Posted: Sat Jun 09, 2007 1:43 pm
http://money.independent.co.uk/personal ... 633613.ece
How graduates can prosper in the real world
Planning is vital for ex-students who want to get out of debt
By Esther Shaw
Published: 09 June 2007
Graduates will have to start thinking about entering the real world Final year students nationwide will be setting down their pens on their last papers and looking forward to the post-exam celebrations. But once the sore heads have subsided, these individuals will have to start thinking about entering the real world, finding a job, and looking to the future.
Many will be striking out on their own for the first time without the financial cushion of a student loan.
Graduates will also be earning for the first time, taking home an average starting salary of £21,700, according to annual careers survey High Fliers Research Ltd. But many will have to contend with hefty debts of more than £13,000 according to NatWest figures; debts which may well be spread across the Student Loans Company, a bank overdraft, credit cards – and parents.
On leaving university, searching for the best current account provider may be the last thing on your mind, but the banks are now promoting their "graduate packages" - with NatWest and Abbey leading the way.
Many graduates remain loyal to their student account provider, or feel tied in with overdrafts, loans and credit cards. But as long as you have managed your student account within your agreed overdraft limits, there is no reason why you shouldn't move your custom elsewhere.
With only a handful offering dedicated graduate current accounts, the choice is limited, but packages do vary considerably, so make sure you shop around for the best deal for you.
Here we run through some financial steps to help you make that transition from student to graduate go a little more smoothly.
SET UP A MONTHLY BUDGET
Once you graduate and start work, sit down and work out a monthly budget, says Andrew Hagger from financial analyst, Moneyfacts.
A budget is not about cutting things out completely, but identifying where you are spending, says Anna Bowes from independent financial adviser (IFA) AWD Chase de Vere.
"By sticking to a realistic budget, you should be able to identify how much you can afford to use to pay off debts, and later on, save."
WORK OUT A DEBT REPAYMENT PLAN
Most students will leave university owing a five-figure sum, but it doesn't all have to be paid off in 12 months. Begin by drawing up a list of exactly how much you owe so you can plan how you are going to start reducing your debt.
It is important to prioritise which debts are paid off first, but essential to draw up a plan to reduce your overall debt as soon as possible, to avoid getting caught in a debt spiral.
"Prioritising means repaying your most expensive debt first, such a credit cards and store cards, says Bowes.
DON'T RUSH TO PAY OFF YOUR STUDENT LOANS
The interest on student loans is very cheap so you don't need to worry too much about paying this off immediately; at present, you only start repaying once you are earning £15,000.
CHECK YOUR INTEREST-FREE OVERDRAFT LIMIT
NatWest and Abbey are both offering up to £2,000 interest-free in year one, then £1,000 in year two, before tapering down to £500 in year three.
"Last year, Barclays Graduate Additions account offered the highest interest-free limit in year one at £3,000 – although it also levied a £5 monthly fee," says Hagger.
CHECK THE AUTHORISED OVERDRAFT RATE
Subject to credit approval, graduates may maintain their year one authorised overdraft limit, says Hagger, although they will have to pay interest on the difference between this and their relevant year's limit.
"With rates ranging from 9.9 per cent at Barclays and Abbey, to 18.3 per cent at HSBC, choosing carefully could make quite a difference," he says.
CHECK THE UNAUTHORISeD OVERDRAFT RATE
As graduate income and expenditure can initially be erratic, this can result in unauthorised borrowing. But dipping further into the red can be expensive, and should be avoided if possible. Lloyds TSB charges interest of 28.9 per cent and applies fees of £30 per day – up to a maximum of £90 per month. HSBC charges its standard interest rate of 14.8 per cent, and applies no fees.
DON'T BE FOOLED BY INCENTIVES
While in the student account market, incentives are the main focus point for providers' marketing, only Lloyds TSB and the Royal Bank of Scotland offer incentives to graduates.
