Wealth Check: 'I want to buy a house, but first I need to cut my debts'
Saturday 14 August 2004
Laura Kane has been a personnel administrator at a building society for a year and is about to start studying for a personnel qualification, sponsored by her employer. Before that, she worked at Tesco and Vodafone and studied for a year.
She recently moved back with her parents after her boyfriend was made redundant but wants to save to buy a house with her partner. First, though, Ms Kane wants to cut her debts. She has a large credit-card balance as she transferred a more expensive car loan to the card. She wants to cut the balance, but she also needs to make sure she has a good deal now and frequently changes credit cards to take advantage of special-rate offers. She is worried that this could affect her credit rating.
Ms Kane, who loves cars and motor sport, sets aside money to cover the car tax and insurance premiums.
We put her case to Justin Modray at BestInvest, Patrick Connolly at John Scott and Partners and Jennifer Storrow at Gee & Company.
LAURA KANE, 24, PERSONNEL ADMINISTRATOR
Education: Completed one year at university but did not obtain a degree.
Debt: Student loan, 3.9 per cent, £2,500. One credit card, 3.9 per cent fixed until balance cleared. About £8,000 owing, repaying £300 per month. Overdraft £850.
Savings: One savings account, paying in £100 per month, 4.67 per cent.
Investments: Holds around 1,000 shares in Vodafone and Tesco.
Mr Modray says that although Ms Kane has been able to find a deal with a low interest rate for her main debt, it will still take around two-and-a-half years to clear her credit card balance at her current repayments of £300 a month. She also has an overdraft.
The first priority should be for her to clear her overdraft, Mr Modray says, if her bank charges interest. She could consider selling her shares in Vodafone and Tesco to cut down her borrowing.
Mr Connolly agrees, saying that for Ms Kane to have such a large proportion of her savings in just two shares is highly risky. At current market prices, selling the shares should raise around £3,700. Ms Kane could then look to redirect her monthly savings of £100 a month to debt repayments. It might also be possible to pay off more, if she reviews outgoings such as gym membership.
Ms Storrow points out that although Ms Kane is making progress paying off her student loan, her other debts will continue to dog her wherever she goes. In particular, high debts will make it much harder for Ms Kane to find a competitive mortgage. But she says that it is missing monthly repayments, rather than the number of cards Ms Kane holds, that affects her credit rating
SAVINGS AND PENSION
Ms Kane's savings earn slightly less than her debt costs her, once income tax is taken into account. Mr Connolly says that any money Ms Kane has left after debt repayments could work harder. An Isa pays interest tax-free, and Abbey's postal Isa pays 5.1 per cent.
Mr Modray says that Ms Kane could use her savings to pay off some credit card debt, though if she relies on some of that money to run her car, her options are reduced.
Ms Storrow points out that the early pension contributions Ms Kane is making now will be the ones that work the hardest for her in the long run. However, an occupational pension scheme - if her employer offers one - might be a better bet than one dependent on the financial markets.
Mr Modray argues that as Ms Kane's employer does not currently put any funds into her pension, it puts more pressure on her investments. She should look for a good long-term fund, possibly investing in the global stock markets, and try to increase her pension contributions over time.
SPENDING AND BUYING A HOUSE
If Ms Kane does want to buy a house, with or without her partner, she needs to do two things: cut debt and save a deposit. This, our panel warns, will mean tough choices.
Ms Kane should not give up her pension payments, and she needs to divert her current savings to debt repayments, so she needs to look elsewhere for extra money.
Mr Connolly says that the gym membership is only good value if Ms Kane is a regular visitor, and Ms Storrow says it is one expense she really should consider doing without. She goes further: if Ms Kane sold her car, she would cut a large chunk off her debt. If she bought a bike instead, she could combine cost savings with fitness.
And, although Ms Kane might be anxious to buy a house now, Ms Storrow says paying off debts is more important: waiting a couple of years longer to start on the property will not make much difference over the long term.
Bargain Hunter: Getting your hands on these baby goodies is child's play
Problem gambling: Amid heavy advertising and a surge in remote sports betting, more and more 16 to 24-year-olds are now seen as 'at risk'
10 tips for taking out a personal loan
The HiFX guide to managing corporate foreign exchange and international payments
The Cyprus dream becomes a nightmare
- 1 Christians: The world's most persecuted people
- 2 Israel-Gaza conflict: The secret report that helps Israelis to hide facts
- 3 Thatcher ‘was warned of Tory child sex party claims’
- 4 Lauren Goodger sex tape: Reality star calls for tougher laws on revenge porn after intimate video leaks online
- 5 The Simpsons Family Guy trailer: First look at crossover episode after Comic-Con debut
Israel-Gaza conflict: The secret report that helps Israelis to hide facts
A day in the life of Vladimir Putin: The dictator in his labyrinth
Opponents of Israel's military operation in Gaza are the real enemies of Middle Eastern peace
Were 'Poor Doors' added to mixed developments so wealthy residents don't have to go in alongside social housing tenants?
Arizona execution lasts two hours as killer Joseph Wood left 'snorting and gasping' for air
Malaysia Airlines MH17 crash: Massive rise in sale of British arms to Russia
iJobs Money & Business
£28000 - £32000 per annum: Ashdown Group: Training/Learning and Development Co...
£28000 - £32000 per annum + benefits: Ashdown Group: Training Programme Manage...
£30000 - £45000 per annum: Harrington Starr: A Global Financial Service Organi...
£30000 - £40000 per annum + Bonus+Benefits+Package: Harrington Starr: C# Web d...
Day In a Page
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
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar