Money: Paying back a student loan

Graduating with thousands of pounds worth of debt can be worrying, particularly when starting work on a low salary and dealing with high living costs. The trick lies in making plans about how and when you want to pay your debt off…

Some graduates prefer to simply have the minimum amount deducted from their salaries as soon as they are earning while others prefer to pay off extra in monthly overpayments as soon as they are financially able. The decision will depend on your personal circumstances, your earnings, your expenditure and your expectations.

When do I start repaying my student loan?

When you finish your course and start earning over a certain threshold (the amount changes each year), your repayments will start to come out of your earnings before they even reach you. Each repayment is a mixture of capital and interest. You will be charged interest until the loan is repaid. This interest varies and is linked to the rate of inflation.

For those who graduated in or before 2011, 9% of your income will be taken for student loan repayments once you are earning more than £15,795 a year. But those of you starting university in September 2012 will pay back 9% when you earn more than £21,000 a year - which will mean lower repayments. Unlike some other bank loans, you can repay your student loan fully or in part at any time, without incurring any fees or charges.

Should I overpay?

To make this decision, put together a budget and a financial plan and seek help from a source of good advice, such as a parent, a colleague, a financial adviser or your university welfare team before you graduate.

Look at the debt you have. The trick is to repay the most expensive debts first. These will often be credit cards, although it is sometimes possible to switch the credit card debt to an alternative card that offers 0% on balance transfers. This usually means paying a balance transfer fee of around 3% but it can save significant amount of interest.

When it comes to your student current account, check how long your 0% overdraft will last for and keep in touch with your bank as you seek to sort out your finances. When you have a list of your debts in interest-expense order, start overpaying on the most expensive one first until it is cleared. Then focus on the next debt and so on.

How do I avoid further debt?

It's vital to avoid taking on more debt as far as possible when you leave university. Some graduates do find it impossible to avoid further debt and others feel overwhelmed by their existing debts. But with a careful budget, energy and focus you can pay off your debts early and be freed from them.

Tips to keep your bank balance in the black:

• Keep a strict budget and pay by cash
• Seek out special deals and bargains
• Walk rather than drive or catch the bus whenever you can
• Eat out midweek rather than at weekends to make the most of restaurant deals
• Buy in bulk and shop at greengrocers and markets
• Pursue hobbies and interests which don't involve much expense
• Look for overtime, part-time jobs, freelance work and other ways to maximise your income
• Visit MoneySupermarket.com - Compare All UK Savings Accounts  to take advantage of the best deal

Find out more about dealing with debt and get advice on budgeting.

Your efforts will eventually pay off and ensure that - as well as repaying your debts - you have developed a healthy attitude to financial management that will stand you in good stead for the rest of your life.