Bad debt

Money expert Sarah Wray advises on Keeping the overdraft under control

I’ve got into a bad pattern of always living at the end of my overdraft. It’s been this way since I graduated 3 years ago and I don’t see it changing, even though my salary isn’t terrible and I don’t consider myself too frivolous. I have so far resisted the urge to try and pay it off with a credit card or loan – would this in fact be the sensible thing to do? - Becky

Sometimes about-to-graduate students picture the post-university world as one of immediate financial stability and Waitrose shopping.  Sadly, it doesn’t usually work out like that. Pesky expenses such as council tax and rent for a less scummy, grown-up flat take over.

Many graduates find their finances are a bit turbulent to say the least when they graduate. It’s a fair cop, too, as many leave with significant debts. So, how can you calm the financial waters down a bit?

Before heading down the route of more borrowing, have you tried living by a strict but realistic budget which would still allow you to enjoy life but still make some savings? You say you’re not “too frivolous” but this vagueness suggests maybe you haven’t sat down and assessed exactly where your money goes each month. Some savvier spending could help you gradually reduce that overdraft and live within your means without extra borrowing.

If you’ve already done that and there’s really no wiggle room in your budget, then a loan may be your best bet. However, before you get a credit card or consolidation loan, consider a graduate loan. Graduate loans are similar to an unsecured personal loan except that lenders often offer more competitive loan rates and higher borrowing limits due to the perceived greater earning potential of graduates. They are usually available for up to five years after graduation, so see what your bank could offer.

Now for the sensible part: If you do borrow more to clear your overdraft, it’s essential that you assess your spending habits. Otherwise you could end up filling the cleared overdraft again pretty quickly, and ending up in even more debt.

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