An education in finance ...

July 9th, 2007

Financial planning is essential for students and graduates, says Moneyextra.com.

The Government's new plans to shake up the school curriculum with the introduction of a subject called "economic well-being and financial capability" come far too late for this year's crop of debt-laden graduates.

As another academic year comes to an end, new graduates across the UK are waking up to the realisation that they are in a significant amount of debt¹ and are worried about how they can repay it.

However, by making a budget early on, graduates can avoid a deadly spiral of debt and bring their finances back into the black, says online independent financial adviser; Moneyextra.com.

What to budget for

Robin Amlôt of Moneyextra.com said, "Graduates should budget² for everything to ensure that nothing is missed, that it's all written down."

To make things manageable, split outgoings into the following categories:

• Essentials - such as living costs (including rent, council tax, food & utilities) insurances and travel costs
• Luxuries - such as nights out, clothing & holidays
• Debts - including credit cards, overdrafts and loans from the Bank of Mum & Dad

Manage interest rates

Once a budget has been established, it is important to be disciplined with any money that is left over each month - use it to pay off the debt with the highest interest rate as this will be the most expensive.

Any loan from the government backed Student Loans Company will incur interest set at the rate of inflation (currently fixed at 2.4% although due to double to 4.8% from September this year), so it will usually cost less than any other debt and, in any case, is only repayable once graduates are earning more than £15,000 a year.

Another way to manage interest paid against graduate debt is to switch to a product offering a 0% or a low interest rate; for example if your graduate credit card charges 15.9% APR, see if you can transfer your balance to a card offering 0%; or even consolidate the debt into a personal loan as the interest rate charged is likely to be considerably less.

Check the small print

"It is important that graduates get into the habit of checking the small print before they sign on the dotted line - especially if it relates to their finances," adds Moneyextra's Robin Amlôt. While headline grabbing 0% interest rates and a sizeable overdraft sound great³, other fees or charges could be heavily weighted in favour of the bank and so have the potential to catch many graduates out. Things to look out for include:

• The amount that the 0% threshold reduces by each year; for example Lloyds TSB reduce their threshold by £500 per annum whilst others reduce at a rate of £1000 per annum.
• The rate charged on any overdraft that exceeds the 0% threshold; as rates vary from 9.9% with Abbey to 15.6% with Barclays.
• Other charges; including those for bouncing a payment or for any unauthorised overdraft.
• Time limits that could be imposed on paying back an overdraft.

 

For further information, please contact:

Robin Amlôt
Senior Editor, Moneyextra
Tel: 0870 191 5626
public.relations@moneyextra.com

 

NOTES TO EDITORS

¹ According to the National Union of Students, the average level of graduate debt outside of London is £13,000; whilst those studying in the City can expect to repay £15,000 to their creditors, which range from the Government-backed Student Loans Company, their high-street bank, credit card companies and even friends and family.

² An example budgeting tool is shown below

Budget Summary

³ Abbey, Barclays, Lloyds TSB, NatWest & Royal Bank of Scotland all offer a 0%-interest overdraft, on a tiered basis so that it decreases over a specified period of time; usually 3 years. The highest 0% overdraft is offered by Barclays, but there is a monthly fee payable for use of the account.

Moneyextra.com regularly wins awards - in 2007

• Finalist Customer Focus, National Business Awards Wales/West Country Region
• Finalist Growth Strategy, National Business Awards Wales/West Country Region
• Money Marketing IFA of the Year 2007 - won as part of AWD Group

Moneyextra.com is one of the UK's longest-established personal finance websites. It has 536,000 unique users and delivers 5.5 million page views every month and has 513,000 registered users.

As at 25th June 2007, Moneyextra.com featured:

• More than 10,000 Mortgages from 126 providers
• 205 Personal Loans from 55 providers
• 211 Credit Cards from 63 providers
• 1,505 Stocks & Shares ISAs from 58 providers
• 173 Cash ISAs from 91 providers
• 123 Current accounts from 36 providers
• 876 Deposit accounts from 149 providers