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?



The Patient

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."



The Cure

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."



Restructure debts

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.



Minimise spending

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.



Property

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."



Savings

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.



Protection policies

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 j.knight@independent.co.uk

Voices
voices
Life and Style
Upright, everything’s all right (to a point): remaining on one’s feet has its health benefits – though in moderation
HealthIf sitting is bad for your health, what happens when you stay on your feet for a whole month?
News
newsHad asteroid hit earlier or later in history, the creatures might have survived, say scientists
Arts and Entertainment
Peter Griffin holds forth in The Simpsons Family Guy crossover episode
arts + ents
PROMOTED VIDEO
Sport
Laura Trott with her gold
Commonwealth GamesJust 48 hours earlier cyclist was under the care of a doctor
Arts and Entertainment
Gal Gadot as Wonder Woman
arts + entsFilmmaker posted a picture of Israeli actress Gal Gadot on Twitter
News
Bryan had a bracelet given to him by his late father stolen during the raid
people
Arts and Entertainment
Chris Pratt stars in Guardians of the Galaxy
arts + ents
Arts and Entertainment
Pedro Pascal gives a weird look at the camera in the blooper reel
arts + entsPrince Oberyn nearly sets himself on fire with a flaming torch
News
Danny Nickerson, 6, has received 15,000 cards and presents from well-wishers around the world
newsDanny loves to see his name on paper, so his mother put out a request for cards - it went viral
Sport
France striker Loic Remy
sportThe QPR striker flew to Boston earlier in the week to complete deal
News
Orville and Keith Harris. He covered up his condition by getting people to read out scripts to him
People
Arts and Entertainment
Zoe Saldana stars in this summer's big hope Guardians of the Galaxy
filmHollywood's summer blockbusters are no longer money-spinners
Arts and Entertainment
O'Shaughnessy pictured at the Unicorn Theatre in London
tvFiona O'Shaughnessy explains where she ends and her strange and wonderful character begins
Life and Style
Workers in Seattle are paid 100 times as much as workers in Bangladesh
fashionSeattle company lets customers create their own clothes, then click 'buy' and wait for delivery
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

    Application Support Analyst / Junior SQL Server DBA

    £40000 - £45000 per annum: Ashdown Group: An established professional services...

    Senior Risk Manager - Banking - London - £650

    £600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...

    The benefits of being in Recruitment at SThree...

    £18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

    Test Analyst - UAT - Credit Risk

    £280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...

    Day In a Page

    A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

    A new Russian revolution

    Cracks start to appear in Putin’s Kremlin power bloc
    Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

    Apartheid’s sadistic killer that his country cannot forgive

    The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
    Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

    Standing my ground

    If sitting is bad for your health, what happens when you stay on your feet for a whole month?
    Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

    Greene prays for chance to rebuild after injury agony

    Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
    Israel-Gaza conflict: Secret report helps Israelis to hide facts

    Patrick Cockburn: Secret report helps Israel to hide facts

    The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
    The man who dared to go on holiday

    The man who dared to go on holiday

    New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
    Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

    Best comedians: How the professionals go about their funny business

    For all those wanting to know how stand-ups keep standing, here are some of the best moments
    The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

    The Guest List 2014

    Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
    Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

    Jokes on Hollywood

    With comedy film audiences shrinking, it’s time to move on
    It's the best of British art... but not all is on display

    It's the best of British art... but not all is on display

    Voted for by the British public, the artworks on Art Everywhere posters may be the only place where they can be seen
    Critic claims 'I was the inspiration for Blanche DuBois'

    Critic claims 'I was the inspiration for Blanche DuBois'

    Blanche Marvin reveals how Tennessee Williams used her name and an off-the-cuff remark to create an iconic character
    Sometimes it's hard to be a literary novelist

    Sometimes it's hard to be a literary novelist

    Websites offering your ebooks for nothing is only the latest disrespect the modern writer is subjected to, says DJ Taylor
    Edinburgh Fringe 2014: The comedy highlights, from Bridget Christie to Jack Dee

    Edinburgh Fringe 2014

    The comedy highlights, from Bridget Christie to Jack Dee
    Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

    Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

    The woman stepping down as chair of the Heritage Lottery Fund is worried