Audrey Latham lives in Carnforth, Lancashire. She rents her bungalow from the local council and has few savings. Carnforth is an area of outstanding natural beauty but Audrey is five miles from the local shops and public transport is very patchy. There is a bus every two hours but Audrey has little choice but to rely on her Motability car - one of her biggest expenses is therefore petrol.
Audrey is a very active person and enjoys a busy social life including visits to her children who live about an hour away, which adds to the cost of petrol. She is a keen traveller and in the past has visited many places around the world. This year, if she can afford to, she would like to visit south-west France, but at the moment she is not sure how she will pay for the trip. Her savings certainly aren't sufficient
Audrey does occasional work as a counsellor, which has brought in an additional £100 each month but this is not a regular income. Currently, she has overdraft debts at two different banks of £900 and £750 and also credit card debt of about £500. She has not used the credit card since October 2004 and the minimum monthly repayment is now £15, though it will take several years to pay off the debt unless she can find the money to pay more than this each month.
Audrey would like some advice on how she can rearrange her finances in order to pay off the debt and put some money aside for travelling.
We put Audrey's case to three independent financial advisers: Paul Green at Saga Services, Andrew Merricks at Skerritt Consultants and Peter Fisher at the Nursing Homes Fees Agency.
Audrey can't really afford to think about saving more until she has repaid her debts - the figures just don't stack up. Currently, the best savings accounts pay around 5 per cent interest, while even cheap debt costs 7 to 10 per cent a year.
The easiest way for most older people to raise cash is to release some value from their homes, even if this means they have less wealth to pass on to children. But as Audrey does not own her house, equity release is not an option for her. Therefore, says Paul Green, her loans, credit cards and outgoings need to be reassessed to see if savings are possible.
Green says she needs to check that her personal loan does not have an early repayment penalty - if not, it may be possible to move to a better deal elsewhere because Alliance & Leicester is certainly not the cheapest lender.
Likewise, her bank overdrafts are expensive - it may be better to close one of her two bank accounts and refinance this debt on a cheap loan with structured repayments. If she is paying interest on the credit card balance, she should look to transfer this to one charging a lower rate. Audrey can freeze the cost of interest on the plastic by opting for one of the 0 per cent introductory offers that many credit card lenders still have available
If Audrey's outgoings are reduced she should consider making additional repayments to reduce her debts more quickly. Before she can comfortably consider travelling, she needs to pay off her debts, or at least reduce them to a level where she has more flexibility each month.
She can then save with some confidence for her holiday, perhaps using an account where she has some certainty of the return and instant access.
Andrew Merricks says that according to the figures listed, Audrey has around £20 left over at the end of each month. He questions her spending £12 a month on Axa life insurance - as she has no dependents, does she really need this cover? If the insurance is a funeral plan, is it really worth spending that amount on something from which she is clearly not going to benefit from personally?
Another major expense is Audrey's phone bill, which at £42 a month is on the high side. She needs to explore all the offers available for friends and family and weekend call discounts. It may be possible to move to a cheaper supplier - a price war in the home phone sector has made it much easier to cut the cost of phone calls in recent times.
Audrey's car appears to be essential to her quality of life so it would be hard to recommend a reduction in these expenses says Merricks. But the occasional bus journey might save some money.
Also, when all her insurance policies come up for renewal she should shop around to see if she can find cheaper premiums. Even if she does this one policy at a time, as cover comes up for renewal, over time the savings will stack up.
Peter Fisher says Audrey should be eligible to claim the following means tested benefits: housing benefit of £9.71 and council tax benefit of £1.05 a week plus a one-off refund of council tax of £200 paid in September. He says these could deliver a monthly saving of £100 plus an additional one-off saving of £200.
This could make a huge difference to Audrey's finances and to her general well-being. The case highlights the "poverty trap" affecting many retired people and should serve as a warning for anyone who thinks the state will provide.
People with debt problems can get free and impartial advice from Citizens Advice. It can assist with prioritising debts and by speaking to lenders about making debt repayments more manageable. Get contact details at www.adviceguide.org.uk or under "C" in the phone book.