Graduating with debt? What’s good and bad in the world of credit – words Alan Turnbull

Graduation is a time for celebration – but it can also be tinged with sadness. Yes, you’ve managed a fantastic achievement by getting yourself a degree but, on the flip side, now it’s time to head out into the big bad world and leave behind your more carefree student days.

One of the realities of the real world that you need to be acutely aware of as a graduate is debt. The much-publicised increase in tuition fees – and the rising cost of living – has left many students saddled with debts that could, in some cases, become a big financial and emotional burden.

One in seven students has been chased by debt collectors for unpaid rent and about three quarters of students with a maintenance loan. The average student loan debt upon graduation is on the rise. The trick is to understand the world of credit – the positives you can take (yes, there are some!) and the pitfalls to avoid if you are graduating with debt.

 

Your student loan is a ‘good debt’

It’s important not to panic about your student loan when you graduate. As the Money Advice Service shows, this is classified as a ‘good debt’ because it’s actually an investment in your future and should help you to get a better paid job. Not only that but it doesn’t affect your credit rating – so it shouldn’t stop you from borrowing money elsewhere – and the payments only kick in once you earn a certain amount (£21,000 a year for those who started their studies after 2012).

Don’t leave student debts hanging over

This is so important. Unpaid bills from your student house could find their way onto your credit report and go down as a black mark against your name. That could be pretty serious as lenders will use this information to judge whether or not to accept applications for credit in the future, meaning it could harm your chances of getting anything from a mobile phone contract to a mortgage. Read up a bit more on your credit report and ensure that you don’t blot your record.

Sort out your bank account

Many people have a student bank accounts while they’re at university, often complete with a decent overdraft. This is a debt and needs to be paid off fairly swiftly. You could switch to a graduate account as this will give you the breathing space to do this over time. (Check out this guide from the Guardian for advice on what to do next with your student account).

Work your way through your debts

Some graduate student debt is more expensive to service than others. If you’ve had a student credit card, for example, it pays to chip away at the balance on this as soon as you can. Making only the minimum repayments will do little to tackle the overall balance.

Don’t rush into more borrowing

Life might be expensive, but you need to be wary about borrowing too much as a graduate. Ideally, you’d get yourself on your chosen career ladder and get a steady income before you take on too much new debt – otherwise you’ll just need your packet to service debt and that’ll be pretty dispiriting.

By settling your debts, transferring to the right bank account, understanding how your loan repayments work and holding off from taking on too much new debt, you’ll be in the best place as a graduate to start out in the world of work.

Graduating with debt? What’s good and bad in the world of credit – words Alan Turnbull