An overdraft is part of most students’ lives. It is part of a bank account that allows you to spend more than you’ve got up to a set amount. However, this differs from a normal overdraft because you don’t have to pay any extra cost for the student overdraft. To get a student bank account with the overdraft, you need to be a student with a UCAS confirmation letter.
An overdraft will be your buffer during your time at university useful for rent and those emergency train tickets home. However, it is very easy to mismanage it and spend that money on designer clothes instead.
When picking a student bank account, do consider the different options that the overdrafts offer. UCAS recommends picking one with the biggest and longest 0% overdraft available. Personally, I think this is a good idea but only if you can exercise the self-control necessary in order to not use it all at once. Every student has a story about someone who maxed out their overdraft in the first semester of their first year. Don’t let that person be you.
When looking at student bank accounts, many of them will offer perks and freebies such as a discounted train travel card or a free NUS card, if you are going to be doing a lot of travelling back home, it is wise to consider whether this would be more beneficial for you than the biggest overdraft.
The important aspect to remember about your overdraft is that it is not part of your income. It is a loan and there is an expectation that you will repay it. Once you’ve graduated, the interest-free aspect is no longer there.
When should I use my overdraft?
There are a few rules when using your overdraft. I find following these means that you are less likely to get into debt. First of all, never start to use your overdraft for little things like a pint or a new pair of jeans. Getting into debt with the little aspects is how most big debt begins. Using your overdraft carefully is very important to always think of. If you need that new notebook for an upcoming test but can’t afford it at this precise moment then yes, use your overdraft but then pay it off as soon as.
Using your overdraft for rent is one of the ways most students use it. Some landlords require you to pay monthly which can be a problem over summer for students when the maintenance loan is not there, so using your overdraft as a buffer for those few months is acceptable.
Just as using your overdraft to buy that train ticket home is acceptable. It is always best to budget but sometimes it is difficult. If you want to go home, then you should, don’t deny yourself the chance because you are worried about money.
To keep track of your overdraft, and the money that’s actually yours, it is important to take note of regular incomings and outgoings. It is important to ensure that you always have enough money to cover outgoings. If you exceed your limit, your bank could charge you extra. Therefore, always make sure that you have enough to for any direct debits that may come out of your account.
Paying it off
Once you graduate, you’ll be eligible for a graduate bank account. This is a sort of stepping stone to give you time to pay off your overdraft. Never assume that you will be automatically transferred to a graduate account either, it’s better to do your research first. Your overdraft limit will generally decrease year by year as you will be expected to pay it off slowly.
Another reason for keeping on top of your overdraft is that it will affect your credit rating if you continually go over your pre-arranged limit. Some students think that if they max out one overdraft, they can just go ahead and open another student account. This is wrong. Nearly all banks will have a clause that forbids you from doing this. This is not the bank stopping you from having fun, this is to stop you from having crippling debt once you graduate.
To begin actually paying it off will require some sacrifice. It is best if you pay some of it off every month, so if you have a £3000 overdraft and two years left until you have to start paying interest, then you divide it by 24, so you would have to repay £125 a month in order to pay it off in time. By creating a goal, you are more likely to be able to pay it off rather than it accumulating as you pay it off when ever you feel like you can.
Making a separate account for spending money can also help you to clear your debt but it will require discipline. Allocating yourself set spending money for a week and sticking to it will ensure you stay close to your goal.
Use it, don’t abuse it
I am using this article primarily for graduates but if you want to pay your overdraft off over the summers between university, then these are still good tips to follow. I personally always pay my overdraft off over summer in order to ensure that the overall debt is minimal and can be paid off quickly and easily by the end of my final year.
As with most things in life, when using your overdraft, moderation is key. Use it but don’t abuse it.