Money dangers – good and bad credit

As a student, you might be offered opportunities to borrow money – this is known as credit. Access to credit can be both positive and negative. Although it’s advisable to try to live within your means whenever possible, sometimes emergencies happen and in these circumstances, credit will be very helpful. Applying for credit can also help improve your credit rating in the future. However, you must remember that credit is not ‘free money’ – it always needs to be paid back – and if you splurge on credit, it can end up costing you a huge amount in interest and charges.

Here are some common credit options – some are okay (providing you don’t go overboard with your spending), and some are best avoided.

Student overdraft

Many student bank accounts come with a free overdraft option, which may allow you to spend more money than you have without charge – think of this as an advance on your student funding. This can be especially helpful towards the end of term when you have run out of loan. Always speak to your bank and/ or check the terms and conditions before you go into an overdraft to ensure that this is approved, and don’t go over your overdraft limit (these will often increase each year). Be aware that if you have any overdraft outstanding after you have finished your course, you will probably start to be charged interest.

See our Student bank accounts post for further guidance.

Credit cards

These will often offer an introductory low interest rate (0%!) to entice you, but be careful as interest rates will rise after this period ends (this can be up to 19.9% APR or a lot more) – if you don’t pay the balance off quickly, the amount you owe will soon rack up. If you must use a credit card, make sure you pay it off as quickly as possible. Never withdraw cash using a credit card as you’ll be charged a higher interest rate as well as a handling fee, and be very careful if you take out a new credit card to pay off an old one. Save the Student have a useful guide to credit cards.

Store cards

These are similar to credit cards as they will also often provide an introductory discount as a welcome and then offer points or discounts whenever you use them. But watch out – while having money off your shopping is always great, the interest rates can be even higher than credit cards. Avoid these unless you decide to use them only occasionally and then pay them off in full before interest is applied.

Payday loans

These are quick loans that anyone can apply for – they can be very tempting, especially as the money can hit your bank account typically within an hour. But these can be very dangerous as they feature extremely high interest rates and fees so it’s very easy to get into a cycle of owing more and more if they aren’t repaid quickly. Avoid where possible! Further useful information on payday loans can be found on the Save the Student website.

If you manage your money effectively by thinking ahead to expected costs (such as bills, books/ materials for a module, travel home, etc) and then by budgeting accordingly, you are less likely to need credit. However this does require some planning – for further guidance, see our posts on How to increase your income, Minimising your expenditure, Make small changes to save money and Mend your spending habits.

If you’re struggling financially, you may be eligible to apply for additional funding such as the Financial Assistance Fund or EU Hardship Fund (eligibility criteria apply).

Credit can be very useful if you’re feeling a little short, but be careful as it is easy to lose control of your spending and get into debt. If you have any concerns about credit or debt, contact us as we may be able to help.