How to deal with student loan and credit card debts after graduation

Graduates can sometimes leave university with more than £30,000 of debt from loans and credit cards. This might seem overwhelming but there are ways to manage your debts. We’ve pulled together some practical student debt advice to help you manage your loan and credit card repayments, stay on top of your finances and prioritise outstanding debts.

Moving on from student life

It can take time to adjust to post-student life.

Your career can take longer to start than you planned or you might have to move back to the family home to save money.

For most graduates the situation does improve, but you might have to make some compromises along the way.

Tips on managing your student debts

Pay off final student bills

Don’t forget to contact the local authority of the area that you’re moving to and join the electoral register. This will improve your credit rating.

Make sure you prioritise paying off your student bills before leaving university or college.

If you’ve been renting accommodation, make sure that you get all of your final bill statements and pay them off.

Unpaid bills can hurt your credit rating.

If you want to qualify for the most competitive loan and credit card rates, you need a good credit score.

Speak to your landlord about getting your deposit back at the end of your tenancy.

Maintain good money habits

When you’re going through life changes such as starting a new job, it’s a good idea to get into money habits that can help you for the rest of your life:

  • Set money aside to reach savings goals, such as a new car or a holiday
  • Stay on top of daily spending habits, such as buying coffee or regular takeaways, and you could reach your financial goals quicker
  • Start a pension scheme as soon as possible. This can make a big difference to the amount of money you have when you retire.
Read more on pensions in Why save into a pension?

Get free debt advice

If making sensible cutbacks to meet your repayments isn’t helping and you find that your financial situation is worrying you, getting free debt advice should be your next step.

There are lots of free, confidential services that can provide help and support.

Take a look at our guide on Where to get free debt advice.

Prioritise credit card and loan debts

Allocate some of your income to start reducing high-interest debts from student credit cards and bank loans.

Make at least the minimum repayment and ensure you don’t miss any other instalments.

If you do, it could hurt your credit rating and ability to borrow for a home or car, in the future.

Consider switching to a graduate account

Once you leave university or college, you have the choice to keep your student account or switch to a graduate account.

You don’t have to stay with the same bank, so it’s worth shopping around for a better deal.

Your first step is to switch to a graduate account to give you time to repay your student overdraft.

Find out how long your bank will give you to repay your overdraft and when the authorised limit will be reduced.

In most cases, your overdraft allowance reduces slightly every year. Use this as an opportunity to rebalance your budget after you graduate.

Repaying your student loan

Once you start earning a certain amount of money, your student loans are repaid automatically through the tax system.

Deductions stop once you’ve paid them off.

Interest will be charged on the outstanding debt, but you only have to make repayments once you begin earning enough.

If something unexpected happens, such as losing your job, your repayments will stop until your income reaches a certain level at which point they’ll resume.

Remember you have the right to pay off your student loan faster – or even in full, if you want to.

However, before making any extra payment you should work out whether paying off debts elsewhere might be a better use of any spare cash.

Types of repayment plans

There are two types of repayment plan for student loans: Plan 1 and Plan 2.

  • Plan 1 repayments apply wherever you studied in the UK.
  • Plan 2 applies if you’re studying in England and Wales and started your studies on or after 1 September 2012.

Loan debts and workplace pensions

If you earn more than £10,000 a year, and your employer is required to, you’ll automatically be enrolled into a workplace pension scheme.

Student debt might tempt you to stop making payments into a workplace pension.

But remember, saving for retirement is vital for your future wellbeing, so only consider opting out of a workplace pension if you consider it particularly necessary.

Money tips for new graduates

Still unsure on how to manage your money after you graduate?

Here are some tips to help you stay on top of your finances:

  1. Is debt is playing on your mind? Seek advice straight away. Where to get free debt advice.
  2. Explore all possible options before borrowing money from a loan company. Do you need to borrow money?
  3. If you drive, consider whether you can manage without a car to save on expenses. Read more in Managing without a car.
  4. Your income determines how long you have to repay your student loan, but remember: the amount owed is be a combination of tuition fees and maintenance loan.
  5. Inform your Student Loans Company if you’re going overseas for a long period of time.
  6. Make sure you have understood the terms of your new graduate bank account. Read our A guide to student and graduate bank accounts.
  7. Out of work, on a low income or staying in education? Check what benefits you’re entitled to - Make sure you’re getting the right entitlements.
  8. If you’re employed, check with your employer that you’re on the right tax code.
  9. If you plan to be self-employed, be sure to set aside enough money to pay your taxes each month.
  10. Even though retirement may seem a long way off, sign-up or stay opted in to a pension. Learn more about Pension basic
  11. Make sure you know how much interest you’re paying on your student loan, this will help you prioritise repayments

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