'I want to get on with my life without £9,000 debt'

Wealth check: Our panel of independent advisers prescribes a dose of monetary discipline as the best treatment for self-confessed big spender Jonathan Newman

The patient

Jonathan Newman admits to being a big spender, but after amassing debt he is keen to work on changing his money habits. The 28-year-old, who works in process development for a finance company on a salary of £28,500 a year in Bournemouth, owes around £8,700, made up of personal loan, overdraft, and credit card debt.

"My financial goals are very simple, as once I've cleared the debt I've built up over the last five years – all of which was squandered and is regrettable – I simply plan to not get into debt ever again," he says.

"This might be unrealistic, but being someone that has lived in debt for a period of time, the thought of being completely debt -free, and that result is not too far away, is just too much of an incentive."

He pays £244 a month for a personal loan with Tesco at 6 per cent, with £3,000 left to clear.

"This was originally taken out over five years to consolidate a Lloyds loan and to pay for a holiday," he says. He also pays around £87 a month for a personal loan with Lloyds.

"It was taken out about a year ago to fund moving house and pay for the deposit. It was originally £1,000 and the rate is 9 per cent – there's only around £220 left to pay," he explains.

In addition, he has access to a £3,000 overdraft on a Platinum current account with Lloyds.

"I don't feel it's urgent that I clear this as I never go over my limit so don't get charged – I pay for a packaged account for the interest-free overdraft facility," he says.

He also has £2,500 on a Lloyds Advance credit card, at 11.9 per cent.

"I don't pay off the balance every month – I just pay what I can," he says. "I want to believe that the salary I'm on will be enough to support my sometimes-lavish lifestyle – but I realise I have to start making sacrifices."

Jonathan pays £280 a month for a room in a three-bedroom house, and believes he has little chance of stepping onto the property ladder in the near future.

"When debt-free I will look to save for a rainy day to have something set aside," he says.

"But I don't believe that in the next five years I'll be able to put aside enough money for my first house purchase. The scary truth is that with the current cost of living, being able to save enough for a deposit just doesn't seem likely."

He doesn't currently contribute towards a pension.

"Our company is considering offering a pension but at present there isn't one," he says. "The sad thing is that I believe that once debt-free I would much rather live a comfortable life now rather than struggle towards a secure life in the future."

However, he adds: "Whether it's a generation thing, lack of responsibility, or just fear of falling behind again, I just know that debt is not somewhere I want to be."

The cure

Tackling debt before dealing with other goals is wise financial planning, agree our panel of independent financial advisers (IFAs), and it appears that Jonathan has realised the urgency of this.

While not alone in being saddled with debt, he needs to reassess his approach to his finances to ensure he doesn't burden himself with a further sum in the future.

Dealing with debt

Jonathan's key priority is to reduce his debt and the quicker he can do this, the less interest he will pay and the cheaper it will be, says Danny Cox from Hargreaves Lansdown.

"He should set himself a target for the amount he will pay off his debts each month – starting with the most expensive, which is the credit card debt. This should be realistic and as much as he can afford."

While Jonathan says he is in no rush to pay off his overdraft, he should check if he is paying interest on this every month – as although he pays no fees, he may be unaware that this is incurred.

Nick Evans from One Life Wealth Planning says: "Overdrafts are often seen as 'comfortable debt', but in reality they are perhaps the most dangerous type, as while loans and credit cards demand minimum payments each month, overdrafts are in danger of racking up."

Drawing up a budget to calculate how much he can afford to set aside is a priority.

"This will act in two ways: it will help him to stop frittering – he is far less likely to spend unnecessarily if he has to write it down, and it will help his budgeting," says Mr Cox.

"He may also be able to make savings by, say, switching energy suppliers and buying cheaper food."

Christopher Wicks from Bridgewater Financial Services recommends cancelling the overdraft facility so Jonathan isn't tempted to use it, and sticking within his means.

He needs to muster up some discipline to get rid of the debt as quickly as possible, stresses Mr Evans.

"Once cleared, he should close down, or at least reduce, the lines of credit open to him to help with this."

One option is debt consolidation.

"This gives a clear and definite end to the debt by structuring the loan so it is affordable in one pot – although it doesn't tackle his propensity to rack up debt and Jonathan must be aware of the disadvantages."

Saving for a rainy day

Once his debt has been reduced or wiped out, he can set aside money for an "emergency fund" for use should he need it.

A cash individual savings account is the sensible option for this, allowing interest to build up tax-free with an annual allowance of £5,640 for the 2012-13 tax year.

