Your Money: How to avoid the second-year hitches

So, you've survived the first term in higher education and have started your second. The chances are that there was the odd financial hiccup. This is quite usual, because the transition from sixth form to university is dramatic. It is also probably the first time you've lived away from home and have been responsible for your budget. John Andrew offers tips on how to make it through the year.

"If you think education is expensive, try ignorance," remarked the American academic Derek Bok 20 years ago. The message is even more significant now than it was in 1978, because the reduction in state finance for higher education means that there is a greater financial burden both on students and their parents - a fact you no doubt learnt first hand in the last quarter of 1997.

However, it is a new year and hopefully any acrimony with your parents over money has now been forgotten. Nevertheless, it is important to learn from your past mistakes to avoid the many pitfalls that can ensnare the unwary. It is not too late to make a new year's resolution. Make yours better financial control.

If you used your credit card during the run-up to Christmas, do not be tempted to just pay the minimum balance - even if it means overdrawing your current account. The simple fact is that students receive a concessionary overdraft rate. Most student banking packages include a certain amount of borrowing which is entirely free, while overdrafts above this level are charged at a higher, competitive rate. The result is that student borrowing by overdraft is less than half the cost of financing your expenditure by credit card.

Although credit cards can ruin your wealth, used astutely, they can be very advantageous, because they give up to 56 days interest-free credit. The trick is to use your card for major purchases at the start of your monthly account period. By studying past statements you will be able to work out the day each month when your statement is prepared.

Should the usual date be, say, the 15th, purchases made from the 16th will appear on your next statement. The only thing to watch is when the usual preparation date falls on a weekend. When this happens, credit card companies may delay the preparation of the statement for a couple of days. Naturally, keep a note of your total credit card spending and do not exceed your budget.

If you want to maximise the advantage of your free credit, you can earmark your future credit card dues by paying the money into an interest-bearing savings account - even if this means taking advantage of your interest- free overdraft limit. However, your bank is unlikely to be happy if you are borrowing free so as to earn interest. If you are in this position, open the account at a nearby bank or building society. Remember, the card trick only works if you remember to make your payment in full by the "due- by date" shown on your statement - allow four working days for the funds to reach the card company.

If you have not already discovered, your concessionary borrowing rates at your bank only apply if you arrange an overdraft in advance. If you fail to do this, banks charge a penal rate of interest. It therefore makes sense to keep a close check on your account. Keep a running tally of the balance in a notebook, or even in the cheque book itself, checking each week with a cash machine balance inquiry that your records and the bank agree. Don't forget cash machine withdrawals, standing orders and debit card transactions.

Learn to impress your bank manager! It is very easy. Don't just go along and request an overdraft, but explain why you want it. Support your request with your budget. While budgeting may sound like advice from Granny, it is essential for anyone to plan according to their finances - especially when funds are limited. Of course the act of budgeting itself is not an end in itself. Your plans have to be monitored to ensure that you are on course. If you stray from your budget, then corrective action must be taken. Quite simply, if you overspend one week, economies must be made in the future.

It pays to look at the ways you spend. The first term at university is always the most difficult financially, because not only are your initial costs high, but you have unexpected social events which are a drain on your resources. The good news is that from now on expenditure is more predictable. Take the opportunity to explore whether you are making full use of student discounts, concessionary fares and shopping at outlets which give the best value for money.

You should also be thinking about accommodation for your second year. If you live in hall now, the chances are that for the next academic year you will need to make your own arrangements. Start your researches now by talking to second-year students. The best-value accommodation in the most convenient locations is the first to go. By acting sooner rather than later, you will secure a good base for your second year.