Money Management and Debt

Three common types of debt for students are credit cards, interest-free store loans and mail order catalogues. Credit cards make paying for goods and services easier at the time, but it's easy to forget how much you've spent on them. If you must use a credit card, keep a very careful eye on how much you're spending and make sure you keep to what you can afford. Most credit cards charge no interest as long as the whole amount owed is paid within about six weeks. If you don't, the interest rates are high.

It's often worth getting a bank overdraft rather than to keep the debt on a credit card as the interest rates on overdrafts are invariably lower. However, as your overdraft is one of the main planks of your financial support, you should be careful not to use up too much for this purpose. Banks are unlikely to extend an overdraft to pay off a credit card debt, and in fact may wish to examine your total debt and budgeting if you ask them to do so.

Interest-free store loans can seem very attractive as you can buy large items like a stereo or even a car for a relatively small monthly payment - at least it seems small at the start of the year when you are in credit. If you do enter into such an agreement, make absolutely sure that you can afford to pay the required amount every month, remembering that you may have less available cash at certain times of the year, e.g. the end of term.

People often assume that they'll be able to cope and then find they can't, which can lead to problems. Do make sure that you're paying for a loan and not hire purchase - with hire purchase you will lose the goods if you don't make repayments, but with a loan the goods are yours even if you default. However, this could lead to you having difficulties trying to obtain most sorts of credit.

Mail order catalogues and CD/book clubs can seem a very easy way to buy things. As you do not usually have to pay anything for several weeks after you receive the goods it can be very easy to lose track of how much you've spent. Interest rates, if any, can be very high indeed, and even if the goods are interest-free, they are often more expensive than buying them in the shops. Unless you need something immediately, it is better to save up the amount you would pay to the catalogue - perhaps by a direct transfer from your bank account to a savings account - and then shop around to get the best price when you have enough.

By far the best way of keeping control of your money is to prepare a monthly budget. To do this, work out how much money you have available each month. Generally, your income will be your loan, any family contribution, any earnings and for some students there will be an element of grant. You may need to divide some of these into monthly amounts - the number of months to be covered depends on whether you have to cover all your costs during holidays. Then you add up your monthly outgoings - things like rent, phone bills, TV/video rental, travel costs, food, laundry, recreation and so on.

You should arrange to pay set monthly amounts for gas, electricity, water and phone if possible, to make it easier to budget.

You will also need to include things like books, stationery, clothes, toiletries, sports/hobbies, club/society subscriptions and occasional costs (holidays, presents and so on). You may have to work out how much you think you will spend during the year and divide it into monthly amounts. Try to be realistic about the amount of money you will spend on things.

Once you've done all this, subtract your monthly expenditure from your monthly income. If the number you get is bigger than zero, you are planning to live within your means. Many students, however, will find that there is not enough income to cover costs - this is how debt starts, and it will grow every month.

There are two things you can do about this, either go back and work out where you can save some money or accept that debt is an inevitable part of student life. You should also be able to work out the total debt you will have at the end of the academic year. There is no hard and fast rule about what is an 'acceptable' level of debt to have. Most students will have some, a few students will have a lot.

If you need more help with budgeting, or advice on how to manage debt, go and see the Student Money Service in Wessex House 2.33. They offer a friendly and professional service and are trained to help you. You may also find the Student Business Officer at your bank a useful person to chat to.