Debt Overview
'Some types of debt are MUCH better than others... All debts are not the same!' (Martin Lewis, MoneySavingExpert.com)
There are two ways of thinking about debt: that all debt is bad and something to worry about, or that some debt is a sensible, temporary undertaking to improve your life. Most home owners would never have been able to buy their home without borrowing a mortgage, for instance. The key thing is to be sensible, don't borrow more than you can repay and search around for the best kinds of borrowing.
When borrowing money it is important to know how much interest you will pay and how much this will cost you. For instance, if you borrow £1,000 at 15% per year, by the end of the year you will owe £1,150.
The real danger though, is that interest compounds. In other words, if you borrow over a long period you will end up paying interest on the interest on the interest! This means that while you may have in your mind that you borrowed £1,000 at 15% interest over 5 years you would end up owing £4,000!
Sometimes you may not be able to avoid borrowing money but always look at how it's going to affect you in the long term and be sure that you can afford to make the repayments.
If you are struggling to meet repayments on money you borrowed, it is important that you do not ignore your debt. Speak to the company who loaned you the money and offer to pay less each month until your financial situation improves.
Borrowing more money to pay off existing debts is usually not a good idea as it can often make the situation worse.
Debts to the University
If you have a debt to the University, you cannot enrol on a subsequent year until the debt is paid off in full.
You will also not be allowed to graduate if you have a University debt.
Talk to the Finance Department about your debt to discuss ways of making payment or agreeing a payment plan. You can contact the team by email on salesledger@derby.ac.uk or by phone on +44 (0)1332 592742.
If your query is about fees then you will need to contact your College Registry Operations team through the Student Hub.
Essential Debt Advice
If you are falling into debt and receiving final demand letters, perhaps with court action threatened, through your door, don't ignore them in the hope that the problem will go away.
The sooner you face your debt problem, the easier it will be to overcome.
Start by warning your creditors that you have a problem - don't be put off if some seem unhelpful; the majority respect your honesty and are willing to help.
You should work through the Action Plan below:
Use a budget planner
Use a budget planner to work out your weekly income and expenditure. Be realistic in listing your expenditure and don't leave anything out.
Use this plan to work out the difference between your income and expenditure. If there is any money left you can use it to pay off your debts, even if you can only pay a small amount each week or month.
If there's nothing left, or you find you spend more than you've got, take a look at where your money goes. Is there any way in which you can make savings? For example, could you walk instead of getting the bus? Could you shop or cook communally? Could you buy books second-hand?
The University's Discretionary Support Fund may be able to help with certain additional expenses, for example, childcare costs. Please contact the Student Money Advisors to find out more.
Work out your priorities
If you have several debts, make a list of who you owe money to and how much you owe. Then consider which are most important. These are the priority debts:
- Rent or Mortgage debts - if you get behind with your payments you may lose your home.
- Power or Water debts – you can’t manage without these services.
Talk to your creditors
Talk to your creditors and explain your situation. If necessary, back up your explanation with a written statement of your income and expenses.
Ask them to freeze any interest you're paying, so that you repay the amount you owe without extra being added on.
Negotiate a sensible repayment schedule, where you pay a bill by instalments. Be realistic, even if that means paying only a small amount each week or month. Never offer more than you can realistically afford to pay.
Ten myths that can lead to debt
In our experience there are a number of myths that can lead students into debt. Believing in these myths can be reassuring for a short time - but most students who do come to regret it.
4. 'One more credit card won't make any difference!'
That depends on how much you owe on your other cards and whether this new one will just add to the debt you already have. Shopping around for the best interest deals on cards is good - some cards will also offer you a low interest to transfer your other balances over. But running up huge amounts of debt on credit cards is not!
They are expensive to pay back especially if you only pay the minimum payment every month. In fact, owe £3,000 on a credit card at 21 and you'll be almost 50 before you pay it off if you only pay the minimum payment every month.
8. 'If I get into trouble my bank will give me the best personal loan!'
Your bank is not a charity. If they know you are in financial difficulty and have to borrow they may well charge you a higher rate of interest.
Most of the best deals on personal loans are found away from the high street so if you do have to borrow make sure you shop around. If you have existing debts, you are unlikely to get a good deal.
9. 'If I need some rainy day money I can sell my computer!'
Most students agree that their computer is vital to their degree and the cost of computers is so low now that probably you will not get that much for it. It's more realistic to budget your money so you don't have to sell it in the first place.
10 'If all else fails I can go bankrupt!'
Students can no longer go bankrupt to get rid of student debt! And even if you could, bankruptcy can cause major difficulties for you. You would not even be able to get a mobile phone contract, much less any other kind of credit.
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