Gradute finances: dealing with debt
Leaving the safe cocoon of student life to enter the grown-up world of work can be a daunting experience. The years of studying and partying, with little responsibility beyond getting to a lecture on time, are over. It's time to put that degree to the test and start earning some real money.
With this change in lifestyle, however, comes a dramatic shift in financial priorities. Scraping a few pounds together to buy a pint at the student union bar gives way to bigger concerns like getting a job and tackling that dreaded student debt.
"It's a cliché, but after graduation there is only one phrase that applies: 'Welcome to the 'real world'," says Francis Klonowski, director of financial planning consultants Klonowski and Co in Leeds.
With average graduate debt now topping £13,000, according to Natwest, there's no doubt that juggling debt repayments with getting on the career ladder is a tricky feat. But it's not impossible, providing graduates get their finances organised and set themselves some priorities.
If, like many graduates, the only financially viable option is to return home to mum and dad while hunting for a job, it's crucial to take advantage of this cheap accommodation. Seek work as soon as possible to get yourself back on track.
Even for those super-organised students who start applying for jobs during their final year, it can often take months of applications and interviews to find the right job.
Klonowski sympathises: "I made the classic mistake of believing that after graduating with a good degree from a good university, prospective employers would be falling over themselves for my services. They weren't, and it took around 50 failed applications and six fruitless interviews to find something I felt was right."
If it looks as though it may take some time to find the job you want, taking some temporary work to fill the gap is the best option. It will often be in a completely different area to your degree, but the important factor is to generate some income as soon as possible.
Once you've started earning, the next step is to take a look at what debts you've accumulated over the last few years at university and prioritise them. It can be tempting to blow your first pay packet and promise yourself you'll get round to addressing your debts later.
Write a list of the debts, with the rate of interest being charged for each one. "Credit cards will be the most expensive and student loans the cheapest, so work through your debts this way," advises Sue Hannums, savings manager at AWD Chase de Vere. "If you've got two credit cards, for example, pay the minimum repayments on the cheapest and concentrate on clearing the more expensive one."
If you can, Jo Roberts, partner at Needanadviser.com, also suggests switching existing credit cards onto 0% cards so you can start repaying debts without them growing any bigger.
"Be vigilant when doing this, however," she warns. "Watch out for fees and be sure to move when the 0% period ends."
Overdrafts on student bank accounts tend to be interest-free - and many graduate accounts also don't charge for up to two years after university. But this shouldn't be the green light to leave repaying your overdraft or going further overdrawn. It's important to be disciplined and pay more off each month.
Talk to your bank about how you plan to do this and they'll often cooperate by reducing your overdraft as you pay it off, to remove the temptation to dip in further.
If you have several debts it may be worth consolidating them with a personal loan, as it's easier to budget with one repayment. There are lots of graduate loan packages - some of the lowest rates on offer are exclusive to certain professions that require further study, such as law, accountancy, medicine and dentistry.
Applying for jobs
When applying for graduate jobs, it's important to factor in the cost of taking up a position. If the jobs involve moving to another town or city - particularly to London, where 40% of last year's graduates headed - consider whether you have enough funds for the move and whether the salaries on offer aresufficient to live on.
"It's easy to get seduced by different aspects of the job itself, but before accepting you need to ruthlessly go through the sums to see if they add up," says Klonowski.
It's worth having a hunt on online property sites to get an idea of what you can expect to pay in rent. If you have friends who live in the areas where you're applying for jobs, ask them about the cost of living and extras such as travel costs and council tax. "Make sure you include an extra sum for contingencies," adds Klonowski.
The real world
Settling into a new job can be tricky. You'll be keen to get on with everyone and make new friends, while learning the ropes and figuring out how things work. It's important, however, not to get carried away with the new social life. There's no harm in going out and having fun, but chances are you'll be on a modest salary and still have debts to repay, so it's important to keep focused.
If you're finding it hard to manage, it's crucial to work out a budget, says Hannums. "Budgeting doesn't have to mean going without anything, just allocating for it. If you want to go clothes shopping, for example, allow yourself £50 a month and stick to it. Now you're receiving a regular salary, it will be easier to monitor your outgoings and see what you can afford to spend."
It's also possible to boost your finances by making a few simple changes. "Shop around for everything," says Hannums. "From utilities to your mobile phone tariff, you can make big savings by switching to the best deals."
Roberts also suggests day-to-day tips. "Try not to buy takeaway coffees, sandwiches and magazines every day and use the savings for other pleasures such as meals and nights out. No one misses not having shop-bought coffee and sandwiches, but most of us feel down if we can't go out with friends for the evening."
If taking on your first job is stretching your finances, you may well have to sacrifice bigger purchases, especially in that first year when finances can be particularly tight. If taking on further debt is the only way you can afford something, then you can't afford it.
The great incentive is that the sooner you're free of debt, the sooner you can really start making the most of your salary and plan for the future, whether that means saving for a trip round the world or your first home.
An overdraft is an agreement with your bank that authorises you to withdraw more funds from your account than you have deposited in it. Many banks charge for this privilege either as a fixed fee or charge interest on the money overdrawn at a special high rate. Some banks charge a fee and interest. And other banks offer a free overdraft but impose very high charges for exceeding the agreed limit of your overdraft.