Graduate with debts- advise

cheggers

This advise is for my brother a former tax dodger (student) for the last 4 years and soon to be teacher.

I am trying to help him sort his finances out but there a joke.

He owes the student loan company £10,000. He has a Halifax credit card with £1800 on it and £2000 on his overdraft with the Halifax.

I've told him to start his working life with a new bank, and pay the overdraft off, its hard to start your working life with -2000, as on pay day it's not going to get you in credit.

Any tips for my brother, he seems to think ignoring all this debt will just go away, he's under the belief that he can pay £50 a month to clear his debts, dont laugh too hard!

Mango

Hello Cheggers

I think your idea of opening a new bank account for the salary and treating the Halifax overdraft as a separate debt is a really good one. I graduated in 2001 and have only just done this and am finally able to start sorting out my overdraft.

The other thing I wish I had done is to stick to a really tight budget when I first started working and cleared as much of the debt as quickly as possible. Even if your brother sticks to a really tight budget for a few months he'll be better off than letting the debt linger for years and only paying off a small amount each month.

As he will be a teacher will he be eligible for the repayment of student loans scheme?

rainbow21

Hiya
I can understand your concern with your brothers attitude to his debts, but from your post it sounds as if you are being quite negative towards him ie. "don't laugh too hard". £50 may not sound a lot, but it is a start and if it is all your brother can afford and it meets the payments required each month then it is a good start.

As for the student loan, this will be automatically taken out of his salary once he is earning the threshold amount and as the interest it accrues is at the inflation rate this is a debt he shouldn't worry about too much. I owe £10000 myself in student loans and though I accept it is a debt I don't categorise it the same as what I owe on my credit card or overdraft, as when the payments come out of my salary when I start my career I shall just treat it as an extra tax or something as I'll never see the money

So the main debts he has are £3800 with the Halifax. I work for the Halifax and as far as I'm aware you have 1 year after graduating to pay back the student overdraft so your brother has a year interest free to pay this back before he is charged interest.

It's difficult to advise how much is best for him to put towards his credit card and overdraft as you've not posted what he earns, but I guess the minimum payment on the credit card will be around £40 so this is essential and anyother money he has towards debts should be divided between this and the overdraft depending on the interest rate on the credit card

Hope this helps

fluffymuffin

I was also at uni for 4 years and was in a similar situation when I left. I know it sounds alarming but unfortunately quite a few students and its manageable. Now are you sitting comfortably...

Firstly, is his bank account a student (now graduate) account. I assume it is in which case confirm how quickly this has to be paid off. My graduate overdraft was interest free and decreased at a rate of £500 per year i.e. June 1 year after graduating OD level £1500 at 0% interest, 2 yrs after £1000... all interest free. If this is the case he should aim to get down to these levels every year but do not go over them unless he is flush for cash as it is being leant at 0%.
It may be a condition of his graduate account that his salary is paid into this account. This is the case with mine so what I do is I have an alliance and leicester current account as well. My wages get paid into my graduate account and I transfer my spending money into my A&L every month so as not to be tempted to go over my overdraft limit.
I also do not leave money in my graduate account until the month before the limit is to drop from say £1000 to £500. I save up this £500 over the year in an interest paying current account - then transfer it - hence earning a little bit of interest too.

Now the credit card - firstly get it onto a 0% deal or something suitable like 3.9% life of balance if he cant be bothered to keep changing cards. Pay this off first! If the graduate account is NOT at 0% interest then I would try and get a card which allows super balance transfers and get the whole lot onto that at a good rate making sure he doesnt SPEND any money on it - see the pages on credit cards for a good guide.

The student loan - ah the student loan - I am sure some people here will disagree with this but I wouldnt worry about it too much at this stage. Repayments are taken out of your wages before you get them at an appropriate rate and it just ticks down. Get the other areas sorted out first and then start to pay off more than the minimum payments as appropriate. I would consider again however checking the rate on the student loan - it might be worth not paying off more than necessary and putting the cash in a high interest account? I am not sure about this though but it might be worth checking out. Hope this all makes sense and helps

Wish him the best of luck and dont worry - I think everyone I know who went to uni was in a similar situation when they left and they are all managing to get out of it as long as you dont ignore it and let it get out of control.

ReportInvestor

Mango wrote:

As he will be a teacher will he be eligible for the repayment of student loans scheme?

He will probably have to pay about 30 quid pm = 9% of approximate 4K salary above the 15K threshold.

The loan rate follows inflation, but lags the actual inflation rate as it is set annually.

We_Laugh_Indoors

i pay £40 a month on a 20600 salary.

i worked out that at that rate, and not taking into account future interest, it will take 22 years to pay off.

it doesn't worry me however it is i the lowest interest loan you will ever have.

i think if you teach for 10 years your debt is cleared.

Phonix

This advise is for my brother a former tax dodger (student) for the last 4 years and soon to be teacher.

I am trying to help him sort his finances out but there a joke.

He owes the student loan company £10,000. He has a Halifax credit card with £1800 on it and £2000 on his overdraft with the Halifax.

that's fairly normal for a graduate. He looks like he's managed his finances like a typical student, not excellent management but kept away from huge debts.

Also he doesn't need to worry about the student loan. He wont' have to pay this back for the whole of this year.

credicard: best bet is just to apply for another credit card and balance transfer it over to 0%

It's a very simple situation really, he could get out of debt just by staying on JSA and living with his family! And could pay it off two months if he secured a graduate job and lived at home. He's in a good financial situation, with great prospects for the future!

