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Just graduated? What happens now?

Just graduated? What happens now?

Category: Students
Author: Lieke Braadbaart
Updated: 23/07/2018

Well done on graduating from your course. The summer of graduation can be one of the most simultaneously joyous and depressing times of your life. On the one hand, you get to celebrate the fruition of several years of study, but on the other, you have to say goodbye to student life and prepare to find work.

You may be fortunate enough to have got through your studies debt-free. More likely though, you will have accrued a lot of debt on your way to graduation: perhaps you have a student loan, and maybe you have an overdraft balance as well.

You may also be thinking of further borrowing as an investment for the future, such as a good suit to make that great first impression at interviews. Regardless of your prospects, this is an important time for your finances.

The lynchpin of your graduate finances is your bank account. Don't think that your student bank account provider has to be your graduate bank account provider too. You can switch banks to a more competitive account, perhaps one that offers a longer 0% overdraft, or to one that offers a preferential graduate loan.

Being flexible will broaden your prospects. Whether it's being open to the idea of working in a place away from where you studied or where you come from, or taking the decision to temporarily move back with your parents to save money. Most of all, keep a realistic and positive outlook on your finances. They're unlikely to be in good shape after several years at uni, but you can get things shipshape – we promise!

How to pay off your overdraft

When you graduate, your student bank account turns into a graduate version (click here for a selection of graduate accounts). Over the next two to three years, your graduate account will remove your interest-free overdraft.

Interest-free taper period

Most graduate bank accounts maintain your 0% overdraft, tapering down the interest-free limit each year. Usually this will be over a period of two to three years, depending on the account, giving you time to repay your debt without having to pay interest.

If your bank doesn't offer a very generous graduate overdraft, you can switch to another bank account provider. Banks are happy to accept applications from graduates for the same reason they are happy to offer generous interest-free student overdrafts: because they want your custom in your more affluent years to come. Most graduate bank accounts allow you to apply so long as you are within three years of graduation.

Make a repayment plan... and stick to it!

Use the interest-free overdraft to full advantage by repaying it before you have to start paying for it. You'll know how long you have before the overdraft starts costing, so work out how much you'd have to pay monthly to clear your debt. For example, if you have a £1,500 overdraft and three years to repay it, you'll need to pay £41.67 per month to clear it. The earlier you start to repay, the better.

Don't be tempted to dip into the overdraft as you did when you were a student, you need to focus on getting the balance down. Break it up into chunks and keep yourself motivated by treating yourself when you repay each £250 milestone.

What about credit card and other debts?

If you've accrued other debts during the course of your studies, such as on credit cards or store cards, or maybe you've have to take out a hardship loan, these will all need to be repaid at some point too. The sooner, the better!

If you have borrowed on cards, you may have already exhausted the interest-free overdraft limit on your current account. If you haven't, transfer as much of the most expensive balances as you can to your graduate bank account to save on interest.

Once you have a few months' employment under your belt, you could apply for a 0% balance transfer credit card deal. Then transfer as much of your debt as possible (most expensive first – which is most likely to be the store card) onto the new card. Cut up and cancel the old ones to avoid racking up more debt.

Should you pay off your student loan?

You don't start paying back your student loan until you earn a certain amount per year (you can find this information on the Government's website, linked here – this changes every year), but you can pay more if you wish. Whether you choose to overpay is up to you, but you should remember that a student loan is unlike any other debt because of the following reasons:

  • Student loans are more expensive than they used to be, but are still charged at relatively low rates of interest – lower than the rates a young borrower would normally get on a bank loan.
  • It doesn't have to be repaid. You have to be earning above the threshold before payments start being taken. You only have to pay 9% of your income over this threshold and payments are taken directly from your wages. You may not ever repay the loan, but that's ok!
  • It doesn't go on your credit report. A student loan doesn't go onto your credit file, so it doesn't affect your credit score if you're applying for a mortgage or credit card for instance. However, lenders may take into account the payments you have to make to the Student Loans Company when assessing whether you can afford to repay its debt.

All of this means that although you can overpay your student loan, you don't have to. Overpaying won't reduce the monthly payments you have to make, as they are based on your income, not the amount of debt outstanding. Don't take out a personal loan to repay your student loan. There's really no need to take out any other form of finance to repay it.

Move back in with the parents?

The perennial graduate dilemma: move back in with the parents, or strike out on your own? While moving back might not have been in your plan, the chance to go home and start repaying your debts without having the same level of bills is tempting – particularly over the short term.

With low or no rent to pay (depending on how sympathetic your folks are to your financial plight!), you could get your overdraft paid down with a summer job and then concentrate on getting some savings together, before making a concerted assault on your career hunt. Aside from this, living at home gives you flexibility: you're not tied into a tenancy agreement, meaning you can apply for jobs all over the country.

However, after several years of new-found independence, you may not wish to move back, even if it is not the best financial option. If you're staying in the city or town you studied in, you may not be able to stay in your student house. So, you'll need another house share, or to rent a pad of your own. If you are considering another house share you should give careful thought as to whether you want to share with students as your priorities shift from campus life to work.

Think about how you will finance your tenancy period (as you'll be contractually obliged to pay). If you're in part-time work and able to finance yourself now (due to a hangover from your last student loan payment), what will your situation be in six months' time? Remember also that you will have to pay council tax!

Additionally, remember that by signing that tenancy agreement you are effectively committing to that area (and its jobs market) for a set period. Whether you move back in with mum and dad, stay where you are, or do something completely different, make sure you get on the electoral roll. This will help you in the future if you need to take out a credit card, loan or mortgage.

Get into the savings habit

Building a savings pot will not only give you a safety buffer if you lose your job or face a sudden expense, it can also give you a springboard to bigger goals such as raising the deposit on your first home. Start with an emergency fund – a pot of savings that will help you survive a shock to your finances (such as redundancy, or a sudden problem with your car) without having to borrow...

Repay expensive debts first

It's always a good idea to pay off your debts before even thinking about starting to save. Transfer balances to a 0% balance transfer credit card to get rid of the debt quicker.

How much do you need to save?

In general, you'll want to aim for a fund that will all pay your bills for up to six months. Don't fall into the trap of relying on your 0% overdraft in an emergency. Eventually that overdraft is going to go, or is going to cost you a lot of money if you need to dip into it.

How much can you afford to save?

Look at your budget. You don't want to cripple yourself, but aim to save a meaningful amount each month.

Choose a competitive savings account

Look for a savings account that will allow you to access your money quickly in an emergency, to make regular contributions and which (of course) pays a decent rate. Have a look at the best easy access accounts to see if there's a suitable deal there for you. And if you're planning to buy a home in the future, you may want to look into
lifetime ISAs

Set up a standing order

Set up a standing order from your bank account to your savings account, that way your savings go out just like any other bill you pay.

What next?

If you don't want a special graduate account, you could take a look at our current account charts to see if there's a deal there for you

It's never too early to start saving – if you're planning to one day buy your own home, you might want to start putting money into a lifetime or Help to Buy ISA now

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.