"Don't be lured in simply based on the incentives on offer, as charges may soon eat away any initial gain," says Hagger.
BUILD UP YOUR SAVINGS
There is little point in starting to save until your expensive debts have gone, as the interest paid is likely to be higher than the income earned, says Bowes. But once you've done this, one of the best places to start is a mini cash individual savings account (ISA), into which you can pay £3,000 a year, tax-free.
If you are less concerned about having access to your money, a regular savings account may suit best.
PLAN AHEAD FOR RETIREMENT
Retirement may seem an awfully long way off when you've just left university, and yet pension planning is crucial. First, check what your employer is offering. If you are fortunate, you will be part of a final salary scheme, but it is more likely to be a voluntary contribution scheme where your employer will match your contribution; if so, make sure you join up. If there is no pension on offer, you could start a personal or stakeholder pension.
GET A FOOT ON THE PROPERTY LADDER
The desire to get on the housing ladder is still strong among graduates.
"There are now more 100 per cent plus loan-to-value deals that not only don't require a deposit, but which also help with buying costs," says Melanie Bien, of broker Savills Private Finance. Northern Rock, BM Solutions and Alliance & Leicester will all lend up to 125 per cent of the property value.
One alternative is buying a property with friends to pool finances. But make sure you get an agreement drawn up by a solicitor.
'It helps to have a dedicated manager'
Anne Gill, 23, from Manchester, graduated in law from the University of Wales in 2005 and opened a NatWest graduate account to help her manage her finances when she started working.
She briefly attended law school, and now works as an administrator for an insolvency practitioner. "I racked up a lot of debt as a student, including a £2,000 overdraft and a graduate loan of £4,000," she says. "I also took out a £20,000 loan for law school."
Anne has taken out the NatWest Graduate Overdraft Repayment Plan to consolidate the overdraft she had previously. "When I dropped out of law school, I had problems with my finances and trouble getting a job," says Anne. "But it has helped to have a dedicated graduate manager who I can go to for advice. He drew up a budget and worked out my bills. I'm now hoping to buy a house with my boyfriend in the next year."
How graduates can prosper in the real world
Planning is vital for ex-students who want to get out of debt
By Esther Shaw
Published: 09 June 2007
Graduates will have to start thinking about entering the real world Final year students nationwide will be setting down their pens on their last papers and looking forward to the post-exam celebrations. But once the sore heads have subsided, these individuals will have to start thinking about entering the real world, finding a job, and looking to the future.
Many will be striking out on their own for the first time without the financial cushion of a student loan.
Graduates will also be earning for the first time, taking home an average starting salary of £21,700, according to annual careers survey High Fliers Research Ltd. But many will have to contend with hefty debts of more than £13,000 according to NatWest figures; debts which may well be spread across the Student Loans Company, a bank overdraft, credit cards – and parents.
On leaving university, searching for the best current account provider may be the last thing on your mind, but the banks are now promoting their "graduate packages" - with NatWest and Abbey leading the way.
Many graduates remain loyal to their student account provider, or feel tied in with overdrafts, loans and credit cards. But as long as you have managed your student account within your agreed overdraft limits, there is no reason why you shouldn't move your custom elsewhere.
With only a handful offering dedicated graduate current accounts, the choice is limited, but packages do vary considerably, so make sure you shop around for the best deal for you.
Here we run through some financial steps to help you make that transition from student to graduate go a little more smoothly.
SET UP A MONTHLY BUDGET
Once you graduate and start work, sit down and work out a monthly budget, says Andrew Hagger from financial analyst, Moneyfacts.
A budget is not about cutting things out completely, but identifying where you are spending, says Anna Bowes from independent financial adviser (IFA) AWD Chase de Vere.
"By sticking to a realistic budget, you should be able to identify how much you can afford to use to pay off debts, and later on, save."
WORK OUT A DEBT REPAYMENT PLAN
Most students will leave university owing a five-figure sum, but it doesn't all have to be paid off in 12 months. Begin by drawing up a list of exactly how much you owe so you can plan how you are going to start reducing your debt.
