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STUDENT DEBT - MANAGING IN BETWEEN LOAN PAYMENTS

How to manage when the loan begins to dry up

Towards the end of term, most students run out of money. The misery is made worse by the fact that the next loan payment will not arrive until the start of the next term. Christmas can be a nightmare as expenditure in the Christmas period always goes up, yet there is no money in the bank to pay for Christmas presents and general Christmas entertainment.

Methods of conserving or raising cash

All is not lost. Luckily, there are ways to conserve and raise cash to manage during the lean period before the next payment of the student loan arrives on your doorstep. Some of these methods require a little financial acumen and strong will power. Others are no more than sticky plasters to ease the situation temporarily.

Saving

It may seem obvious, but one of the best ways to manage the lean period is to make provision for it by saving some of your loan when it arrives. This method definitely requires will power as it can be very tempting to spend any saved money way in advance of the time when you actually need it.

The best way of saving is to open a high interest savings account. It's usually easiest to set up a savings account with the bank that provides your current account, although it is worth looking around to see if other financial providers offer better rates of interest. Remember however, you money is unlikely to attract much interest in the few months that it will remain in the savings account, so don't be driven by this criteria.

Opening a savings account with your bank makes it easy to monitor how much you have in each, and to transfer money from account to account. However, the other side of the story is that is is sometimes easier to resist temptation if you can't easily transfer money between accounts.

How much should you save?

How much you save depends on your circumstances. You can do a quick calculation to work out how much you need. Research the cost of your fare home. Think about how much you would like to be able to spend each week during the holiday. It's a good idea to save about 20% of your student loan and then set up a weekly transfer of 10% of your income (allowance from your parents, income from part time work etc.) If you do this, by the end of term you should have a nest egg that will see you through the holiday.

Short term methods

Of course, saving is not for everyone. You may need another method of raising cash at the end of term. However, these methods are short term methods where you are borrowing money that you do not have. As such, they are dangerous and should only be used in cases of extreme hardship.

Extend your student overdraft

You can temporarily extend your overdraft (usually by £250-300). This is a quick and easy way of raising cash. Most banks have student loan advisors, and it is best to talk to one of them. make sure you take your loan schedule notification with you and make sure you ask for the extension to go a few days beyond when your next loan payment is due. Use this method with caution. You may be required to pay pay interest on the extra overdraft facility. It is also a temporary measure as you may find you have even less money at the end of the next term.

Apply for a credit card

Warning - this is an area you really don't want to get into and is something that should only be considered if you are certain there are no other options.

Your bank will be keen to offer you a credit card providing you have a good credit history. However, it is always worth shopping around as different providers offer different rates of interest. Also, some offer a 0% interest period for at least 6 months from the date you sign up for the card. As you are a student, you are classified as a high credit risk, and some credit card providers charge a huge APR to students to cover their risk.

The golden rule if you take out a credit card is to pay off the balance as soon as you receive your next student loan installment. You will thus avoid paying enormous interest charges. Like an extended overdraft, a credit card should be considered a temporary measure as the knock on effect of the loan will be felt at the end of the next term.

Also remember that with credit cards, you pay a high charge for cash withdrawals - so never use your card to withdraw cash. Use it for over the counter and online transactions only.

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