Wealth Check: His lenders want their pound of flesh. And that's just what they get

The problem: Three jobs but still near the breadline
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The Independent Online

After facing up to the naked truth about his finances, Lerone Clarke is juggling three jobs to stay afloat, including one as a "butler in the buff".

After graduation, the 24-year-old started working life in London with just one job, as a consultant at a PR firm. But cashflow struggles persuaded him to take on the extra work: he is now a freelance magazine art director as well, and a naked butler at swish parties. "I was asked to do the butlering at a company launch - it seemed a great opportunity to increase my income.

"I'd now like to get into a position where I'm not living close to the breadline each month. I'd also like to start saving - for both the short and longer term."

The problem is, with around £30,000 of debt, Lerone is a long way off achieving these financial goals. There's £7,000 on a Halifax personal loan at 9.9 per cent over seven years; £500 on a Monument credit card at 19.9 per cent; and £22,000 in student loans.

That last figure, £22,000, is what he earns in a year at the moment, including £200 a month from the butlering. So he finds it hard to make ends meet.

His savings are minimal: £50 in a Barclays Instant Savings account at 0.15 per cent, and £50 in a Halifax Instant Saver at 0.65 per cent.

Lerone pays £450 a month to rent a room in a three-bed flat in east London and, while he would like to buy his own property, he knows this is impossible for now.

In the short term, he wants to save money to go travelling next year. Beyond that, he hopes to build a savings pot for his later years.

He has neither a pension nor insurance policies.

The cure:

Strip your debts back to the bare essentials

There is no swift solution to Lerone's financial problems, says Warren Perry of independent financial adviser (IFA) Churchill Investments. "He needs to concentrate on paying off his borrowings and tackle the most expensive first."

Travelling is "out of the question for the foreseeable future" - unless sacrifices are made, adds Mr Perry.

Debts

Lerone should free himself of the debt carrying the highest rate - and start by transferring the balance on his Monument credit card to one with an interest-free offer, says Keith Churchouse of IFA Churchouse Financial Planning.

Cards offering 12-month zero-interest offers on transfers include Marks & Spencer Money's "& More" card and plastic from GE Life, HSBC and Virgin. But Lerone must check to see if there will be a balance- transfer fee.

Anna Sofat of IFA AJS Wealth Management says he should look to pay off his credit card debt over the next 12 months.

She also suggests he renegotiate the rate on his Halifax personal loan. "If this cannot be done, then transfer the loan to a cheaper provider - such as Abbey at 5.8 per cent or Direct Line at 6.1 per cent." Check first, though, for any early-settlement fee.

If the transfer is worthwhile, Ms Sofat recommends Lerone make the same monthly repayments but use the cheaper rate to reduce the term to five or six years.

Alternatively, suggests Mr Churchouse, he could put the money saved from lower repayments towards his travels.

The £22,000 student debt, adds Mr Perry, does not have to be repaid with any urgency because the interest rate is linked to inflation and currently very low at 3.2 per cent.

Savings/investments

While Lerone should take steps towards building an "emergency fund", there's no point saving on a large scale until his loan and card debts are cleared.

Any savings should go into a high-interest, tax-free cash individual savings account (ISA).

Mr Churchouse suggests Lerone could afford to put by £50 a month and picks out a cash ISA from the Yorkshire building society paying 5.15 per cent, and the Halifax Saver Direct ISA paying 5 per cent. "These are both instant access, so he could get his hands on the money if he needs to."

As a start, Lerone could move the money held in his two savings accounts into a higher-paying ISA.

Retirement

Saving into a pension is important but not a priority until he has cleared his loan and card debts.

But Ms Sofat suggests he could save £50 a month into a (stakeholder) personal pension plan - adding that, with tax relief, this will cost him only £39.

Lerone should also see if his employer will make contributions to a plan.

Protection

As Lerone has no dependants, there is no need for life cover. But benefits may be available through work.

Interview by Harriet Meyer

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