It is important to prioritise which debts are paid off first, but essential to draw up a plan to reduce your overall debt as soon as possible, to avoid getting caught in a debt spiral.
"Prioritising means repaying your most expensive debt first, such a credit cards and store cards, says Bowes.
DON'T RUSH TO PAY OFF YOUR STUDENT LOANS
The interest on student loans is very cheap so you don't need to worry too much about paying this off immediately; at present, you only start repaying once you are earning £15,000.
CHECK YOUR INTEREST-FREE OVERDRAFT LIMIT
NatWest and Abbey are both offering up to £2,000 interest-free in year one, then £1,000 in year two, before tapering down to £500 in year three.
"Last year, Barclays Graduate Additions account offered the highest interest-free limit in year one at £3,000 – although it also levied a £5 monthly fee," says Hagger.
CHECK THE AUTHORISED OVERDRAFT RATE
Subject to credit approval, graduates may maintain their year one authorised overdraft limit, says Hagger, although they will have to pay interest on the difference between this and their relevant year's limit.
"With rates ranging from 9.9 per cent at Barclays and Abbey, to 18.3 per cent at HSBC, choosing carefully could make quite a difference," he says.
CHECK THE UNAUTHORISeD OVERDRAFT RATE
As graduate income and expenditure can initially be erratic, this can result in unauthorised borrowing. But dipping further into the red can be expensive, and should be avoided if possible. Lloyds TSB charges interest of 28.9 per cent and applies fees of £30 per day – up to a maximum of £90 per month. HSBC charges its standard interest rate of 14.8 per cent, and applies no fees.
DON'T BE FOOLED BY INCENTIVES
While in the student account market, incentives are the main focus point for providers' marketing, only Lloyds TSB and the Royal Bank of Scotland offer incentives to graduates.
"Don't be lured in simply based on the incentives on offer, as charges may soon eat away any initial gain," says Hagger.
BUILD UP YOUR SAVINGS
There is little point in starting to save until your expensive debts have gone, as the interest paid is likely to be higher than the income earned, says Bowes. But once you've done this, one of the best places to start is a mini cash individual savings account (ISA), into which you can pay £3,000 a year, tax-free.
If you are less concerned about having access to your money, a regular savings account may suit best.
PLAN AHEAD FOR RETIREMENT
Retirement may seem an awfully long way off when you've just left university, and yet pension planning is crucial. First, check what your employer is offering. If you are fortunate, you will be part of a final salary scheme, but it is more likely to be a voluntary contribution scheme where your employer will match your contribution; if so, make sure you join up. If there is no pension on offer, you could start a personal or stakeholder pension.
GET A FOOT ON THE PROPERTY LADDER
The desire to get on the housing ladder is still strong among graduates.
"There are now more 100 per cent plus loan-to-value deals that not only don't require a deposit, but which also help with buying costs," says Melanie Bien, of broker Savills Private Finance. Northern Rock, BM Solutions and Alliance & Leicester will all lend up to 125 per cent of the property value.
One alternative is buying a property with friends to pool finances. But make sure you get an agreement drawn up by a solicitor.
'It helps to have a dedicated manager'
Anne Gill, 23, from Manchester, graduated in law from the University of Wales in 2005 and opened a NatWest graduate account to help her manage her finances when she started working.
She briefly attended law school, and now works as an administrator for an insolvency practitioner. "I racked up a lot of debt as a student, including a £2,000 overdraft and a graduate loan of £4,000," she says. "I also took out a £20,000 loan for law school."
Anne has taken out the NatWest Graduate Overdraft Repayment Plan to consolidate the overdraft she had previously. "When I dropped out of law school, I had problems with my finances and trouble getting a job," says Anne. "But it has helped to have a dedicated graduate manager who I can go to for advice. He drew up a budget and worked out my bills. I'm now hoping to buy a house with my boyfriend in the next year."