The class of '05 and the great escape from debt

What's a graduate to do, asks Sam Dunn, when he's in the red and the non-academic world is getting harder?

The final exams may nearly be over but the hardest tests remain for the 300,000 graduates who will be spilling out of university soon.

The final exams may nearly be over but the hardest tests remain for the 300,000 graduates who will be spilling out of university soon.

For starters, how do you dig yourself out of a deep hole of debt measuring £13,501 on average, due to the rise in course fees and university living expenses?

Second, is there a way to grab hold of a property ladder when the average house is worth £157,272 - more than seven times the anticipated starting salary for a graduate trainee manager or engineer?

And finally, how will you save enough, or avoid having to work longer than ever before, to ensure a half-decent pension?

"It's a serious reality check when you graduate," says Hannah Essex, the vice-president of the National Union of Students (NUS). "Many [students] are anxious about their finances; it's not just the loans, it's credit card and bank overdraft debt.

"And as for thinking about buying a property or a pension, forget it."

In the case of pensions, the demise of final-salary workplace schemes - most are now closed to new staff - has shifted the onus for long-term saving from employer to individual.

More immediately, the house price boom may now have run out of steam, but it has left a first home out of reach for all but the wealthiest of graduates.

Meanwhile, thanks to the Government's policy of boosting undergraduate numbers, more and more people now hold degrees. But according to a survey from the Association of Graduate Recruiters (AGR), fewer jobs are coming on to the market than there were last year.

And while student debt is rising considerably - up by 12 per cent on 2004, Barclays has found in its annual graduate survey - the £22,000 average starting salary is up just 4.5 per cent, the AGR says.

If that wage seems high, and the UK average is £22,248, those at the lower end are being offered less than £15,000.

"Graduates are waking up to long-term financial pressures," says AGR chief executive Carl Gilleard. "The future holds a lot of uncertainty and the pace of change is set to accelerate."

However, indebted graduates can take steps to ease the pain.

Focus first on slashing the most expensive debt - likely to be on credit and store cards, says Anna Bowes at independent financial adviser Chase de Vere. "Loans from the Student Loans Company are cheap to service, currently 2.6 per cent, so switch your attention to the most expensive plastic."

Annual percentage rates (APRs) on credit cards can be as high as 17.9, so try to pay off more than the minimum amount each month to chip away at the debt.

If you have a decent credit reference, a few card firms will offer you a 0 per cent rate for six to nine months if you transfer your outstanding balance to them, Ms Bowes adds.

Student-loan repayments have to start once you are earning more than £15,000 a year - 9 per cent of income above this sum is siphoned off to pay down the balance. Taken together with the call of card debt, that leaves little room to think about the longer term. As Ms Bowes says: "It is unrealistic to expect a young graduate today to even start thinking about a pension.

"But don't panic," she adds. "When you can afford to think about it, you can start from as little as £20 a month into a stakeholder personal pension."

When job hunting, check what employers are prepared to offer as a pension. You will be lucky to find a final-salary scheme but many firms will contribute to a money-purchase plan where you save into a pot to buy an annual income when you retire.

Check the deal you're getting from your bank - there's no reason to stick with the place where you held your student account if it isn't competitive.

Most high-street banks' graduate accounts offer at least £1,500 as an interest-free overdraft in the first year, tapering to £500 over three years to make you repay the money.

Agreeing an overdraft limit above this is crucial, and annual charges vary widely: 9.9 per cent at Abbey, 15.6 at Barclays and 17.81 at NatWest.

Steer clear of fee-paying graduate accounts (Barclays, Lloyds TSB) unless you absolutely want the perks such as free insurance. "You can usually get these cheaper elsewhere," says Ms Bowes.

If you cannot make headway with your debts, free help is available from the Consumer Credit Counselling Service or Citizens Advice Bureau. They can help plot a repayment plan, negotiate on your behalf with creditors or advise on an individual voluntary arrangement.

Most serious of all the options is bankruptcy. You could walk away from your debts but your credit reference will be marked for six years and getting a job, loan or mortgage will become very expensive.