Avoid hangovers, checkmyfile.com advises all students

Added: (Wed Sep 28 2005)

Pressbox (Press Release) - STUDENTS returning to university for the new academic year are being warned by credit experts at checkmyfile.com not to fall victim to a financial hangover, once the liquid one has warn off.

With the cost of attending university soaring every year – graduates in 2005 left college with debts averaging £13,500, and this figure is set to reach £20,000 by 2008 – record numbers of students and graduates have opted for bankruptcy as a solution to their financial problems.

Barry Stamp, joint managing director of checkmyfile.com, said: “While it is important to enjoy yourself at university, students enjoying a drink in the college bar during freshers’ week should take a sobering lesson from the 3,803* students and graduates who were declared bankrupt in 2004.

“This staggering figure is an increase of 42% on the previous year, and any student slipping into a financial quagmire must consider very carefully the consequences of declaring themselves bankrupt.

“Despite the hype, bankruptcy is not the financial equivalent of pressing the ‘reset’ button on a Playstation game,” he added.

Student loans can no longer be avoided by bankruptcy, which was until recently a driver for the increasing numbers seeking financial protection. Yet the trend for students and graduates to seek insolvency has not slowed down. 2003 and 2004 saw more student bankrupts than all those in the previous 13 years combined.

“The long term dangers of choosing bankruptcy to wipe the slate clean are rarely appreciated” warns Stamp.

“Firstly, the bankruptcy will remain on a credit file for 6 years and on Land Registry files for 12 years, which will affect the ability to get a mortgage”

“Career prospects can be damaged before they have even begun, with bankrupts being ineligible to work in professions, such as the law, or in certain industries, such as financial services”.

“People who have been declared bankrupt will face difficulty opening up a bank account or replacing a mobile phone agreement”.

“A bankrupt student may also damage the hard earned credit rating of their parents, affecting their ability to obtain credit too.”

For those students who are either heading for or contemplating bankruptcy, checkmyfile.com gives the following advice and tips:

1. Think about consolidating credit card debts to a loan

Typical credit card rates carry twice the interest rates of the cheapest loans and many students applying for credit from home will be able to take advantage of their parents’ credit rating to qualify for these, in many cases. This can have a dramatic impact on the cost of credit and the structured loan will ensure that the debt is reduced dramatically.

Don’t forget:

To cut up credit cards and close as many card accounts as possible, as the temptation to use these will be high.

That many of the payment protection plans add a great cost to the loan, and there is no penalty, credit-wise, if it is chosen not to take that option.

checkmyfile.com has a free service that matches credit scores to lenders, so the most competitive rates that are likely to be available can be found quickly and easily.

2. Ask parents or other relatives for help

Defaulting students may well damage their home credit rating for 6 years. Many parents would prefer to help, even if this involves borrowing to do so, rather than have their own household credit rating affected.

Don’t forget:

A simple standing order should be set up by the student to repay the loan to parents, right from the start.

To cut up credit cards and close the accounts that have been repaid by parents, as the temptation to reuse these will be high.

3. Consider using a debt management company

A debt management company will negotiate with lenders to reduce the debts to affordable levels. Typically the company will take the first payment as commission, and 15% of all future repayments for their trouble. Look for debt management companies that do not charge fees – such as payplan.com - which is funded by a levy paid by the credit industry.

Don’t forget:

This will be recorded on credit files for six years. Both personal and household credit ratings will be seriously affected.

If a lender doesn’t like the arrangement or is excluded, or if affordable payments are missed, lenders can still sue or pursue various options, including bankruptcy, anyway.

When considering this option, all other options (other than bankruptcy) should be considered first.

4. Go and get professional help

Local Citizens Advice Bureau and specialists such as National Debtline and the Consumer Credit Counselling Service all provide advisory services for free and are well respected by lenders.

Don’t forget:

To tell the whole truth and include all financial commitments, as there is no benefit in withholding information.
This is not a solution in itself and help from these organisations is only effective if recommendations are followed through to the finish.


5. Consider an Individual Voluntary Arrangement

This is a more informal style of bankruptcy. The first step is to make contact with a local Insolvency Practitioner to see if an IVA is right for individual circumstances.
Don’t forget:
This is still one of the main types of insolvency, but without the formal badge of bankruptcy. It will appear on your credit file for six years and will be treated exactly like a bankruptcy by lenders and prospective employers and landlords.
It will therefore affect your credit rating and that of your household.
Stamp concluded: “Struggling students should try their best to keep perspective and to act as soon as they can, to secure peace of mind. Money problems inflict people at every life stage. We rarely see a credit file without a late payment on it somewhere and one in three people have defaults. There is an entire industry out there just waiting to help and often for free. Before students contemplate bankruptcy we urge them to consider all other options first”.

Note to editors:
*Source: Student Loans Company 2005, from the House of Commons Hansard, March 3 2005.

Launched in 2000, checkmyfile.com is the UK’s first Internet based credit reference agency, aimed firmly at serving consumers. checkmyfile.com is fully independent and was the first in the UK to provide consumers with online access to their credit files, to offer consumers the ability to check their own credit score for free and to give plain English explanations of how credit scoring works. With over 1.1m registered customers and visited by over 20,000 unique new visitors every day, checkmyfile.com is ranked within the World’s top 50,000 websites.

For further press information please contact: Richard Goedegebuur at checkmyfile.com on 0207 193 6021 or email: richard.goedegebuur@checkmyfile.com
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