If he is disciplined, there is every chance he has the potential to build up a deposit to buy a property later down the line, stress the advisers, as his salary should increase as his career progresses.

Retirement planning

As Jonathan approaches 30, he should consider pension planning.

With a bleak, economic landscape and rising financial pressures to contend with, this should be a priority. People are living longer and enjoying a lengthy retirement – so the earlier he starts, the better.

"Jonathan is late in starting to save for his retirement," says Mr Evans. "Small amounts now will be easier to manage, and, of course, he will then have a longer period over which his money will be able grow.

"I would encourage him to start saving as soon as possible."

Despite no access to an employer scheme, he may wish to contribute to a low-cost, personal pension rather than wait for auto-enrolment. This will be phased in from October, and companies with the largest number of employees will be first. The employee will pay 4 per cent of their salary and the employer 3 per cent, in addition contributions will attract 1 per cent tax relief.

While the details are still emerging, Mr Evans said we know that by the end of 2016 Jonathan should be able to join a company pension scheme – but he may not want to wait that long.

Suggested Topics
News
Denny Miller in 1959 remake of Tarzan, the Ape Man
people
Arts and Entertainment
Cheryl despairs during the arena auditions
tvX Factor review: Drama as Cheryl and Simon spar over girl band

News
Piers Morgan tells Scots they might not have to suffer living on the same island as him if they vote ‘No’ to Scottish Independence
news
News
i100Exclusive interview with the British analyst who helped expose Bashar al-Assad's use of Sarin gas
PROMOTED VIDEO
Sport
Angel Di Maria celebrates his first goal for Manchester United against QPR
Football4-0 victory is team's first win under new manager Louis van Gaal
Arts and Entertainment
art
News
newsIn short, yes
Arts and Entertainment
Rob James-Collier, who plays under-butler Thomas Barrow, admitted to suffering sleepless nights over the Series 5 script
tv'Thomas comes right up to the abyss', says the actor
Arts and Entertainment
Calvin Harris claimed the top spot in this week's single charts
music
Sport
BoxingVideo: The incident happened in the very same ring as Tyson-Holyfield II 17 years ago
News
Groundskeeper Willie has backed Scottish independence in a new video
people
Arts and Entertainment
The Doctor poses the question of whether we are every truly alone in 'Listen'
tvReview: Possibly Steven Moffat's most terrifying episode to date
News
i100
Life and Style
Cara Delevigne at the TopShop Unique show during London Fashion Week
fashion
News
The life-sized tribute to Amy Winehouse was designed by Scott Eaton and was erected at the Stables Market in Camden
peopleBut quite what the singer would have made of her new statue...
Sport
England's Andy Sullivan poses with his trophy and an astronaut after winning a trip to space
sport
News
peopleThe actress has agreed to host the Met Gala Ball - but not until 2015
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

    £280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Senior BA - Insurance **URGENT**

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Training Coordinator / Resource Planner - City, London

    £35000 - £38000 per annum + Benefits: Ashdown Group: Training Coordinator / Pl...

    Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)

    £400 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...

    Day In a Page

    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

    Exclusive extract from Janis Winehouse's poignant new memoir
    Is this the role to win Cumberbatch an Oscar?

    Is this the role to win Cumberbatch an Oscar?

    The Imitation Game, film review
    England and Roy Hodgson take a joint step towards redemption in Basel

    England and Hodgson take a joint step towards redemption

    Welbeck double puts England on the road to Euro 2016
    Relatives fight over Vivian Maier’s rare photos

    Relatives fight over Vivian Maier’s rare photos

    Pictures removed from public view as courts decide ownership
    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    ‘Fashion has to be fun. It’s a big business, not a cure for cancer’

    Donatella Versace at New York Fashion Week
    The fall of Rome? Cash-strapped Italy accused of selling its soul to the highest bidder

    The fall of Rome?

    Italy's fears that corporate-sponsored restoration projects will lead to the Disneyfication of its cultural heritage
    Glasgow girl made good

    Glasgow girl made good

    Kelly Macdonald was a waitress when she made Trainspotting. Now she’s taking Manhattan
    Sequins ahoy as Strictly Come Dancing takes to the floor once more

    Sequins ahoy as Strictly takes to the floor once more

    Judy Murray, Frankie Bridge and co paired with dance partners
    Wearable trainers and other sporty looks

    Wearable trainers and other sporty looks

    Alexander Wang pumps it up at New York Fashion Week
    The landscape of my imagination

    The landscape of my imagination

    Author Kate Mosse on the place that taught her to tell stories