asked about it in your application). Not as scary as it first seems, right?

If credit score chat has you confused, learn more about credit ratings.

‘I’ll just get a payday loan until my loan instalment comes in next week, no big deal’

When you’re struggling at the end of term, it might be tempting to go to a payday loan lender for a bit of extra cash. What’s the harm if you’re going to be able to pay it back in a few weeks, right? Wrong.

Payday loans have very high interest rates (meaning you’ll pay back a lot more than you borrow), and – as with all loans you take out – they can affect your credit score negatively if you don’t pay them back on time.

‘Credit cards are bad news because it’s easy to lose control of your spending’

When used wisely, a credit card can be a good way of staying in control of your finances. They can be useful for spreading the cost of a big purchase.

If you make repayments on time each month, using a credit card also helps prove to lenders that you are a responsible borrower. That can boost your credit rating making it easier to get a mortgage, loans, credit cards and even mobile phone contracts in the future.

Make sure you don’t miss repayments, though, as that could damage your credit rating. Only use a credit card if you can repay however much you borrow and make at least the minimum repayment amount each month.  Representative APR 34.9% APR (variable) may apply.

You can find out more about credit cards, and how to improve your credit rating at barclaycard.co.uk.

Understanding the fee-free benefit

Most student current accounts offer a fee-free arranged overdraft that can be increased during your studies. An arranged overdraft is a borrowing facility that allows you to borrow money through your current account – and, in the case of fee-free overdrafts, you won’t be charged for doing so.

Remember, though, that you will need to pay it back. The fee-free agreement of a student overdraft reduces and eventually ends after you graduate.

With our Student Additions Account, for example, at account opening you may be eligible for a fee-free overdraft of up to £500 (subject to application, financial circumstances and borrowing history), and this could increase to £1,000 in your first year and up to £2,000 in the second year and up to £3,000 in the third year and beyond. To avoid overdraft charges, it’s best to start paying it back as soon as you can.

Representative example3
Fee-free overdraft up to £3,000 (subject to application, financial circumstances, borrowing history and lending criteria) while you stay within that limit.

All student overdrafts are subject to application, status and lending criteria so your maximum overdraft amount may be different from the amounts shown above.

Overdrafts are repayable on demand. Any fees are variable.

‘Being late on a utility bill once or twice won’t matter much’

Getting into debt with your utility bills could result in your gas or electricity being cut off, a weakened credit score or even a court summons.

Where possible, try to have every housemate’s name on bills so that everyone is responsible for their share. If yours is the only name on the bill and a flatmate leaves you in the lurch, you’re liable for the whole sum.

Save yourself stress and set up standing orders or Direct Debits for all your bills. You can set up standing orders in the Barclays Mobile Banking app4, and check your active Direct Debits – download the app and register if you haven’t already.

You can also set up text alerts so you get an instant notification of money coming in and out of your account.

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