Credit and debt

What is credit?

Credit is essentially borrowing money. People often use credit to buy things they can’t currently afford.

When you think of credit, you often think of a credit card or payment options like car finance. However, more recently it has become easier to use credit for smaller purchases through ‘Buy Now Pay Later’ lenders such as Klarna, Laybuy and Clearpay. Even high street retailers like ASOS, Pretty Little Thing, and JD Sport offer ‘Buy Now Pay Later’ payment options without much explanation, so it’s really important you understand what credit is and how it works.

Types of credit include:

  • Credit cards
  • Mortgages
  • Personal loans
  • Store cards and credit
  • Car finance
  • ‘Buy Now Pay Later’
  • Overdrafts
  • Unsecured borrowing (for example, Paypal Credit)

How does credit work?

Credit is money lent to you on a contractual basis. Once you buy something using credit, you are in debt to the credit lender until you have repaid the balance in full.

Most credit requires you to repay the balance in agreed instalments. Falling behind on repayments can lead to additional charges and fees, changing interest rate, and damage to your credit score, for example. If you fall seriously behind on repayments then you may also incur more serious consequences like repossession of your house or car.

Some forms of credit, like credit cards, allow you to pay minimum amounts each month. However, if you only pay the minimum amount off each month then you will be charged interest on your balance. Essentially, the amount you owe overall will be much higher.

What is an overdraft?

‘Agreed’ or ‘authorised’ overdrafts are another form of credit. This is where you have made an agreement with the bank to be able to overdraw your account. Overdrafts are intended for short-term and emergency borrowing only.

‘Unauthorised’ overdrafts are where you go overdrawn without agreement with your bank. Unauthorised overdrafts affect your credit rating and make it harder for you to get future credit. As such, it’s really important that you budget and understand your account before you get into this situation.

Unlike other forms of credit, overdrafts do not have set repayment plans. Whilst students can often get 0% interest free overdrafts, these interest rates will often increase upon graduating. As such, we always recommend overdrafts are only used for temporary and emergency borrowing.

What can get me into debt?

Unfortunately, it is very easy to get into debt if you live beyond your means. It is vitally important that you begin the budgeting process as early as possible. If you find you have a shortfall in your income, then you must reassess your financial situation and see where you can cut back.

What are the positives and negatives of credit?

The Financial Guidance Team are here to guide you in making the best financial decisions to support your studies at University. It is ultimately your decision whether or not to use credit, but outlined below are some of the pros and cons of using credit to manage your finances:


  • Convenience – buy today, put off the cost until later
  • Spread out the cost of large payments
  • Purchase protection
  • Boost your credit score (if payments adhered to and no mounting debt)
  • Cashback and rewards


  • Spending more than you can afford
  • Debt and mental stress (which can be difficult to get out of)
  • Extra fees
  • Damage to credit score meaning reduced future borrowing (if payments missed or debts accrue)

What would we recommend?

The Financial Guidance Team would recommend that you always try to live within your means. By that, we mean only spending money that is available to you.

There are lots of benefits to living within your means:

Fewer money worries

Being able to focus on your studies

Building your savings

Only owning and buying things you really need

Avoiding debt

Repay existing debts faster

If you do decide to take out credit, we would advise that you only take out credit to pay for something if you can afford to pay the balance off in full by the due date.

I am already in debt, what should I do?

The Financial Guidance Team are not trained debt advisors. However, we would first recommend you visit the Citizens Advice website for further advice and guidance on debt and other related issues.

You can also access free debt advice through charity StepChange and the National Debt Line.

If you have any worries about your financial situation it is really important to speak up early. You are not alone – there is always support available.

The University of Northampton have a dedicated Mental Health and Counselling Team who can support students who are struggling with their mental wellbeing. Further information about the services the Mental Health and Counselling Team provide can be found both on the University of Northampton website and on the Student Hub (enrolled students only).