Most students in the UK leave university with a large amount of student debt. For example, in England in 2019 the average loan debt was £35,950.
Unfortunately, students often leave with credit card debt on top of their government student loan debt. The combination can easily seem overwhelming and unmanageable and most graduates have no training on how to manage student debt.
Paying off student loans is not pleasant to do. But if you don’t keep on top of it, unpaid bills can hurt your credit score. This could get in the way of future loans, flat rentals, even job offers.
Tips for paying off student loans
So how do you pay student loans and become debt free? Here are 5 tips for getting out of debt on a low income.
- Get an overview of what you owe. You can’t work out a debt management plan for repaying student loans until you have a clear idea of what is needed. Add up all of your debts, and make note of your monthly payments and the interest rates you are paying.
- Decide what you can afford. Look at your income and expenditure to establish how much you can afford to set aside each month for paying off debt. You can also use this time to reassess your spending and areas where you might be overspending.
- Tackle your credit debt: Unpaid credit debt stays on your credit report for years and will have a big impact on your credit score. So the first thing to do is to make sure you pay off any outstanding student bills (eg. accommodation).
And ensure you’re paying at least the minimum repayment on all accounts to avoid damaging your credit score.
- Prioritise high-interest debts. You should pay off your student loans as soon as possible – but that doesn’t make it the top priority. The best way to manage student loans is through prioritisation.
Different credit accounts and loans have different interest rates on debt. Identify which ones have the highest rates and pay them off first. Ideally, you can make minimum payments on all accounts, while pouring the remaining balance into repaying off all of the highest-interest debt. Once that’s paid off, focus your balance into paying off the next highest.
- Track your progress & establish routines. If you have the financial stability to do so, you may want to make monthly automatic payments from your bank account to get a routine started. But don’t set and forget for long.
You will want to regularly check how you’re doing and reassess your repayment plan. Sometimes interest rates on debt jump after a period of time, and you will want to reallocate accordingly.
The steps above should help you pull yourself out of student debt on a reasonable timeline. However if the finances are overwhelming, you can get free and qualified debt advice. See a guide on getting free UK debt advice here.