DEBT CONSIDERATIONS

DON’T GET SUCKED INTO A QUICKSAND OF DEBT

GET CLUED UP

writer DIANA CLEMENT

image credit iSTOCK

It’s too easy for students to get sucked into a vortex of debt. Like many other young people, you may soon be handling your own living expenses for the first time. Unfortunately, banks and others are after more than money. Banks make a lot of money from lending and that’s why they put so much effort into getting you to sign up for their overdrafts, credit cards and personal loans. They know students often want more money, so they make credit easy. The banks aren’t being kind or flattering to you by offering you a credit card or overdraft. The banks know that once hooked, you’ll probably stay with them through your big earning years. There is no glory in having a huge credit limit. Debt really sucks.

BEWARE OF SLICK SELLING

Lenders make borrowing money sound easy, and even sometimes the normal thing to do. Their adverts scream, ‘fast cash now’, ‘live your life’, ‘a brighter way to borrow’, ‘flexible same day loans’ and ‘no fuss lending’. Some of these companies charge several hundred per cent interest a year. Be very careful about what you sign up for.

CREDIT CARDS AREN’T A GOOD THING

During O-Week, the banks will be on campus offering to sign you up. Yes, get a credit card. It can help you with a true financial emergency. But remember the money you’re spending isn’t yours and you’ll have to work to pay it off eventually. If you get too used to using credit cards you could be creating a very bad habit that is difficult to break later in life. If you use credit cards as an everyday way of paying or have daily ‘emergencies’ every time you want to buy Uber Eats, you’re not being smart with your credit card. It’s way better long-term for you if you can avoid credit cards completely and use EFTPOS instead. If you need Visa or Mastercard for online payments and payWave, you can use a debit card instead.

OVERDRAFTS AND PERSONAL LOANS HAVE TO BE PAID BACK

It’s a rite of passage getting your first overdraft. It may feel like you’re being an adult. Financially smart adults, however, do everything they can to avoid overdrafts, personal loans and other types of consumer debt. Make do with what you have or only use debt if you truly are only buying essentials – not nice-to-have things and experiences.

WATCH OUT FOR BUY NOW PAY LATER

One of the latest ways to get yourself into debt is using Afterpay and other similar ‘buy now pay later’ deals, such as PartPay, Humm and Laybuy. These deals really appeal to students because they’re easy and online. You can even ‘buy now pay later’ for things like concert tickets and second-hand goods on TradeMe. It seems easy. You don’t have the money this week but can pay it off over four weeks. The companies make a lot of money from penalties charged if you have a bad week and miss a payment. They rely on you being less organised or taking on more debt than you can really afford. It also gets you into the mentality of buying stuff you may not really need. Finally, it’s too simple to build up a huge debt, one coffee or Domino’s Pizza visit at a time. The only real way to avoid this is to create a budget with a set limit for ‘fun’ money. You don’t need to live like a monk. Be kind to your future self, however. If you don’t control the spending then, at some point, you’ll be struggling to pay your student loan and other debt back.

For more information and helpful tips on budgeting, visit www.sorted.org.nz/tool/budgeting-tool#/welcome