The first day of term is like Christmas (without the fussy wrapping paper and all the financial perks). Only the most frugal kind of student budgeter will resist the temptation to make those non-essential purchases once their bank account has been fully replenished. Meanwhile, the rest of us will have launched into some kind of bizarre spending race across the clothing boutiques and nightclubs of Nottingham, blowing four-figure allowances in the matter of a few months, if not weeks. Yet, we aren’t unaware of the dangers. We know about debt. We know about interest. We know all about the problem, in a roundabout, spend-now, worry-later sort of way. But do we know about the scale of the problem?
Asking all the questions we are too afraid to ask ourselves, Impact recently conducted a survey to find out how students at this University really feel about their spending. When quizzed on how much debt they think they’ll be leaving university with, 43% acknowledged that this figure will probably range from about £20,000 to £30,000. This is in line with most research, which suggests that the average student graduates with debt as high as £23,000. Yet, an optimistic 54% believed that it will only take them a decade or two to pay it all off.
That is all well and good for our government loans, which we (having fortuitously avoided the tripling in tuition fees) will only have to repay once we earn above £15,000, and only at a minuscule rate of 9% of the portion over that threshold. For most of us, this will simply amount to paying a little bit more income tax. But what about money that wasn’t borrowed from the government?
Apart from taking out exorbitant, interest-free overdrafts, it has become increasingly common for students to dabble around with credits; non-government loans, credit cards and store cards. 37% of the students that were surveyed owned a credit card and 14% admitted to using it occasionally. But whether or not all of these students are sensible enough to be wielding one in the first place is an entirely different issue. Credit cards are safer to use on the net, and many people keep them for use in case of an emergency, but banks don’t seem to be alerting students to the risks they face. In fact, 72% of the people we spoke to said that their bank had never talked to them about their credit rating.
So what is a credit rating, some of you (in fact, 31% of you, according to our survey) might be asking? Simply put, it’s a score between 1 and 1000 on your ability to repay borrowed money, with 1000 being the best. This value is calculated by looking at your entire credit history, which is kept by agencies such as Equifax and Experian. Even if you have no credit card or have not taken out any loans, you will most likely have accrued a credit history by using money from your overdraft or getting a mobile phone contract.
Of course, a credit rating is not necessarily a bad thing. Without one, you’ll have a hard time getting any loans or mortgages in the future. The only catch is: as soon as you miss a repayment deadline, or even unwittingly end up crossing the limit of your overdraft, you get a ‘black mark’ that stays on your record for six years.
This can be to your future detriment, particularly once you have started thinking about getting a mortgage. Banks and building societies will check up on your credit history before lending you any money; any indication that you might struggle to make repayments could be grounds for them to reject you.
But credit cards can come in handy during emergencies. If you are looking for a downright menace in the financial stakes, then you’ll find one in store cards, which shops will constantly be plugging to you with discount offers — when in actuality, they are just another means for these high street predators to finagle you out of your money.
Emma, one of the students we spoke to, told us of one incident where she ended up getting tricked into signing up for a Dorothy Perkins ‘discount card’ without being made fully aware of its policies. It was only a month after she had made her purchase that she received a letter informing her that she was being charged £15 for being late on her store card repayments. When trying to cancel the card on the phone, the person on the other end of the line tried to convince her otherwise, in spite of her clear disgruntlement with the services they were providing.
“In my view, retailers are just waiting for you to forget to pay — it’s an easy chance for them to take more money from you without having to sell you anything”, she said.
Emma isn’t the only one to have fallen into this trap. Though financial experts are unanimous in their disapproval, statistics show that about 13 million accounts of this type exist in the UK. What makes store cards so popular are their tantalising introductory offers, yet a staggering 40% of store card owners are not aware of their extortionate interest rates.
A Dorothy Perkins card, for example, has an interest rate of approximately 30%, which is significantly more than the average credit card charges. If you were to shell out £500 on such a card, you’d get an interest of £74 in 12 months, leaving you paying £48 every month for most of an entire year.
For the archetypal student who never reads the small print, things could get out of hand pretty quickly. Sam, another student we spoke to, got into legal troubles after struggling to repay any outstanding fees on her store card account.
“The store was pretty quick to get in touch with a debt recovery agency, who were then writing me letters and ringing me frequently to try and recover the money. In the end they were threatening me with bailiff action. I was really worried.”
This highlights the real danger of toying around with these seemingly magnanimous “discount cards”, especially when you don’t really know all of the terms and conditions involved.
“I paid off the debt in the end before anything serious happened but it’s made me think twice about getting involved with these types of cards again”, Sam concluded.
