Wealth Check: 'I can't make a dent in my card debt'
Sunday 23 July 2006
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.
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.
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."
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."
Mr Marigold recommends that Emily find out if her employer will make contributions to a pension plan on her behalf.
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 email@example.com
- 1 Asteroid narrowly scrapes past Earth: how to watch the closest space rock for decades as it flies by
- 2 Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
- 3 The enemy within: People who hear voices in their heads are being encouraged to talk back
- 4 British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
- 5 Watch Richard Dawkins read his own hatemail: 'I hope you do get sodomised by satanic monkeys in hell'
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
Greece elections: Syriza and EU on collision course after election win for left-wing party
British Muslim school children suffering a backlash of abuse following Paris attacks
Islamic history is full of free thinkers - but recent attempts to suppress critical thought are verging on the absurd
Leaked documents show Ukip leaders approve NHS privatisation once it becomes more 'acceptable to the electorate'
iJobs Money & Business
£30000 - £32000 per annum + benefits : Ashdown Group: A highly successful, int...
£18000 - £20000 per annum: Recruitment Genius: This rapidly expanding business...
£25 - 28k + Bonus: Guru Careers: An In-house / Internal Recruiter is needed to...
Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...
Day In a Page
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village