Money Shots: How To Manage Student Debt

Step 1: Don't avoid the problem

The first thing to remember when you're crippled by debt is that avoiding the problem can cause more problems. It will look like you're refusing to pay and not that you cant pay.

Step 2: Tell some people

There's always a way out of a debt problem - and as a student, the amount of money you owe is probably miniscule compared to, I don't know, a bankrupt hotelier with 20 yaughts and a monster truck in his backyard. It's a question of finding the right route.

Step 3: Seek Advice

You can phone the CAB.

CAB stands for Citizens Advice Bureau and like a cab they will help you get to where you want to be. Alternatively you can get on line. Go to http://www.citizensadvice.org.uk

They'll also be someone on campus called the Student Advice Officer. You can go to them with any problem you have, be it financial or otherwise. Unlike Frank Money, they'll always be around to help. Many universities have a 'hardship fund' - which is a stash of money that is given to the most needy students. So seek out their advice.

Step 4: Contact your creditors

It's extremely important to keep in contact with your creditors and let them know about your financial situation.

Phone up your bank and let them know when and how much you will be able to pay. Make arrangements with them about how much and when. Alternatively you could go into your bank.

Step 5: What are your priority and non priority debts?

Some things in life are more important than others, for instance a cello is not as important as a baby, it's really important to work out which are your priority and non priority debts and pay the worst first. This will help to take the pressure off a bit and focus your financial aims.

Debts that are considered 'priority debts' are ones when the creditor can take action against you which will have a serious consequence. These are

1. Rent / Mortgage arrears - if you don't pay, you can be evicted.

2. Gas/ Electricity - don't pay these, you'll get cut off.

3. Council tax arrears - which can lead to your belongings being taken, and eventual imprisonment. However you don't have to pay council tax as a student - it's a good one to remember.

4. Unpaid court fines - you could be imprisoned if you have a court fine.

5. You may also consider debts to the university priority - for fees and that - because they can chuck you out if
don't pay them.

Non-priority debts are where only limited action the creditors could take to recover it. such as:

1. Student loan repayments
2. Personal unsecured loans
3. Credit card repayments
4. Bank overdrafts
5. Rent arrears from a previous tenancy

What will happen to me if I don't pay these ones?

The worst action that can be taken is that the creditors can pursue the debt to the county court where a financial settlement will be reached. This will make it harder for you to gain credit for the next six years.

These are the debts where only limited action the creditors could take to recover it. such as:

1. Student loan repayments
2. Personal unsecured loans
3. Credit card repayments
4. Bank overdrafts
5. Rent arrears from a previous tenancy

The worst action that can be taken is that the creditors can pursue the debt to the county court where a financial settlement will be reached. This will make it harder for you to gain credit for the next six years.

Step 6: Make realistic repayments

When negotiating your repayments always go for a realistic repayment amount, don't just go for their default and hope it will be ok.

To help your negotiations prepare your financial documents to display your available income.

Step 7: Lower the interest rates

When you're in debt and interest on the debts keep piling up it can feel like you're never going to get free, it doesn't have to be that way you can move your debt to find a lower rate of interest, this will reduce your outgoings and make the debt more manageable.

Step 8: Get on top and keep your head

The most important thing with debt is to get on top of it as quickly as you can and not panic.

Missing payments, borrowing more money to pay the debt, or letting interest payments pile up can create a vicious circle sending you further into debt.