How a Student Overdraft Led to a Decade of Debt

Moneyless Man

Today we have a guest post from the amazing Phil who runs MoneylessMan which is a blog all how he is getting himself out of £35,000 worth of debt!!!


 

Can a student overdraft lead to a decade, or even a lifetime of debt? Who knows, but it certainly didn’t help in my case.  To understand why, we need to travel back to 2010, and to the beginning of my life of debt.

I was almost 23 years old when I decided that I wanted to go to university.  Up until this point, I’d never applied for any form of loan or credit card, and lived month to month on wages from my job, and within a bill-free environment thanks to my generous parents.

When I was accepted on to my university course, I started to look around for a place to live. One of the main worries I had was about money.  I would receive a student loan, but I’d be leaving my job and the wages it gave me to move away to study.  I started thinking about getting my hands on some form of safety net to make sure I’d be okay if something happened where I’d need money quickly.  What I didn’t realise is that I’d soon become tangled up in my own net, struggling to free myself for years to come.

Smug that I’d got my finances in order, I moved away with a brand new, sparking £1,000 student debt.  I was so impressed with myself.  It was a 0% overdraft, meaning I didn’t need to pay any interest on the balance for the next 4 years! Brilliant, right? Possibly.  But not for me.  What happened next was 4 years of reckless use of the overdraft.  It wasn’t costing me anything so it was just free money in my eyes.  I used it over and over, and that’s fine if you can pay it, but my safety net had now disappeared.

I found myself at the bottom of a £1,000 overdraft, and it didn’t feel good at all.  Where had all the money for emergencies gone? In truth, it had been spent on things like pizza.  Delicious? Sure! Worth it? No chance! And so it began.  The next thing I knew, I’d extended my overdraft.  At first, I added £500 to it.  No problem.  And then I extended it again. And again.  And a few more times.

My 0% £1,000 overdraft now stands at £5,000, and it’s no longer 0%.  In fact, it now costs me £80 per month to be in it.  And I AM in it.  I’m all the way at the bottom of it, and I’ve never managed to climb out.

It gets worse.

As I was repeatedly extending my overdraft, I developed an unhealthy relationship with debt.  I started to see it as a way out of problems.  In reality, it was debt that was actually causing my problems.

Over the following couple of years, my debt grew substantially.  It now stands at a total of £35,000.  This does NOT include my student debt, either.

I’ve taken out several £5,000 loans, and a fair few credit cards at unpleasant rates.  The minimum payments on my debt each month now equals the entirety of ALL my other living expenses.  That includes rent, bills, food, and entertainment.  I found short term relief in debt, when I should have faced up to the issue and started to get some control over my finances.

Moneyless Man

 

 

 

 

 

 

 

 

 

 

I want to make it clear here that I’m not bashing student overdrafts (or other overdrafts for that matter).  I am sure they can be very useful if you use them sensibly.  I think it’s important to highlight how things can get out of control though.

People talk about gateway drugs.  “Don’t try that, it will lead to something much more dangerous!”.  In a sense, a 0% student overdraft was my gateway debt into the realm of high interest credit cards and loans.  And it’s tough to quit! Even now, having started on my debt clearance issue, there’s a niggling feeling that I would like a safety net.  But I know too well where that leads.

The overall message I’d like to convey from this post is to be careful with credit.  It can soon get out of hand if you’re spending money before you’ve earned it.  Eventually, there’s nowhere to go.  I can no longer apply for loans or credit cards.  The companies simply don’t want to know.

I dread to think what the next step would be had I not decided to finally sort this mess out.  Payday loans? Loan sharks? It’s not very nice to think about.

On a very positive note, I will NOT be applying for any more loans or credit cards.  In fact, I’ve made it my primary mission to clear my debt as quickly as possible.  By making huge savings in places I never even thought to look, and finding ways to earn extra cash from a variety of sources, I’ll be taking HUGE steps each month towards financial freedom.

To keep myself accountable, I started a blog to document the entire process. I’d love to hear from you.  Interaction from others makes this a much less lonely journey!

I also want to spread awareness about the dangers of debt, and how small amounts of credit can lead to life changing problems.  It is my hope that people in a similar situation will find my blog, and will be able to follow the steps I took in order to clear their own debts.

 

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  • Hannah Anderson

    Ekk, during my time at uni I vowed to never get a credit card or an overdraft. Obviously I still have my student loan to pay back but glad I kept far away from the other temptations! I like your attitude towards it though.

    • That’s brilliant, and something I wish I’d also done! I obviously didn’t intend to fall this deep into debt, but what’s done is done. Now it’s time to get rid of it once and for all! 🙂

  • Mellissa Williams

    It can be so easy to fall into the debt trap, can’t it? Wishing you every success in getting out of your debt situation and I will be checking out your blog now.

    • You’re right, it’s a really easy trap to fall into, and an even harder one to get out of! Thanks for the kind words, and please do feel free to say hello on the blog 🙂

  • It is so easy to fall in to the credit trap, my son did similar. All the best in breaking free x

    • It sure is! Thank you very much. I wish your son the best, too!

  • Joanna

    It’s easy to fall into the trap and get yourself into debt,I’ve seen many family members struggle. I’ve been very reluctant to take out a loan or a credit card so have no experiance of it first hand. Good luck with your plans for getting out off debt.

