Budget clinic: learn to control your spending

Student finance expert Gwenda Thomas dispenses some hard-hitting advice to graduates

Lauren Clayton-Spencer, 19, studied art at Sheffield Hallam University. She started university in debt, but got herself into even more trouble by the end of her first year.

"I started university £2,000 in debt. By the time I dropped out at the end of the first year, I was £4,000 in debt.

I had lived on my own from the age of 16 and didn't have much money to live off, so I got a credit card as soon as I turned 18. This went on food and living.

Starting off with £2,000 of debt and loads of unpaid bills was a pretty abysmal way to begin university – although initially I felt really rich because I got a grant as well as my loan. The only problem was, I had to wait a month for my loan, so I lived off my overdraft and got into even more debt in that period.

I was studying art, which was expensive for materials. I spent £200 on them in the first term. A decent sketchbook is about £15, and you need different sketchbooks for different classes. You don't get any help from the university to buy them, either.

Money worries were the main reason I dropped out. It's also the reason I haven't gone back yet. I'm working six days a week until the debt is gone. I might as well get myself out of debt before I go back."

Gwenda's answer

If only you had done what you are doing now, taken a gap year, before you started your degree course, none of this would have happened and you would have paid off your original debt with no worries.

It is an unwritten rule: never start studying for a degree while already in debt – especially to the tune of two grand, and on a credit card to boot.

The student package may seem like a fortune (£4,950 a year this year for most students), but it's far from that. Divide it by the number of weeks in the year, subtract your rent, and you'll see why most students struggle just to get by.

Credit cards are a temptation. Cut the thing up right now. If you need plastic, go for a debit card, which takes money direct from your account. That way, you can keep track of your finances.

Art degrees are notoriously expensive in terms of materials. At Loughborough University, for example, students on a fine-arts course are advised they'd need around £210 for a basic tool kit and workshop materials in their first year and upwards of £250 for their final-year show. Students should ask about course costs before they embark on their degree.

If it takes longer than a year to pay off your debts, don't lose sight of your career goals. You will never forgive yourself if you do. Best of luck.

Ptolemy Barnes, 22, graduated from the University of Sheffield with a degree in history. During his first year, a £100 bursary turned into a £225 bank charge.

"In February 2008, I was given a grant of £100 from my university's bursary scheme. I put it into my non-student bank account. In drawing from this grant, I accidentally went below zero. Once this had happened, they immediately charged me a £25 fee for going over, and then charged me £5 per day for being overdrawn. In total, they charged me £225.

The letters they were sending to notify me of the charges were going to my old home address, where my family no longer lived. I didn't think it was worth changing the address, as I wasn't expecting to use the account. I wasn't aware of these charges, and didn't become aware of them until July, when I was in Belgium and suddenly didn't have any money left. I had to borrow money from friends.

I went into the bank and explained the situation, but they weren't much help. They said I could declare bankruptcy – but that would affect my credit rating. In the end, I had to borrow money from my parents, so I avoided total disaster. Had I not had their support, I would have been in a pretty bad situation.

This whole situation was caused by my financial naivety as well as what I think are extortionate bank charges.

Gwenda's answer

That's really tough, when you have done the right thing, putting money into a rainy-day fund, only to find it should go so wrong and cost you so much.

Opening a second student bank account with another bank is something I've heard of students doing, largely to get a second interest-free loan. The banks don't like it, and although it isn't illegal, according to the British Bankers' Association, it can be tricky – so I wouldn't advise it. A more simple solution for you would be to find an account paying a good rate of interest and keep your details up to date.

Banks may seem to be the student's friend, plying them with tempting freebies and interest-free overdrafts, but in reality they are hard-nosed commercial organisations. Never forget that.

Wisely, you didn't go down the bankruptcy route, especially for what is a relatively small sum. It may seem like an easy way out, but would mean a black mark against your name for the next six years and certainly a bad credit rating. What's more, you cannot wipe out your student loan debt by becoming bankrupt. Foolish you may have been, but not wilfully stupid, and I'm glad the "bank of mum and dad" came to the rescue.

Kris Fischer, 22, graduated this year from the University of Leicester after studying business studies. In his first year at university, he gambled – and lost – his student loan.

My first two loan instalments were enough to cover all my clubbing and socialising activities in the first year. When the third loan instalment came, I thought I had no need for it, so my friend and I went to the casino. We won £100 twice in just two days. This was when I should have stopped – but I started betting big to try to win big. I lost just under £1,000 in a single week. I had blown my student loan gambling.

My parents were very annoyed, and forced me to find a job. For the rest of term, I survived – just about – on the first two loan instalments. But over the summer, I ended up working full time for three months.

I have gambled once or twice since, but only spending a small amount and cashing up straight away if I made a decent profit. I am savvier with my money now. The temptation to double what I had got the better of me. I know better now.

Gwenda's answer

Kris, what were you thinking of, going into a casino and frittering away your student loan? I don't think that was quite what the Government had in mind when they devised the student package. Wisely, your parents did more than give you a stern lecture.

But have you really learnt your lesson? Still visiting the casino, cashing up when you make a decent profit. What happens if you don't make a profit? I hope for your sake you really are more savvy with your money.

If you are now paying off your student debts, you'll realise it might have been better not to have taken the student loan in the first place, or at least to have invested it in a high-interest-rate account, ideally ring-fenced in your case.

If you had then decided to go on to postgraduate study, when grants are thin on the ground, you would have had the funds. As it is, no winnings and even more debt!

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