With the cost of living rising and many students having full control over their own finances for the first time, we know that debt and handling money can be scary. In this guide, we’re going to tell you all you need to know about debt, how to deal with it, and what to expect if you find yourself in a difficult situation. All with the help of the resources provided by Money Wellness!
With the cost of living rising and many students having full control over their own finances for the first time, we know that debt and handling money can be scary. In this guide, we’re going to tell you all you need to know about debt, how to deal with it, and what to expect if you find yourself in a difficult situation. All with the help of the resources provided by Money Wellness!
What are the different types of debt?
Some debts are a priority, which means that they need to be handled with urgency to avoid maximum consequences. While non-priority debts will give you a little more leniency in finding a way to pay back the money in a way that suits you.
In a similar sense, there are secured debt and unsecured debt. Secure means that debts are taken out against an asset (most commonly these will be for things like cars and homes). If you can’t pay the debt, the creditor has the right to take this asset back. While unsecured debts aren’t taken out in relation to a specific asset – so they can’t simply take back the asset. This means that consequences can include damage to your credit score or even legal action.
A form of debt that many students would be familiar with is Buy Now, Pay Later schemes like Klarna, PayPal, Clearpay and Amazon. These schemes mean that you can either put off paying a purchase for 14-30 days, or ‘slice’ the cost into smaller amounts. While these are great for delaying payment while you try on an item of clothing or aligning instalments with your payday, regularly using BNPL to shop can make it difficult to keep track of your money... When do you need to pay that back? And how much do you owe? Plus, while they don’t usually charge interest, this may be added if you fall behind with payments – or consequences maybe worse with debt collection agencies or county court judgements! So, handle these with care.
As a full-time student, you do not need to pay council tax (though you do need to submit a council tax exemption form!) However, if you are a part-time student, or if you live with a part-time student and/or someone in employment, your household will need to pay council tax. If you miss a payment, you will receive a reminder to catch up with your payments within seven days. Should you not do this (or if it’s the third time you’ve fallen behind this year), you will get final notice to pay the rest of the year’s council tax within seven days. Your case may escalate to the courts if you do not act within the timeframe. So, make sure you always know what you owe, or what you need to do for your exemption! Scroll down for more information on missed payments.
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How to deal with debt (or a fear of debt)
For many people, debt is a nightmare and a scary concept to grasp – we get it! At times, debt is unavoidable and occasionally can be helpful to delay payments to suit your payment schedule (as we’ve seen with Buy Now, Pay Later schemes!) One of the easiest ways to avoid finding yourself in debt, especially at a student level, is to budget carefully.
Queen Mary’s Advice and Counselling Service can provide money and practical advice. They have lots of helpful information on their website, and you can also book a confidential meeting with an adviser to discuss personalised advice to make sure you can focus on your studies and enjoy university life. Click here to visit their website to find out more. There are also lots of calculators online, where you can put in your income and outgoings to calculate your budget to ensure you don’t run out of money by the end of the month. We recommend the Money Wellness budget tracker, which has the option to put in all types of outgoings, including gifts, transportation and even blank spaces for your niche monthly costs. Why not give it a try, maybe you’ll learn something new about your outgoings!
If you find yourself in debt, please try not to panic! There are many systems in place to give you a chance to think about your options. A great one to know about is “breathing space”. This is a short-term relief, so you have time to get advice and find a longer-term solution. It’s temporary protection from creditors you owe money to and is available in England and Wales. During this time, most interest, fees, and charges on your debts are frozen, and further action is paused for 60 days. There are two different types of breathing space: standard, and mental health crisis. And, you can get breathing space for most personal debts, including personal loans, payday loans, credit cards, overdrafts and council tax arrears. For more information, visit Money Wellness’s helpful article here.
What if I miss payment?
Again, missing payments are scary and sometimes can feel shameful – but it can happen to anyone! If you’re worried about missing a payment, it’s really important that you speak to your creditor sooner rather than later. Once they know they can help you to work through the struggles. Plus, talking to someone can help it feel easier as you reach an arrangement that works for both of you. Before you contact them, try to get as much information as possible, including everything you owe, account numbers, balances, payment due dates and essential costs.
Once you’ve missed a number of payments, your creditor may send you a default notice, which will mean your account may default. Typically, this will be after six months of missed payments, and you will have 2 weeks to resolve the arrears. You can try to make arrangements to pay in affordable installments, but at this point your creditor unfortunately does not have to agree to this. If your account defaults, the creditor can pass your debt to a collection agency, take court action, and/or ask the court to take back hire purchase goods. This will affect your credit rating and will stay on your credit file for six years – so where possible, try to take action before this happens!
What is debt collection?
Debt collection refers to the way lenders go about recovering unpaid debts, but the approach to this varies from lender to lender. Differences between lenders include the speed with which they act, how sympathetic they are to your situation, and the action they may take if you’re unable to get back on track with your payments.
If you miss one or two payments, you will receive letters and calls from your lender, asking you to catch up with your payments. At this point, lenders have a responsibility to help you get back on track with your payment schedule.
When you miss three or four payments, your lender may suggest you get debt advice. Top tip: you can get free online advice via Money Wellness -- their online Solution Finder means you don’t even need to speak on the phone! They have an online portal where you can input your debt, ingoing, and outgoing finances, and they will suggest the steps you can take to resolve these issues. For example, this can be breathing space, contacting your creditors, or a debt management plan. Their advice is confidential, practical and impartial, with a goal of getting you debt free.
By the point of missing five or six payments, you would have received lots of contact from your lender, most likely including a default notice and the consequences that come with this. If you haven’t already, it’s really important for you to get default advice. At this stage, you may wish to speak to someone at Money Wellness on the phone on 0161 518 8285. It’s never too late to get help!
It’s understandable to fear debt, especially as a young person with full responsibility over their financial decisions for potentially the first time. However, it’s important to remember that you’re not alone and many people have been in similar situations before. Make use of the resources available to you through sites like Money Wellness, or even our QMSU Cost of Living page. If you find that financial pressures are causing you stress, please contact Queen Mary’s Advice and Counselling Service. Sometimes you just need to talk it out with someone to make problems feel more manageable -- and their advisers are there to help. It can also be helpful to speak openly about your feelings about money. Having an informal chat with a loved one can help you see how other people manage their debts and financial commitments. There will always be a solution, one way or another!