How to clear your student overdraft
As students across the country finish their finals and get ready for the real world, experts have offered their advice on how to clear undergraduate overdrafts and credit card bills.
A host of student bank account providers offer to extend interest-free overdrafts for a set period after graduation, generally with the amount you can borrow without charge dropping every year.
But students should not be afraid of switching to a new student account, moving to a graduate bank account, or taking action to cut credit card bills.
"On leaving university, searching for the best current account provider may be the last thing on many graduates' minds," said Andrew Hagger, of independent comparison service Moneyfacts.co.uk.
"But by taking the time to shop around, they could find an account that suits their circumstances and also save some money into the bargain."
There are only six graduate bank account providers, but this does not mean newly qualified university leavers cannot secure a great deal.
"Graduates will often remain loyal to their student account provider. However, as long as you have proof of qualification and have managed your account within your agreed overdraft limit(s), then there is no reason why you shouldn't switch to a better deal," Mr Hagger said.
Moneyfacts' top ten tips for graduates:
1) - Sort out a monthly budget
Once you graduate and start work, it is a sensible idea to sit down and work out a monthly budget. It is probably the first time that you will have had a decent regular income, but at the same time you may have had to move to a new area for your new job and have additional travel and living costs. By actually working out how much money is coming in and how much is going out, you will know how much is left over to put towards repaying your debts.
2) - Work out a debt repayment plan
Make a list of exactly how much you owe and plan to start reducing your debt. Most people will leave university owing a five-figure sum, but be sensible about it. It does not all have to be paid off within 12 months, but then again you cannot ignore it and you should look to start making repayments as soon as you can afford to.
3) - Do not rush to pay off your student loans
While these may well form the largest part of your debt, the interest rate is low (in line with inflation), and the whole idea behind these products is that you make repayments from your salary over your working life.
4) - Check out how much you can borrow interest-free overdraft on a graduate account
The NatWest and Abbey graduate packages both offer up to £2,000 free in year one, then £1,000 in year two and down to £500 in year. We are still awaiting details of packages from the other big banks, but last year Barclays Graduate Additions offered the highest interest free limit in year one at £3,000 but this account does charge you a £5 per month fee. However the extra £1,000 interest-free overdraft is worth £100 (at a typical rate of ten per cent) so paying £60 in fees over a year for benefits including mobile phone insurance is still worthwhile.
5) - Check out the authorised overdraft interest rate
Subject to credit approval, graduates may maintain their year one limit, but pay interest on the difference between this and their relevant year's limit. With rates ranging from 9.9 per cent (Barclays and Abbey) to 18.3 per cent (HSBC), choosing carefully could make quite a difference financially.
6) - Keep an eye on the unauthorised overdraft fees and interest rate
Graduates' incomes and expenditures can initially be rather erratic, which may on occasion result in unauthorised borrowing. This can be an expensive, and should be avoided if at all possible. For example Lloyds TSB charges interest of 29.8 per cent, and apply fees of £30 per day (max £90 per month). A better deal can be found at HSBC, charging its standard interest rate of 18.6 per cent and overdraft arrangement fee of £25.
7) - Do not be fooled by incentives
Unlike the student account market, where incentives are the often the main focus point for providers' marketing, only Lloyds TSB, HSBC and Royal Bank of Scotland offer incentives or benefits to graduates. But do not be lured simply by the incentives on offer, as charges may soon eat away any initial gain. And remember they only have any value if you are actually going to use them.
8) - Credit Cards
Always look to repay your most expensive debt first. Once you have found work, give yourself six months (to start to build a decent credit rating) and then apply for a 0% credit card to switch some of your student debt to. The Virgin Money MasterCard is currently offering 0% balance transfers for 13 months, subject to a one off 2.99 per cent transfer fee.
9) - Savings and Pensions
You cannot really start any serious saving until you get your debts paid off, but probably not a bad idea to set up a regular savings account to salt away money for annual bills such as car tax and MOT and Christmas - this will help you budget - a bit boring I know, but better than having to shell out a few hundred pounds from one month's pay packet.
It is never too early to start saving for your retirement - check out what your employer is offering. If you are very fortunate you will be part of a final salary scheme, but more likely it will be a voluntary contribution scheme where your employer will match your contribution. Retirement may seem a long way off, but better to start early even if it is only £50 or so each month. It is tax efficient and will also save you having to contribute a fortune each month when trying to play catch up in later life.
10) - Mortgages
This is unlikely to be affordable unless you have managed to secure a job with an excellent salary, so you will probably be renting either alone or with friends. If you are looking for a mortgage, Co-operative Bank, HSBC and Scottish Widows offer specific criteria and mortgage products for graduates. The other option is buying a property with a group of friends - a great way to get on the property ladder, but can be complicated if someone wants to move on or you fall out. You need to get an agreement drawn up by a solicitor to cover such eventualities.
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