I've told him to start his working life with a new bank, and pay the overdraft off, its hard to start your working life with -2000,

I'm sorry mate but opening a new bank account and closing the other is bad advice and actually slaps the face of the bank that gave him the student account. They gave him those benefits in the hope that he'd bank with them for the rest of his life. Besides this, if he has managed the OD badly throughout his academic life and was unfortunate enough to get an OD that's listed on his credit record then if he were to settle it, a poor repayment record would be on his account for six years and he'd be buggered if he wanted a mortgage for most of that period.

If he keeps the account open and manages the OD correctly for the next three years, his poor repayment history will disappear from his credit record.

its hard to start your working life with -2000,

The majority of students start their working life in exactly the same situation, and for some it's at least possible to pay off that debt very quickly.

Rothy

Phonix wrote:

I'm sorry mate but opening a new bank account and closing the other is bad advice and actually slaps the face of the bank that gave him the student account. They gave him those benefits in the hope that he'd bank with them for the rest of his life. Besides this, if he has managed the OD badly throughout his academic life and was unfortunate enough to get an OD that's listed on his credit record then if he were to settle it, a poor repayment record would be on his account for six years and he'd be buggered if he wanted a mortgage for most of that period.

So your argument is that he should be loyal to the bank to protect their profit margins? I disagree here - Loyalty is all well and good but banks factor in that some people will leave. Always get the best deal (but If he does switch he might want to pretend to keep using the a/c with overdraft so he doesnt lose it quickily).

On the 2nd point about the overdraft showing his credit file as a poor 'repayment record', How many banks that provide large student overdrafts do you know that show on the credit file?

---

Anyway, well, I dont think the debts are too bad at all, he's basically got 3,500 of debt to worry about, and he can realisticalyl pay back probably just over £50 a month on a low cost loan there. The student loan won't kick in too badly unless hes earning enough to make him confortable anyway.

Cheers
Matt

Malestrom

Phonix wrote:

I'm sorry mate but opening a new bank account and closing the other is bad advice and actually slaps the face of the bank that gave him the student account.

Thats not what the OP said. He said to open ANOTHER account and then pay back the overdrawn account from that. This can work for some people as you aren't living from a bank account with a permanent negative balance. This isn't bad advice at all.

Phonix wrote:

They gave him those benefits in the hope that he'd bank with them for the rest of his life.

Maybe they did but that doesn't mean that he has to stay with them. There's no such thing as loyalty to a bank, just wait and see how loyal they are to you when you really need them. Its just numbers to them, no loyalty involved.

Phonix wrote:

a poor repayment record would be on his account for six years and he'd be buggered if he wanted a mortgage for most of that period.

Hardly. There are lots of lenders who will lend to people with adverse credit history's, even discharged bankrupts, you just won't get the market rate.

Phonix

Quote:
Originally Posted by Phonix
I'm sorry mate but opening a new bank account and closing the other is bad advice and actually slaps the face of the bank that gave him the student account.



Thats not what the OP said. He said to open ANOTHER account and then pay back the overdrawn account from that. This can work for some people as you aren't living from a bank account with a permanent negative balance. This isn't bad advice at all.

Okay firstly I need to point out something to you. This isn't meant in a bad way but this conversation will become very tiring if I don't say it.

Please try to imply the bear minimum from what I say because you literally put words in my mouth

I've told him to start his working life with a new bank, and pay the overdraft off, its hard to start your working life with -2000, as on pay day it's not going to get you in credit.

This is BAD advice.

As is this,

Thats not what the OP said. He said to open ANOTHER account and then pay back the overdrawn account from that. This can work for some people as you aren't living from a bank account with a permanent negative balance. This isn't bad advice at all.

I'm not trying to annoy you but if arguing my point across does then I'm sorry.

The reason that is bad advice is very simple.

Signing up to student accounts often involves agreeing to use it as your main account. There is a good reason for this.

Some financial organisations (notably abbey national/halifax etc) record your repayment history of this account on your credit record. A late payment on your account (with abbey even a late payment is not paying into your account each month) is recorded as a missed payment in the same way as a creditcard. To keep the overdraft you must pay at least £10 into your account every three months but this will not protect your credit rating.

To ensure that your credit rating is kept intact, it's best to have your account going in and out of the red, the more money that goes through your account the better.

The advice above is based on my own experience of having been stung by abbey national on my student account. I have seen what they do to your credit rating if you don't pay in each month.

I will discuss the rest later as there are some clear misinterpreations of what I said but this is understandable as I'm not always very clear.

I'll also be interested to see what anyone else has to say about my experiences

PS: you can do it the otherway but you'll need to ask the bank to turn it into a graduate loan instead of an overdraft and will only be able to do this if there's been a decent amount of activity on the account.

fluffymuffin

Phoenix - I understand what you are saying - its what I was getting at in my post that it is a condition of the overdraft given to you as a student that to keep the overdraft at that level and at the agreed interest rate (which in my case was 0%) you have to make regualr payments into that account when you start work. If not, the overdraft may be taken away from you which unless you have enough money to pay it off immediately could land you with £2000 at a very high interest rate. Not good.

Don't know about the credit rating bit but I agree wiht what you are saying - I dont think you meant you should be loyal to the bank because thats is the nice thing to do I think you meant you should stay with them because there may be conditions in the account small print which would make it highly unfavourable to move banks.

I managed my overdraft pretty well during and after uni and stuck to the conditions (it was with HSBC by the way) I am just paying off my last £500 and havent paid a penny in interest on the overdraft which started at £500 seven years ago. But when I have finished paying it off I will move banks to take advantage of better offers. It has nothing to do with loyalty simply that it was a good deal.