Bad Credit Guide to Avoiding the Student Loan Debt Trap

Sept. 16, 2010 - PRLog -- It is estimated that at the end of this summer, more than 300,000 young people will graduate from university, some with debts of more than £20,000.

“These figures may come as a shock to many parents and grandparents, whose days of full government grants and free tuition are but a distant memory” said a spokesperson for Bad Credit Loans 4 You, a specialist in sourcing Bad Credit Student Loans.

To stop graduates building a bad credit history, there are a few pointers which will help guide them through tackling their university debt.

Firstly, it is important to calculate the exact amount which is owed and who it is owed to.

Most of the debt will be made up of student loans, which unless the payments are in default, does not show as a bad credit or affect the person’s credit rating.

However, smaller amounts may be owed on overdrafts, store cards and credit cards which must be tackled before they lead to a bad credit history.

The debts are likely to be very large, with the average student owing £19,740 after a three year course, but this is now an unfortunate part of student life.

It’s important to find out what interest rate each creditor is charging for the debts, with store cards likely to be the most expensive and overdrafts attracting the lowest rate of interest, if not free.

Collating all this information together will make it easier to see what incurs the most interest and therefore which debt needs to be paid off first.

Getting a job to pay off these debts can be difficult in the current economic climate, with an estimated 7 graduates applying for every available position.

This year, graduates will also need to compete with around 20,000 of 2009’s graduates who are still believed to be unemployed, some needing bad credit loans to help pay off the debts they incurred at university.

Unemployed graduates can claim jobseekers allowance at £51.85 per week, but does not go far towards paying off the bad credit loans or credit cards.

“Those who are fortunate to get a job may be paying tax for the first time, which can come as quite a shock”.

The tax-free allowance is £6,475 from 6th April 2010, but everything after this amount will have 20p deducted for every £1 earned, or 40p should the person be lucky enough to earn more than £43,875 per year.

On top of this, employees are also required to pay National Insurance (NI) at 11p in every £1 earned over the first £110 each week.

When the payslip comes through, it is worth checking what tax code the graduate is on. It should be 647L otherwise they could be paying more tax than necessary.

The following April after graduation, if they are earning over £15,000, then as an addition to Tax and NI the graduate will have to start repaying their student loan.

HM Revenue and Customs will automatically deduct 9% of everything they earn over £15,000 from their pay cheque, so someone earning £18,000 will pay £22.50 per month to the Student Loans Company.

New graduates are also expected by their banks to begin using their accounts like regular adults, which spells the end to interest free overdrafts amongst other things.

The banks do not demand this change immediately, but gradually cut back the interest free amount each year, some banks offering to do this over more years than others.

Any amount not paid off at the end of the year when the overdraft drops is then charged an authorised borrowing rate, so it’s important the right bank is found to help prevent against any bad credit.

It is also important to ensure the rules of the new account are stringently adhered to, as any exceeding of the limits is likely to incur larger fees than before and will only increase the level of debt.

“One mistake that graduates often make is paying off their student loan first”, said the spokesperson at Bad Credit Loans 4 You. “This is understandable as it’s likely to be the largest debt they have, but it’s also one of the cheapest forms of borrowing money a young person can get”.

Its considered better to focus paying off store cards, credit cards and overdrafts first, as these will incur a greater interest rate and could easily lead to CCJ’s or defaults, creating  bad credit history if not paid on time.

A graduate should not underestimate how long it will take to pay off the student loan, with men averaging 11 years and women taking around 16 years to reach their final payment.

Loans 4 You helps out people who fear they have been blacklisted because of CCJ’s and Defaults.

Loans 4 You holds a Consumer Credit Licence issued by the Office of Fair Trading. The company is also covered by the Financial Ombudsman.

Loans 4 You is also registered with the Information Commissioner’s Office for Data Protection.

For help, phone 0800 215 5863
or visit
www.bad-credit-loans-4-you.co.uk/bad-credit-student-loans.html

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Loans 4 You helps people source the personal loan they need. Loans 4 You can help people with bad credit history, poor credit history and obviously good credit history, our senior managment have over 50 years collective experience in the finance field.
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