Controlling and Paying Off Student Debts

Controlling and Getting Rid of Student Debt

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 academic years. 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 money. 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:

a) 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 store cards). 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:

a) transferring the balance to a 0% credit card;

b) 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, 2006).

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.

References

Brealey R, Myers S. 2003 “Principles of corporate finance” International Edition, published by McGraw-Hill Higher Education, p. 532

City University, 2006, “Student Loans – new students 2006/2007” Available from: http://www.city.ac.uk/studentfunds/undergraduate/new/loans.html (Accessed on 31/10/06)

Clear Start 2006 “Unable to keep up monthly payments on credit cards and loans” Available from: http://www.clearstart.org/credit-card-debts-uk.php?gclid=CPmQwpvJo4gCFRnpXgoduHknSQ (Accessed on 31/10/06)

DFES, 2006 “Student loans and the question of debt” Available from: http://www.dfes.gov.uk/hegateway/uploads/Debt%20-%20FINAL.pdf (Accessed on 31/10/06)

Dwelley S. 2006 “Student debt and how to deal with it” Available from: http://graduate.monster.co.uk/8663_en-GB_p1.asp (Accessed on 31/10/06)

Education Guardian. 2006 “Market logic turns a degree into a share certificate” Available from: http://education.guardian.co.uk/students/tuitionfees/story/0,,1840824,00.html (Accessed on 31/10/06)

NatWest 2006 “Avoiding the student debt trap” Available from: http://www.he.courses-careers.com/debt.htm (Accessed on 31/10/06)

RBS, 2006 “Credit Cards” Personal Finances Available from: http://www.rbs.co.uk/Personal_Finances/Credit_Cards/Card_Features_and_Benefits/default.htm (Accessed on 31/10/06)

SDRT 2006 “Student Debt Reduction Team” Available from: http://www.wessexscene.co.uk/article.php?sid=273 (Accessed on 31/10/06)

This article was written by Verena Veneeva professional writer working for http://www.coursework4you.co.uk You are free to reprint this article; however should you do so you must place a hyperlink to Papers4you

Paying Off Student Debt – Is a Home Business the Answer?

With study costs escalating and an increasing number of graduates entering the job market, finding the job of your choice is becoming more and more difficult. Getting a foot on the career ladder, in a position which not only supports you, but also enables you to pay off your student debts is not easy. The average graduate in the UK leaves university with a debt of £14,000 and can expect a salary of around £22,000. So it doesn’t take a mathematical genius to work out that student debt is likely to linger into middle age.

There have been tragic stories of suicide amongst young people unable to bear the heavy burden of such a large debt at the beginning of their working lives. In addition, many more young people are forced to return to their parents’ homes after college, because they simply cannot afford to pay rent, never mind consider taking on a mortgage.

Is there a way in which to reverse this trend? On an individual basis it is certainly possible to set up an extra stream of income and one of the best ways of doing this is to establish a home business. However, anyone planning to do so needs to do a considerable amount of research beforehand.

The internet offers a huge array of business opportunities, many claiming to make participants wealthy without doing anything resembling work. Whilst it is much easier to establish a business online than offline and is usually a great deal less expensive, it still requires hard work. So, tempting as offers of a turnkey system may be, don’t be fooled that it will run on autopilot. It’s good to have a system already in place, but remember that people won’t just come because you have a website – you have to market it.

If you are a graduate in a low paying day job, you should ensure that you have enough time and energy in the evenings and at weekends to work on the business. This may be difficult, especially if you were used to partying as a student. However, the first few years will be the most difficult and if you persevere you could reach the point at which you can not only pay off the debt, but also quit the day job.

When considering which business opportunity to choose, there are a few questions you should ask. The first of these should be, does the product or service really interest me? You’ll be spending a lot of time dealing with it and so it needs to fire you up if you are to survive the inevitable failures along the road to success.

If you are considering network marketing in some form, do you believe in the opportunity? Is it something that you truly believe will work for yourself and for others? Just because it works for some people doesn’t mean it will work for you. What does it involve? Are you expected to make cold calls, persuade your friends to sign up and are there high monthly fees which could accumulate over time if you don’t introduce new prospects?

One of the most important factors to consider before entering any business, is supply and demand. No matter how passionate you are about a particular product, there is no guarantee it will sell if current demand is low or existing supply outweighs demand.

If you have determined that a good sized market exists, you need to be sure that you can reach that market quickly and easily, which in terms of internet marketing, means knowing where your potential customers “hang out” online, what they search for, how to get them to your site and what will bring them back.

Creating wealth online is more difficult than it was a few years ago, but it’s still possible. The internet changes rapidly – what worked last year or even last week may not work today and so you need to keep up to date and to be extremely flexible in your approach.

In order to succeed in an online business you need a combination of research and hard work, together with a willingness to learn new techniques and to put them into practice.

© Waller Jamison 2006

Waller Jamison is a freelance careers advisor. For information on self-employment: http://www.coolercareers.com/self employment.html For a free e-book and details of a low-cost online business: http://www.make-the-lottery-work.blogspot.com

A student loan debt consolidation loan allows you to combine your federal student loans into a single loan with one monthly payment. The repayments of a student loan debt consolidation loan can be significantly lower than the payment required under the standard 10-year repayment option.

For American students, the U.S. Government came up with a plan that can help a student manage their student loan debt. The plan they came up with is called a Federal Direct Consolidation Loan. It doesn't matter if you're a recent graduate student, well into your career already, still at school, or in your grace period for repayment of a student loan. For any of those student categories, a Federal debt consolidation loan may be applied for.