Wealth Check: 'I can't make a dent in my card debt'


The problem: How can a graduate get rid of a £17,000 burden?

Since graduating and moving to London five months ago, Emily Taylor, 22, has been adjusting to the high cost of living - while also trying to pay off her debts.

She currently owes £3,850 on a Virgin credit card, £3,000 on a Mint card and £150 on a Capital One card - all at 15.9 per cent. On top of this, she has to repay £10,000 in student loans

Emily regularly switches cards to take advantage of interest-free periods but would like to get rid of these debts altogether. At the moment, she only makes the minimum monthly repayments.

"I wonder whether I should consolidate all my card debts [into one loan] and pay off more each month." she says.

The problem is that she can't obtain a high enough credit limit on any one card to be able to switch all her debts on to it. "It means I end up taking out more cards and have to pay balance-transfer fees."

Emily earns £18,000 as a public relations consultant but, with no savings to fall back on, she finds it tricky to make ends meet in London. To this end, she makes full use of the £1,750 overdraft on her HSBC graduate account every month. This is interest-free up to £750 and 14.8 per cent above that.

She also has another outstanding overdraft of £500 - interest-free - on a NatWest graduate account.

Emily pays £400 a month to rent a room in a two-bed flat in north London. While she has considered buying her own property, she's aware this is not possible at the moment.

In the short term, she wants to save money to go travelling next year. "I think work might be too hectic for me to be able to go abroad for long, but three weeks in South America would be great," she says.

Emily is not contributing to a pension scheme and has no protection policies in place.

The cure: Cut your spending and step up the repayments

Getting rid of her debt will be tough but it is manageable, our panel of independent financial advisers (IFAs) agree.

Adrian Kidd from IFA Mint Financial Planners recommends she look at her last three months of bank statements to see where money can be saved. "After servicing her debts [each month], she needs to address her over-spending. With time and discipline, she can cut this right down."

Once she has done this, she can increase her monthly repayments and consider consolidating the credit card debt into a low-interest personal loan.

Debts

Given her salary and outgoings, says Mike Pendergast of IFA Zen Financial Services, Emily should be able to pay off an extra £50 to £100 each month.

"[She should] focus on the borrowings that carry the highest interest rate, starting with the Virgin card [which has the biggest outstanding balance]," says Mike Marigold from IFA Montgomery Charles Financial Management. Emily could then take out a personal loan to consolidate her most expensive debts. Direct Line, for example, offers a much lower interest rate of 5.6 per cent.

Emily must move beyond just paying off the interest each month, Mr Marigold stresses. "It's all very well switching from one deal to another, but if you're not actually repaying and reducing that debt then it will still hang over you."

As the interest rate on student loans is low and linked to inflation - currently just 3.2 per cent - Emily can continue repaying this gradually.

Savings

Once she has dealt with her debt, Emily should make use of a high- interest, tax-free cash individual savings account (ISA) to build an "emergency" fund equal to three months' pay.

Bradford & Bingley's instant access eSavings ISA, for example, currently pays 5 per cent on balances of £1 or more.

For her planned overseas trip, Mr Kidd recommends that Emily open a separate account and make regular savings into it. "She should not succumb to the temptation to pay for the holiday on her credit card."

Property

When Emily is eventually in a position to buy a property, she could consider a shared-ownership scheme such as one run by a housing association, says Mr Marigold. "She would own 25 per cent of her new home, say, and then pay rent on the balance. This is a good way of getting a foot on the ladder."

Retirement

Mr Marigold recommends that Emily find out if her employer will make contributions to a pension plan on her behalf.

Protection

As Emily has no dependants, there is no need for life cover. But she should check if benefits such as income protection are available through her work.

Interview by Harriet Meyer

If you would like a makeover, write to Sam Dunn at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or email s.dunn@independent.co.uk

PROMOTED VIDEO
Arts and Entertainment
Under the skin: Sarah Kane in May 1998
theatreThe story behind a new season of Sarah Kane plays
Arts and Entertainment
Preening: Johnny Depp in 'Mortdecai'
filmMortdecai becomes actor's fifth consecutive box office bomb
Sport
Bradford City's reward for their memorable win over Chelsea is a trip to face either Sunderland or Fulham (Getty)
football
News
Lars Andersen took up archery in his mid thirties
video
Voices
Focus E15 Mothers led a protest to highlight the lack of affordable housing in London
voicesLondon’s housing crisis amounts to an abuse of human rights, says Grace Dent
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

    Ashdown Group: Client Services Manager - Relationship Management - London

    £30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...

    Recruitment Genius: Credit Controller / Customer Service

    £18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...

    Guru Careers: In-House / Internal Recruiter

    £25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...

    Recruitment Genius: Tax Assistant

    Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

    Day In a Page

    Woman who was sent to three Nazi death camps describes how she escaped the gas chamber

    Auschwitz liberation 70th anniversary

    Woman sent to three Nazi death camps describes surviving gas chamber
    DSK, Dodo the Pimp, and the Carlton Hotel

    The inside track on France's trial of the year

    Dominique Strauss-Kahn, Dodo the Pimp, and the Carlton Hotel:
    As provocative now as they ever were

    Sarah Kane season

    Why her plays are as provocative now as when they were written
    Murder of Japanese hostage has grim echoes of a killing in Iraq 11 years ago

    Murder of Japanese hostage has grim echoes of another killing

    Japanese mood was against what was seen as irresponsible trips to a vicious war zone
    Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

    Celebrities call on David Cameron to take more Syrian refugees

    One young mother tells of torture by Assad regime
    The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

    The enemy within

    People who hear voices in their heads are being encouraged to talk back
    'In Auschwitz you got used to anything'

    'In Auschwitz you got used to anything'

    Survivors of the Nazi concentration camp remember its horror, 70 years on
    Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

    Autumn/winter menswear 2015

    The uniforms that make up modern life come to the fore
    'I'm gay, and plan to fight military homophobia'

    'I'm gay, and plan to fight military homophobia'

    Army general planning to come out
    Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

    What the six wise men told Tony Blair

    Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
    25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

    25 years of The Independent on Sunday

    The stories, the writers and the changes over the last quarter of a century
    Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

    Homeless Veterans appeal

    As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
    Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

    Smash hit go under the hammer

    It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
    Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

    The geeks who rocked the world

    A new documentary looks back at origins of the computer-games industry
    Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

    Belle & Sebastian is taking a new direction

    Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea