Wealth Check: 'Help me get rid of bad habits and find some stability'

Our experts praise freelance producer Holly Adams' efforts to prioritise paying off her overdraft and student loan, as well as what she owes on credit cards

The patient

Holly Adams, 32, from Ealing Broadway, west London, is seeking advice on how to manage debt and get a grip on her finances. She works as a freelance celebrity producer for ITV, earning around £65,000 a year. However, while she was climbing the career ladder she found the cost of London life saw her sink into debt.

"I'm sure I'm similar to others when I say that I didn't have any guidance on managing money when I was younger and fell into bad habits, and didn't monitor my spending when I started working in London," she says. "I wasn't managing my debt effectively until recently, and I'm seeking advice on this."

This has resulted in Holly amassing around £45,600 worth of debt. She is saddled with an overdraft of £1,500 on her HSBC current account at a rate of 19.9 per cent. She also pays £302 a month for a £5,800 graduate loan, also with HSBC, at 7.9 per cent.

She has built up credit-card debt, with £6,500 on an MBNA card at 15.9 per cent, and £12,300 on another with the same provider, also at 15.9 per cent. In addition, she owes £7,000 on a Halifax credit card on an interest-free balance transfer deal until September this year.

After buying a new Mini she pays £394 a month for a car loan, with around £12,500 left to repay over 38 months at 10.1 per cent with Mini Financial Services.

"I've been trying to blitz my debt by paying it off in substantial amounts each month – around £1,200 per month sometimes," says Holly. "But I'm not sure how I should best be wiping it out."

She hasn't yet stepped onto the property ladder, and rents a room in a three-bed house for £630 a month, paying an extra £130 for bills.

"I'd love to eventually own my own place in London, but I'm not lucky enough to have parents who are in a position to help me with a deposit like other friends," she says.

"I'm aware that there are schemes to help first-time buyers, and it would be good to know what my options are and how much I need to save."

While Holly has yet to build up short-term savings for emergencies, she has set aside £6,000 for a tax bill due at the end of this month.

"It makes me feel good that I'm paying off my debt, but I suppose it's a tricky situation because by trying to wipe this out I struggle to meet my tax bill, and also I haven't been able to save in general," she says.

She doesn't have a pension or any protection policies in place.

"My mother is in her sixties, and she worries constantly about how she will afford retirement as she doesn't have a pension – I'd like to be able to help, but really don't know what the best course of action is for her or for me."

The cure

Our panel of independent financial advisers (IFAs) agree that Holly is wise in prioritising her debts, as tackling these is essential before she considers other goals.

While considering pension provision and a property purchase is important, Robert Forbes, from Plutus Wealth Management, says: "It is good that she is thinking about the future, but she needs to gain control of the present before making any longer-term commitments."

Clear the debts

Holly should focus on paying off the debt with the highest interest rate first, which includes her credit-card debt and overdraft.

She also needs to work out a budget and ensure she is not adding to the problem by living beyond her means each month.

"She should make a list of what she spends her money on, and work out her rough monthly expenditure," says Mr Forbes.

Over time Holly should see a significant boost to her bank balance by making small changes to her lifestyle.

Build up cash savings

There is little point in having savings if the interest earned is less than the amount paid on debt.

However, saving towards her tax bill rather than taking on more debt to cover this is a sensible first step.

Yet everyone needs spare cash to meet short-term emergencies or requirements. Holly should build up an additional pot after tackling her debts of around three months' salary, stresses Mr Forbes.

When she does have cash to set aside she can put up to £5,640 in a cash individual savings account (ISA) in the current tax year, as all interest earned is tax free. Using a comparison site, such as moneyfacts.co.uk, will help her find the best rates.

Dealing with tax liability

Simon Webster from IFA Facts and Figures stresses that Holly should make sure she has claimed for all business expenses as a freelancer, such as car-loan interest payments if she uses her vehicle for work, and an allowance for working from home if this applies.

"It also might be worth Holly setting up a limited company – depending on how many sources of income she has," he adds. "She should speak to an accountant with clients in her field to make sure she is paying the right amount of tax, as if she is paying too much this would free up some cash to pay down debt, or make savings."

Consider protection policies

Scott Gallacher from Rowley Turton adds: "Holly needs to protect what she already has – her income – as the financial consequences of her being unable to work due to ill health would be disastrous as she has significant debt and no savings."

He recommends that she consider an income-protection policy to provide her with a benefit of £2,000 per month to cover her bills, loan repayments and living expenses should she be unable to work due to long-term illness or disability.

Buying a first property

Wiping out debt will make her a more appealing proposition to lenders, and then she can start saving towards a deposit.

Mr Webster believes buying a property should be on the list before ploughing money into a pension.

To make getting onto the first rung of the ladder more affordable she could consider buying outside London and renting out the property, or look to purchase with a friend.

There are also schemes available to give her a leg-up onto the property ladder, such as the FirstBuy scheme. This offers the chance to buy a home with the assistance of a 20 per cent equity loan alongside a mortgage and deposit. The buyer does not have to make payments on the equity loan portion for five years.

However, Mr Webster adds: "This scheme is only available to those whose household income is less than £60,000. At present Holly doesn't qualify, but forming a limited company may help reduce the income she takes and give her this option."

She should aim to save at least 10 per cent of the property value. As a first-time buyer she could get a 95 per cent mortgage, but the rates would be uncompetitive at present.

Saving for retirement

How Holly plans to save towards retirement should be an important consideration.

She could start contributing even a small sum to a personal pension plan, alongside stocks and shares ISAs, but the advisers agree this isn't currently top of her to-do list.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Software Development Manager

    £40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Product Manager - (Product Marketing, Financial Services)

    £30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Recruitment Genius: Compliance Assistant

    £13000 per annum: Recruitment Genius: This Pension Specialist was established ...

    Ashdown Group: Market Research Executive

    £23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

    Day In a Page

    Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

    Isis hostage crisis

    The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
    Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

    The runaway buccaneers and the ship full of gold

    Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Maverick artist Grayson Perry backs our campaign
    Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

    Assisted Dying Bill: 'I want control of my life'

    This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
    Move over, kale - cabbage is the new rising star

    Cabbage is king again

    Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
    11 best winter skin treats

    Give your moisturiser a helping hand: 11 best winter skin treats

    Get an extra boost of nourishment from one of these hard-working products
    Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

    Paul Scholes column

    The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
    Frank Warren column: No cigar, but pots of money: here come the Cubans

    Frank Warren's Ringside

    No cigar, but pots of money: here come the Cubans
    Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

    Isis stands strong as its numerous enemies fail to find a common plan to defeat it

    The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

    Virtual reality: Seeing is believing

    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
    Homeless Veterans appeal: MP says Coalition ‘not doing enough’

    Homeless Veterans appeal

    MP says Coalition ‘not doing enough’ to help
    Larry David, Steve Coogan and other comedians share stories of depression in new documentary

    Comedians share stories of depression

    The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
    Has The Archers lost the plot with it's spicy storylines?

    Has The Archers lost the plot?

    A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
    English Heritage adds 14 post-war office buildings to its protected lists

    14 office buildings added to protected lists

    Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Scientists unearthed the cranial fragments from Manot Cave in West Galilee