Wealth Check: How can I pay my debts and save for my daughter?
A single mother owes £30,000 and has no savings, but wants to give her 15-year-old a good start in life. How can she turn her situation around?
Sunday 20 March 2011
Alison Moore is struggling with the financial demands of being a single parent, but is keen to do all she can to give her 15-year-old daughter the best possible start in life. The 51-year-old from Hersham in Surrey earns £27,000 a year working as a team administrator in oil exploration, but has no money in savings and over the years has amassed debts of about £30,000.
These include a £1,750 overdraft with the Halifax which incurs a daily charge of £1, and a £1,900 overdraft with NatWest – with a monthly charge of about £25. She also owes about £8,000 on a NatWest credit card, £4,000 on an HSBC card, £3,000 on an Egg card, £2,000 on a Tesco card and £2,000 on a Santander card – all with hefty rates of interest. Aside from these, Alison pays £399 a month on a NatWest personal loan which is due to expire in about five years' time.
Now that her daughter is about to start college, Ms Moore is determined to turn things around.
"Having hit the 'big 5-0' and with my daughter leaving school and starting college, this has highlighted the need to have money set aside for her – and so that both of us can have a better quality of life," she says. "If I didn't have so much debt, I could do so much more. I'm worried that I've reached the point of no return, but hope there is time and opportunity to turn this situation around."
Ms Moore has not neglected saving completely, as she does pay into the company share plan. "I invest £100 a month into two different Save-As-You-Earn (SAYE) schemes," she says. "These started two to three years ago, and are due to mature in two to three years' time."
She also pays about £90 a month for critical illness cover and mortgage payment protection for up to 24 months, and gets life cover through her employer; while she does have a pension through her employer, she does not pay into this at present.
Ms Moore and her daughter live in a two-bed semi-detached cottage which she bought eight years ago for £219,000. Her £60,000 repayment mortgage is currently on a tracker deal with the Halifax.
"I have looked into other options to boost income, such as taking in a lodger, but there is no third bedroom," she says. "I've also tried obtaining quotes to extend the loft area, or along the side of the property, but there just isn't enough room."
Our panel of independent financial advisers (IFAs) agrees that Alison needs to focus on working out what she can realistically afford to save each month to help her to pay off her debts. They also agree that she must modify her spending habits to keep within her means to avoid ending up back in the same position.
Pay off debts
"Alison understands the need to sort out her debts," says Danny Cox from Hargreaves Lansdown. "The situation is serious and radical action is needed to resolve the problem."
He points out that the combination of minimum payments on her credit cards, mortgage, bank loan and overdraft charges are absorbing about 50 per cent of her income.
"Without action, Alison is in a vicious circle where the interest and overdraft charges will only get worse and the debts continue to escalate," he says. "Alison has to put herself in a situation where she can start to turn the vicious circle into a virtuous circle. Repaying the debt will ease the interest payments which will free up money to repay debt and so on. The first step is to cut up the cards to take any temptation out of the way."
Chris Wicks from Bridgewater Financial Planning suggests Ms Moore could consider restructuring all of her outstanding credit card debts and overdraft into a single loan and then repay this over a sensible timeframe.
"Given the equity in her house, Alison could investigate the possibility of taking a further advance on her mortgage," he says. "If her unsecured debts are added to her existing mortgage, she would still have about 50 per cent of the equity left."
He adds that even if she is not able to restructure her borrowings in this way, she should still try to pay off as much as possible, starting with the debts with the highest rate of interest.
Alison needs to sit down and look carefully at what she is spending, says Jaskarn Pawar from Investor Profile.
"Alison has about £1,600 of net income to play with each month, and needs to work out where this is going," he says. "She could do this by writing down everything that she spends, or by making use of one of the free online budgeting tools."
He adds that without controlling her cashflow, paying off her debts will be impossible. "There are ways of cutting costs on every expenditure that will all add up to something significant," he says. "And, if there are 'luxuries' such as mobile phones or cable television, these need to be cut."
Mr Cox adds that Ms Moore should check that she is getting all the benefits she is entitled to, such as child benefit and tax credits; she can do this at direct.gov.uk or her local job centre. For free debt advice, she could also contact one of the charities, such as cccs.co.uk, nationaldebtline.co.uk or citizensadvice.org.uk.
Mr Cox says Ms Moore could consider selling her house and using the equity to repay her debts.
"I appreciate this is a radical decision, but Alison could then downsize to keep the same mortgage size or rent," he says. "If this is not an option she could look at alternatives such as converting her repayment mortgage into interest-only for the short term, and use the money saved to repay her more expensive debt. However, in the longer term, she will need to find alternative ways to repay the capital."
According to Mr Cox, in an ideal world, the SAYE schemes should be left until maturity as this will provide the best potential for returns.
"However, unless something can be done with the mortgage, I don't think Alison can wait two years before they mature," he says. "It would make sense to cash these in now, and use the cash proceeds plus the £100 she is currently saving into these schemes each month to pay down borrowing."
Mr Pawar agrees that while it's important to have a sum of savings set aside for unforeseen circumstances, with this level of debt, Ms Moore needs to focus on this first – especially as the interest exceeds anything she could earn on savings.
Mr Wicks urges Alison to find out more about her employer's pension scheme and what benefits are offered. "Alison may be able to improve on her benefits by making additional contributions once she has her debts under control," he adds.
Mr Cox says Alison needs to review her protection policies.
"Given that Alison has life insurance through work, paying £90 a month to protect a £60,000 mortgage does not seem good value," he says. "She should check to see if she can get covered more effectively and more cheaply."
Do you need a financial makeover?
Write to Julian Knight at The Independent on Sunday, 2 Derry Street, London W8 5HF email@example.com
- 1 How the language you speak changes your view of the world
- 3 General Election 2015: 14-year-old boy asks Nick Clegg – 'can you kill Katie Hopkins?'
- 5 YouTube social experiment shows just how easy it is to kidnap a child
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?
In defence of liberal democracy
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
Schools forced to act as 'miniature welfare states' with teachers buying underwear and even haircuts for poor pupils
iJobs Money & Business
£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...
£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...
£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...
£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...
Day In a Page
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
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park