So how can we make sure that we don’t end up living in cardboard boxes at the end of our three to four-year spending spree? Budgeting will be of course the first port of call to most of us the moment student-poverty-panic hits. According to our survey, 78% of students have tried budgeting, but only a meagre 32% said that it was sustainable in the long run. We are particularly prone to dipping into our overdrafts, with 25% admitting to using their overdraft all the time. From the mass accumulation of impulse purchases, to the inexplicable temptation to ‘treat’ ourselves at every acceptable moment, we’d rather keep spending than show even just an ounce of financial reserve.
Yet, managing money and protecting your credit rating is surprisingly easy as long as you get organised. The simplest ways are often the most effective, so even the small task of keeping a list of your monetary indulgences can be a great way to keep track of your cash, but also for spotting the areas you could cut back on. If this is too much effort, why not take out a lump sum of money for an entire week and leave your bank cards at home (unlike the 54% in our survey that use their debit card all the time whilst shopping). This way you can plan how you want to spend the money each week without the attraction of the cash machine. Of course, carrying around too much cash at any one time poses its own risks!
Transport is one of the easiest expenses to cut down on, simply because everyone has a cheap alternative – legs. They’ll take you anywhere and they won’t overcharge. Taking the bus to campus every day (you know who you are) can burn quite a hole in a bank balance, but if you really need the extra 15 minutes in bed, then a bike is the way forward. A worthy investment over the price of a bus pass, plus you will stroll into class feeling refreshed from the ride in.
In terms of fancy dress, ditch Primark, be resourceful and get creative instead. Look at recycling pieces from old costumes or even clothes you no longer wear. Or if you’re not up to the challenge then there are at least 10 charity shops in Nottingham that would welcome your custom instead, and would perhaps be more merciful on your budget; it’s cheap, it’s cheerful, and it’s all for a good cause.
And why not make use of websites like groupon.com and vouchercodes.co.uk if you haven’t already, and make sure you sign up to studentbeans.com for countless deals on food, fashion, books and electronics. Take advantage of nectar cards, Tesco clubcards and Boots cards because the points all add up, and be armed with your student card at all times; you never know when you’re entitled for a discount. If you’re a car owner, make sure you claim Nectar points on fuel. We all know it doesn’t come cheap so why not get something back for it?
For those of us do actually spend a vast amount of money on our studies, there are ways to keep the expenses at bay. Books are pricey, so it is worth buying second-hand from another student, and then selling it on when you are finished. Or if you’re feeling rather sociable, make friends and borrow instead.
Also, we wouldn’t want to stunt your social lives but this is often the area that claims the majority of our dwindling accounts (40% of our surveyed students spend most of their money on their social lives). Instead of taking a swim in the Ocean every week, how about staying in once in a while? Give your cooking skills a spin in the kitchen and make a meal for your mates. It is ridiculously cheap, especially if you all chip in, and you’re guaranteed to have a good time.*
But if you feel the need to hit the bars, avoid surrendering to the late night munchies and throwing the last of your wallet’s contents at a burger van; there is a perfectly good toaster at home that will give you the same satisfaction without running off with your cash.
And lastly, how about getting a bit more acquainted with Nottingham? Believe it or not, the town centre is full of things to do that do not involve draining your account. Events like the Nottingham Light Night, Bands in the Parks, and the weekly markets will not cost you a penny to enjoy. Get involved with some local culture, and keep up with what’s occurring around town.
However, if you do find yourself exceeding the limit of your overdraft on a regular basis, then you may wish to take action to improve your credit history. If you’re the forgetful sort, set up a direct debit to cover the monthly bills to avoid late payments, which could hurt your credit rating. Further to this, cancel any accounts and cards that are no longer used. This will simplify your finances and will reduce the credit available to you; a factor financial companies will look at in the future.
Reigning in your spending and making those unpopular lifestyle changes can feel like an enormous sacrifice, especially when everyone around you is deliberating on what to spend all their ‘free money’ on. But what seems like a bit of fun at first can come back to bite you when you least expect it.
We spoke to Georgie, who left university nearly 2 years ago and has only recently paid off her overdraft. Having had a little too much fun at university, Georgie racked up nearly £2000 on her overdraft, which has seriously affected her financial status ever since.
“I’ve been working full time since I have left university and it’s taken me just over 18 months to pay off my overdraft. I couldn’t even enjoy the money I was working so hard to earn because after paying all my bills, I barely had any money left.”
We may not think much about our spending now, splashing the new loan as soon as it reaches our pockets and digging into the overdraft when the well runs dry. But not thinking about the financial repercussions could leave you in serious trouble; it’s only in that moment of post-graduation hindsight that the extent of your over-spending truly impinges upon you, and by then it might just be a little bit too late.
Chelsey Toms & Eric John