Wealth Check: A study in how to deal with debt
Saturday 08 April 2006
Katherine Cox, a 22-year-old philosophy student in her third and final year at Leeds University, feels financially unprepared for life after graduation in July.
Katherine eventually plans to work for a volunteering organisation in South America but, as these positions are rarely paid, she hopes to get alternative employment for the time being, at a salary of about £15,000 a year.
In July, Katherine will move back into the family home and pay £50 a month towards bills and food, though ideally she would prefer to rent. Her current spending at university is about £500 a month on living expenses, which include bills, food and going out.
Katherine has taken out student loans of £3,000 a year, totalling £9,000, the last £1,000 of which will be paid to her in May. She hopes to have the loan paid back in three years' time.
She has a First Direct bank account, which is currently £500 overdrawn, and an HSBC Student Account, which is £1,000 overdrawn. The student account is currently free but will begin charging interest once she graduates. It is £1,000 overdrawn. In addition, Katherine owes £2,000 on a First Direct credit card.
Katherine's savings are all in Premium Bonds - amounting to £3,000 - which she does not want to use to pay off her debts.
We asked three independent financial advisers for their help: Philippa Gee of Torquil Clark, Anna Bowes of Chase de Vere and Chris Holmes of One Advice.
The first and most important thing to do is to draw up a sensible budget, says Anna Bowes. She should build in an amount she can realistically afford to pay off her debts each month.
Katherine may be able to apply for a credit card offering an interest-free introductory deal, so she can focus on paying off her debt without worrying about interest, but Bowes insists that Katherine must cut up the card so that the debt does not increase.
Philippa Gee suggests Katherine sees her bank manager to discuss whether some or all of her debt could be moved into a graduate overdraft that offers an interest-free period.
Even though her outgoings are relatively low, she still needs to see where she can reduce her spending, Gee adds - an internet site such as moneysavingexpert. co.uk might have some useful tips.
Gee says Katherine's career will be her most valuable financial asset. Given that it represents her best chance of getting on top of her finances, Gee is concerned that Katherine plans to wait until July to find a job. If she does not start the application process soon, she may find that many jobs have gone and she may face the summer months without any income.
Chris Holmes adds that when Katherine has the income stability provided by employment, it would be best to convert the credit-card and overdraft debt into an affordable loan.
Katherine has a fantastic opportunity when she moves back home, says Bowes, who urges her to forget renting for a while so she can clear some debt and build up savings for her South American plans. This is important to plan and budget for, as currently, at £1,000 a year, travelling is Katherine's largest expense.
The advisers agree that Premium Bonds are not the best way to save money, and Gee suggests moving the £3,000 to a tax-efficient cash mini individual savings account. Holmes considers the money a good safety net, and recommends that Katherine at least dips into her savings so that she can make the minimum repayments on her debts until she is working.
If other financial solutions are not available to her, Gee says Katherine may have to consider selling the Premium Bonds and using the money to repay her borrowings. But once she is working, she needs to promise herself that she will start saving to replace the money she has raided.
CASE NOTES: Katherine Cox, 22, Leeds
Personal: Katherine is in the final year of her studies at Leeds University.
Income: £30 a week from her parents; £1,000 student loan, which is still to come.
Monthly outgoings: about £580 a month on general living expenses and travel.
Debt: £9,000 in student loans, including the final £1,000 still due to her; £2,000 on First Direct credit card; £1,500 in bank overdrafts on two accounts.
Savings: £3,000 in Premium Bonds.
For a free financial check-up, write to Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail firstname.lastname@example.org
Crowd-to-let: How crowdfunding sites can give investors a slice of the property market for £500
After the election: What will Britain's financial future look like on 8 May?
General Election 2015: How you vote next week could affect your finances
Beware credit card firms’ odious tricks
Five Questions On: GB Energy's new tariff
- 2 Italian police 'reveal' what Jesus looked like as a young boy
- 3 General Election 2015: 14-year-old boy asks Nick Clegg – 'can you kill Katie Hopkins?'
- 4 University student in court for allegedly covering housemates' food in window cleaner and spit
- 5 Ryan Gosling posts tribute to 'Ryan Gosling Won't Eat His Cereal' creator Ryan McHenry
In defence of liberal democracy
Over 50,000 families shipped out of London boroughs in the past three years due to welfare cuts and soaring rents
EU asylum policy is 'a direct threat to our civilisation', says Nigel Farage
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
General election live: SNP suspends two members for disrupting Labour rally
iJobs Money & Business
£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...
£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...
£215 per day: Ashdown Group: Junior Project Manager (website, web application ...
£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...
Day In a Page
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
Surrounded by the Western fells, this five-bedroom Georgian home retains many original features including panel-plastered ceilings, sash windows and fireplaces.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B, subject to change of use permissions.
A former period coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, office, kennels and an outbuilding that's currently used as a gym.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
This four-bedroom home has exposed brick chimneys and a vaulted ceiling in a breakfast room that's ideal for summer entertaining - the doors open to the patio and garden.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.
This four-bedroom cottage is a Grade II-listed town house, well-located for the thriving market town of Nailsworth.
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
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 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