Wealth Check: 'Being in debt could ruin my plans for sanctuary'

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The Independent Online

When the stresses of work get on top of Samantha Morley she returns home to soak up the tranquillity of Windsor Great Park, which sits almost on her doorstep.

"It's gorgeous, it's my sanctuary," says the 24-year-old PR executive. She commutes to work in central London from her home in Berkshire daily, but although the journey takes more than an hour each way, she is happier living outside the capital. "I used to live in Ealing, west London, and everything was so expensive," she says. "Now I save a lot more money. For instance, instead of paying high gym fees, I just go for a jog around the park."

After university, Ms Morley taught English in Japan for a year. Since returning she has been working in public relations. "I draft PR strategies, try to get my clients in the press, and keep up with the latest developments," she says. She is presently working with a technology company, Damovo, and a health care company, HSA.

She now lives with her boyfriend, a sales manager, in a converted Victorian house in the town, and pays £400 a month rent. It is one of Ms Morley's long-term goals to buy her own house. "I'd consider staying in Windsor," she says, "there's lots of young people there, and I was brought up just down the road in Burnham."

When she returned from her job in Japan, Ms Morley made a concerted effort to pay off her debts, but they have since crept up again. They include £1,600 on an Egg credit card, a £3,000 graduate loan and about £4,000 in student loans. She also has a £1,500 overdraft. She would like to know the quickest way to clear her debt and is worried about her credit rating.

"During my student days I managed my money abysmally," she says, "and I think this could affect me when I try to buy a car or take out a mortgage for a house."

Her employer does not have a pension scheme, so she is keen to set up her own and would like to know how much it would cost. "I know I have to start saving," she says, "so what options would I have, bearing in mind that I wouldn't be able to put aside a great deal at the moment?"

In the next few months, Ms Morley would like to learn to drive. "Unfortunately, driving lesson are expensive," she says, "but I'd like to drive to work and it would give me more independence generally."

We asked Anna Sofat of Fiona Price & Partners, Mark Loydall of Cambourne Financial Planning, Ray Boulger of Charcol in London, Paul Willans of Blick Rothenberg, and Nick Breton of The MarketPlace, about any advice they would have for Ms Morley.


Occupation: PR executive for The Big Group;

Salary: Basic rate tax payer;

Debts: £1,600 Egg credit card; £1,500 overdraft; £3,000 graduate loan; approx £4,000 student loans;

Savings: None;

Pension: None;

Property: Renting flat with boyfriend in Windsor;

Outgoings: (per month) rent £400; travel £210; council tax £95; graduate loan £125; phone £80-£100; gas £10; electricity £20; water £20; food £55; student loan £90; going out £200 to £300; miscellaneous £100.

Solution 1: Expenditure

Mr Breton says Ms Morley has to make some cutbacks or she will increase her debts. If she lived nearer work it could save her about £200 per month on travel alone, although this may be offset by higher renting costs.

Mr Boulger says Ms Morely's monthly phone bills are very expensive. She should look into changing her mobile phone and landline tariffs, as she could be entitled to more free calls. It is also worth asking a friend or parent if they will give her driving lessons, rather than paying a private instructor.

Ms Sofat says Ms Morley should review the amount she spends on socialising and keep herself to a tight budget of £200 a month for going out

Solution 2: Debt

Mr Loydall says Ms Morley should consider arranging a personal loan. These often have lower rates than credit card or overdraft charges, and would enable her to fix her debt, draw a line under it and make a plan to pay it off in a fixed period. Egg's standard rate for a personal loan above £5,000 is 7.9 per cent, whereas their credit card rate is 13.9 per cent.

Regarding Ms Morley's credit rating, he says that most institutions use a points-scoring system for credit underwriting: the more points you score the less credit risk you are considered to be. Most of the points centre on simple things, as all the company is looking for is financial stability and the ability to pay. Points are scored for the amount you earn, the length of time you have lived at your current address, if you have had credit cards or other debt and how this has been handled, occupation, and marital status. If Ms Morley wants to look at her credit rating she can get a copy by writing to one of the credit reference agencies, such as Experian.

Mr Willans says the rate of interest on student loans is based on the Retail Price Index (3.1 per cent at present). Ms Morely can defer payments but he thinks she should start paying it off within the next year.

Ms Sofat says Ms Morley should replace her Egg credit card with one which offers an interest-free period of at least six months.

Solution 3: Savings

Mr Willans says if Ms Morley were to save £100 each month, she could accumulate in excess of £7,500 by the age of 30. He suggests she builds up a small cash nest egg to provide for emergencies and short to medium-term occasional costs: ideally, three months' net salary. These savings could be in a tax-free cash Isa. Northern Rock is offering an attractive 4.1 per cent. In due course, she should aim to have some exposure to the stock market, perhaps through a maxi Isa or an investment trust savings plan.

Mr Boulger says the simplest option is to invest in a savings account. ING Direct offers 4.1 per cent, one of the better interest rates for an instant-access savings account. Different rates and terms are available for instant-access accounts or those requiring notice to make a withdrawal.

Solution 4: Pension

Mr Breton says Ms Morley should look into a stakeholder pension. Charges are capped at 1 per cent per year, and are very flexible. She could stop, re-start or vary her monthly contributions and can start from as little as £20 a month.

Mr Willans says that if her employer has at least five employees, she should be able to join a workplace stakeholder scheme. It is possible that her employer will contribute to the scheme. She will not be able to access the fund for 30 years.

If you would like to be given a financial health check-up, write to: Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk.

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