What is risky debt and how to avoid it – Money Week 2024

We can’t avoid a certain amount of debt in our lives – almost all students have to take out loans to study, but that debt is very low risk compared to other sorts of risks we take with our finances day to day.

We are still suffering a huge cost of living crisis, and it seems that spending money on anything that isn’t absolutely essential is taking a big risk.

If you are in debt, and you aren’t exactly sure where your money is going, then you should be worried, and should do something about it now.

How do I start to tackle my spending?

Going through your bank statements and finding out exactly where all your money is going, is the first step to solving your debt problem.

Once you understand what you are spending money on, you can work out what you can do without, and hopefully you then might find you have enough money for things you really need, such as rent and bills.

It might be you are spending money on take away food, or on taxis – perhaps you could consider whether you can really afford these.  If you would like non-judgemental help with sorting out your budget, contact the Student Advice Service and we will be pleased to help.

Looking into your budget is also the alert you might need to contact the Careers team and find a part-time job so you can cope with your outgoings.  Part-time work is a great idea, not just for the monthly salary and the social side of it – one of the great things about having a job is that while you are busy working, you aren’t spending.

Is it ok to rely on credit cards?

Mostly, people take more financial risks when they don’t have enough money for how they want to live – or just plain don’t have enough money.  When we are struggling, it is tempting to use a credit card, with the thinking that we just have to pay off the minimum monthly payment.  This is a huge risk, because that interest hangs around for years and possibly decades, and you still haven’t paid off the money you borrowed in the first place. Even if you take out a 0% credit card, you are building up debt, and if you don’t manage to pay it all off within the 0% month limit, and interest is applied, you will have to find even more money to pay it back.

If you don’t pay off the minimum monthly payment, you are likely to lose the 0% interest rate straight away – so by taking out the credit card in the first place, you are taking a risk that you will have enough money to service the repayments, and if you don’t manage that, unfortunately it just gets worse and you are forced to pay more every month, even though you don’t have that money.

What about ‘buy now, pay later’ schemes?

Buy now pay later is now offered to you when you buy most things online – again, if you can’t afford to buy the thing, then don’t buy it.  It will be better for your mental health to not have to worry about how you are going to pay the next instalments, and better for the planet if you don’t buy more stuff.

The purpose of these schemes is to get you to buy stuff you can’t afford and don’t need – that is why they exist, so please don’t fall for that psychological trick and lose your money.

How risky are payday loans?

A payday loan is a short term financial loan, available from an online and in some areas a high street lender which is not a bank. The concept of a short term contractual loan which could be offset by your next wage (hence the name) originates from the US although high risk/high interest lenders are nothing new.

They are relatively easy to get and few credit checks are applied, which means that they are particularly appealing to people who are already financially vulnerable, possibly due to low incomes, poor credit or restricted access to overdrafts and credit cards.

The idea is that you borrow a not significant amount of money until your next ‘payday’. The lender should always check your ability to repay by asking for evidence that you have enough money coming in each month to be able to pay the loan back in the agreed timeframe. In theory, it all sounds reasonable, but in reality lenders do not carry out extensive checks, the interest rates are extremely high and you will repay significantly more than you have borrowed.  Have a look at Money Saving Expert for examples and more information.

Can I get away with not always buying a train ticket?

When you don’t have enough money for a train fare, it may be tempting to try fare dodging, or pretending you are younger than you are to get a bigger discount.  But ticket inspectors can demand an immediate £100 penalty from you on top of the fare price, and if you don’t pay – or give incorrect ID information, you will be taken to court, where you will be slapped with a criminal record and costs of £1000.  A horrible shock.  We know this happens, and we would like you avoid it.  If you don’t take the risk, you can enjoy the reward of less stress and fear.  Have a look at the Unizone cheaper student fares, look at our Transitional UB1 ticket scheme, take the bus while it’s £2 and walk when you can and when it’s safe.  Talk to us If you want advice about cheaper travel.

I’m embarrassed to ask for help. What can I do?

There is always a route out of debt, so don’t panic, just contact the Student Advice Service and we will be able to help you or signpost you to another organisation for help to make arrangements to pay debt. We have many years of experience in helping students in these situations and we  always have your best interests at heart.

Today’s roadshow is outside Aldrich library in Cockcroft building on Moulsecoomb campus 12 – 2.

We look forward to seeing you.

Student Advice Service