Paying back student overdrafts?!

tommytucker07

Hi,
I'm a uni graduate with 2 student accounts. I have overdrafts with each and currently owe around £2500 between them. I should point out that some people say "You cant have 2 student overdrafts!" However i did explain to the bank my intention to have 2 accounts and they said that was fine.
Anyway, i have 2 accounts and owe around £2500, i'm considering getting a loan of around £4000 to pay them back and have enough money to pay my bills whilst i am looking for a job and possibly invest some money into a small business venture i'm thinking of.
It may seem silly to some to get a loan to pay off free overdrafts, however it is very unsatisfying constantly being in the red. I would personally feel better about paying a direct debit for a loan whilst being in credit as opposed to my overdraft fluctuating in the amount that i owe.

Does anybody know of the best place to go for a loan of this size? If i earn more money than i expected i intend to pay back the lone quicker but don't want to be charged for it. If i were to be charged for paying back quicker i would consider putting the remaining money in a seperate account and setting up a direct debit to pay it back and possibly earn some interest from it.
I'm also looking to start up a good credit history. My thinking is if i pay back my overdrafts and then my loan it will stand me in better stead for borrowing money in the future, for example, a mortgage.

Any help or advice with this situation would be appreciated regarding where to get the loan from or if its better to use the free overdraft for as long as i can.

Regards

Tom, Leeds

tealady

Hi if the overdraft is free then use it! If you want to pay it off work out how long you have got (in months) before you are charged, then divide the overdraft by that number. Save that amount of money each month in an ISA then when you need to you can clear the overdrafts AND have interest on your savings.
You say you are thinking of investing in a business. Could you afford to lose that money if the company folded?

Walshyboy84

Hi Tom,

I was in a similar position to you however...

The way the student overdraft works is that it will reduce to nothing in 3 years once you've graduated. If you're living at home for however long, I would seriously recommend keeping the overdrafts! That way you're not paying back anything more than you need to.

It does get you down, thanks to my lax attitude to spending, I'm still in mine after 3 years! But I still wouldn't swap that for a loan.

Treat them as loans (as that's what they are!) and then focus on one overdraft and pay it off in 4/5 months once you've got a job. That way you're in credit in one and then you can focus on that account and develop that bank's relationship in getting great deals on ISA's, accounts etc etc... Also a thing to remember is the feeling you're feeling now. As that will help you budget more effectively in future to budget more effectively in the future.

Then focus on the other one by setting up a standing order to pay off the same amount each month. within 18 months, you'll be free of both overdrafts without needing to pay any extra on loans and fees.

What can help getting mortgages is getting a credit card on 0% and keeping it like that! If it shows you have a credit card, that REALLY REALLY helps your credit score. Put one purchase on a month and pay the balance off to show you can do it.

When you find something shiny and big that might require a loan, then I'll suggest hitting the loan market to get one in. the credit card being paid off with no missed payments will help find a lower rate for the loan, which will then help you find a mortgage waaaay into the future!

Hope this helps!

tealady

Edited as post ended up under wrong thread!