Avoiding Debt

It is best to avoid credit whilst at University - it can become unmanageable on a student income, and leave you in debt.

Why Credit is tough to shift

Say you spend £100 on your credit card: if you only make the minimum payment (say £5), your balance is now £95.  If your monthly interest rate is 2%, you carry forward a balance of £96.90 – you’ve only reduced your debt by £3.10.  If you only make the minimum payment each month, it could take over two years to clear your £100 spend, and it will actually cost a total of around £130!!

You’ll need to consider things like the terms of a loan or credit card and interest or APR that you repay. Equally, it might also be worth weighing up whether you need credit at all, or whether you might be better saving up for the item.

Credit Cards

Try to avoid using credit cards because of the high rates of interest charged. If you do use one, compare interest rates charged using comparison sites such as:

• www.uswitch.com/credit-cards/
• www.comparethemarket.com/credit-cards/
• www.moneysupermarket.com/credit-cards/
• www.gocompare.com/money/

Make sure you pay it off every month to avoid charges. If you already have a credit card, it may be a good idea to switch to a 0% Balance Transfer Credit Card and start paying the debt off instead of just the interest. Check out Money Saving Expert's guide online.

Payday Loans

Payday Loans are short term loans that normally last no longer than one month and are repaid at your next wages payday. They can seem attractive because they are normally very easy and quick to apply for and in many cases the money is received into your account only a few hours after application. However they charge extremely high rates of interest and the cost of borrowing can mount up quickly, especially if repayment is late or you borrow repeatedly, making the amount you repay much larger than the original amount borrowed. In the long term Payday loans can make your financial situation worse.

Buy Now Pay Later

Buy Now Pay Later schemes help spread payments but are also a form of unregulated borrowing where interest may be added and students can find making repayments difficult.

Independent Finance Companies

Independent Finance Companies provide loans often targeted at students and these can be useful for students without access to statutory student finance. However students are advised to check and compare interest rates as well as terms and conditions if considering applying for a loan.

Any company providing financial services must by law, be registered with the Financial Conduct Authority (FCA). You can check whether a company is registered with them via the FCA website.

Students should be particularly aware of independent finance companies masquerading as official student loan providers. These companies advertise on social networking sites known to be used by students. They can charge extraordinarily high rates of interest that could never realistically be repaid by anyone on a student income and should be avoided at all costs.

Loan Sharks

Loan sharks are illegal money lenders that are operating an unauthorised business, often without paperwork, which should not be used; they are not always easy to spot as they come in many forms, will at first appear friendly and often part of the community. It is when borrowers can’t pay that they will find themselves threatened.

If someone is struggling to pay a debt the loan shark will resort to threats, violence and intimidation to get what they think is owed, even if the debt has been paid off several times over.

A loan shark will typically have little paperwork, will add penalty charges for late payments and sometimes add random sums to the bill. They may also take items such as passports and bank cards as security and resort to threats.

Many victims keep paying because they think they can afford the agreed weekly sum, but they don’t realise how much their continuing weekly payments add up to or they are too afraid to stop payments.

If you think you or someone you know may be involved with a loan shark contact the England Illegal Money Lending Team in confidence on:

• National hotline number: 0300 555 2222 (available any time of day or night)
• Email: reportaloanshark@stoploansharks.gov.uk
• Complete an online form at: www.stoploansharks.co.uk

If you are struggling financially and having problems meeting basic expenses, contact the University's Money Advisers for advice and support. You can book an appointment by emailing firstpoint.

You may also be able to apply to the Access to Learning Fund.