Graduating from university is an exciting milestone in one’s life, but it can also come with financial challenges, especially if you have taken out student loans to cover tuition fees, accommodation, and living expenses. In the UK, the average student loan debt for graduates is around £40,000, according to a recent survey. However, this figure can vary widely, depending on the course you have studied, where you have studied, and the level of financial support you have received.
Regardless of how much debt you have accrued, it is essential to have a plan in place to manage and pay it off as quickly as possible. In this blog, we will outline some useful tips for managing your debt after graduation in the UK.
Understand your debts
Make a budget
Creating a budget is an essential tool for managing your finances and paying off your debts. It will help you to see where your money is going and identify areas where you can cut back on expenses. To create a budget, start by listing your income, including your salary or wages, any benefits you may be eligible for, and any other sources of income.
Next, list your essential expenses, such as rent or mortgage, utilities, food, and transport. Then, list your non-essential expenses, such as entertainment, eating out, and shopping. Be realistic when budgeting for non-essential expenses and try to cut back where possible to free up more money to pay off your debts.
Consider debt consolidation
Debt consolidation is a process where you take out a single loan to pay off all your existing debts. This can be useful if you have multiple debts with high-interest rates, as consolidating them into one loan with a lower interest rate can make it easier to manage and pay off.
There are various options for debt consolidation in the UK, including personal loans, credit card balance transfers, and debt consolidation loans. Before choosing a consolidation method, make sure to compare the interest rates and fees to ensure that you are getting the best deal.
Take advantage of student loan repayment options
If you have taken out a student loan, you will not need to start repaying it until you earn over a certain threshold. In the UK, this threshold is currently £27,295 per year. Once you reach this threshold, you will start making repayments at a rate of 9% of your income above the threshold.
There are also several repayment options available to graduates, including income-driven repayment plans, which adjust your monthly payment based on your income, and loan forgiveness programs for specific professions, such as teaching or social work.
Make sure to research your options and choose the repayment plan that works best for your financial situation.
Prioritize high-interest debt
When paying off your debts, it is essential to prioritize those with the highest interest rates first. High-interest debt, such as credit card debt or payday loans, can quickly spiral out of control if left unchecked, so it is crucial to pay them off as quickly as possible.
One strategy for paying off high-interest debt is to use the “snowball method,” where you focus on paying off the smallest debt first, then use the money you were paying on that debt to pay off the next smallest debt, and so on. This approach can provide a sense of momentum and motivation as you see progress in paying off your debts.
Avoid taking on more debt
While it may be tempting to take on more debt to cover your expenses or pay off existing debts, it will only make your financial situation worse in the long run. Avoid taking out new loans or credit cards unless it is absolutely necessary, and make sure to budget carefully to avoid overspending.
Seek financial advice
If you are struggling to manage your debts or need help creating a budget, consider seeking financial advice. There are several resources available in the UK, including the Acme Credit Consultant, which provides free, confidential advice on debt and money management.
You can also seek advice from a financial advisor or debt counselor. Make sure to choose a reputable advisor who is registered with a professional organization, such as the Financial Conduct Authority or the Money Advice Trust.
Managing debt after graduation can be challenging, but it is essential to have a plan in place to pay it off as quickly as possible. Start by understanding your debts, creating a budget, and prioritizing high-interest debt. Consider debt consolidation, take advantage of student loan repayment options, and look for ways to increase your income. Seek financial advice if you need help, and avoid taking on more debt. With a little bit of effort and discipline, you can take control of your finances and achieve financial freedom.