    • Being cautious of debt is definitely a good thing. Although there is a time and place where debt is useful, I would advice anyone to think hard about whether or not they really NEED the debt. Pizza, holidays, and money struggles aren’t a good enough reason. Time to address the issue once and for all.

      Thanks for your good luck wishes, I really appreciate them!

  • Rachel

    It can be hard to come to terms with I bet going from such a small loan to quite a large one. I have literally stopped myself from ever getting a credit card or loan because I am just so scared of getting into any debt. I wish you all the best with saving and getting it all paid off 🙂

    • The scary thing about it is that I never noticed just how much debt I had. Sure, I knew it was there, but it’s accumulated over time. It’s only when I stopped to look at how much I’m paying out in minimum payments each month that I realised how bad it was. Spoiler alert: my minimum payments are equal to ALL my other spending in the month! Thanks for the kind words, Rachel 🙂

  • TheMummyToolbox

    Debt is a slippery slope and we know exactly how you feel! We had to get a credit card which sounds good at 0% until you can’t pay it off and we are trying to cut it down now!

    • I’m sorry to hear that, and completely agree! Credit is often dressed up as “free money”, and that’s great until it’s no longer free! Good luck with your financial goals, I’m sure you’ll pay it off quickly 🙂

  • I should know how hard debt is because I am always over my overdraft which sucks. Debt can be hard to overcome, especially when you see overdrafts as free money!

    • That’s the main problem for many I think, Ana. It does seem like free money, but can get you into a lot of trouble.

  • Talya Stone

    I was lucky to not have to take out a student overdraft but I know so many people who are still paying off their student debt well into their late 30s….nightmare!

    • Ah yes, student debt. It’s a tricky one because you don’t have to pay anything back until you reach a certain amount of income. I haven’t included my student debt in my totals, but it’s something that makes me a feel a bit on edge!

  • Lauretta

    This is a good read. Debt is something that could really change our lives. We need to be very careful with our finances.

    • Thank you for the kind words, Lauretta! I agree that it can completely change lives. The stress of having to pay such large minimum payments each month has been overwhelming at times. It’s the reason I’m so determined to clear the debt NOW. Short term pain, for long term gain. I can’t wait to be free of it!

  • kerry norris

    Well done for sharing this and raising awareness. I’m always in my overdraft and trying to get out of it x

    • Thanks for the kind words, Kerry. I’m sorry you’re in your overdraft, and understand how difficult it is to climb back out. I’ve found that a combination of saving wherever possible on normal outgoings, and earning extra on the side is a good way to start getting back to where you want.

  • It can be so easy to fall into this trap. Well done you for trying to get to grips with it

  • I shudder to think about the level of debt my children will have if they choose to go to university. My parents were able to support me but fees were only £1000 a year back then 🙁

    • It’s a shame that university fees are so high now, but I would say that student loans are some of the best loans to have, so to speak. As your repayments are dependant on income, it’s not such a strain on your life if financial circumstances change for the worse. 🙂

  • Becca Talbot

    Playing devil’s advocate here, I think taking a student loan was the best thing I ever did. I’ll explain:

    I took the maximum amount payable every term (My highest payment was around £4,000 in my 3rd year). I put it all into an ISA account every time I got a payment, which back in 2005 earned a decent amount of interest. I had 5 jobs while I was at uni to pay my tuition fees, the household bills, run my car, fund living expenses and nights out and clothes etc. I didn’t touch my student loan.

    By the time I was 24 and working full time, earning a decent wage, I had enough saved up from the loan and interest accrued in the ISA (which was higher than the amount to borrow the money in the first place – mine was like yours 0% while at uni, but as soon as I started earning over £17.5k/yr it was deducted from my payslips each month), to put down a £29k deposit on a flat… 7 years on, I still have my student loan now, payments of around £200/mth are deducted straight from my wages but I don’t notice them. And I’ve just remortgaged my original flat (which is now rented out and paying for itself), and am in the process of buying a new property from the equity built up in the flat.

    So, long story short: student loans and overdrafts don’t have to equal mountain’s of debt. You just have to be savvy with what you’re doing x

    • Absolutely. As with all forms of credit, how it affects your life depends on how you make use of it, and your ability to make payments. Changes in circumstances and a few unwise decisions are what put me deep in the rabbit hole of debt.

      As for student loans, I’ve not included them in the debt I owe because they’re very manageable. The fact that what you pay depends on what you earn means that you don’t tend to notice it. With a 39.4% APR credit card, however, you definitely notice it.

      Well done for keeping your finances in order. It just goes to show that one solution isn’t the right one for all. Credit for me, was the wrong path to take because I wasn’t ready for the consequences. For you, it seems it was definitely the right path.

  • Kara

    It is scary isn’t it. I used to work with people who were still paying it off in their 30’s and it made a huge impact on their life

    • It sure is, Kara. The impact can be huge. As it stands, my minimum payments cost as much as all of my other outgoings combined in the month. My biggest fear is that my financial circumstances will change, and I won’t have the income required to make the payments. That’s why I’m working so hard to clear them now, while I have the chance.

  • It can be so hard for a student, so many opportunities and things to buy, it is easily accessible to get sucked into debt!