Wealth Check: 'How will I live with all this debt?'
Saturday 15 April 2006
Joanne Walker, a 29-year-old taking a postgraduate course in journalism at Cardiff university is dreading the financial struggle she faces on graduation.
Like thousands of students, Joanne has a serious debt problem. Although she accepts responsibility for her predicament, she feels a little cheated by the system that made it so easy to get there in the first place.
"The banks positively bend over to help you out by increasing your overdraft limit, credit-card companies invite you to jump on their bandwagon and, perhaps most worryingly of all, the Government condones student loans which, for me and many others, represent the largest segment of debt," she says.
In June, Joanne hopes to get a job as a magazine journalist with an average starting salary of around £15,000. Her current spending at university is about £700 a month on living expenses including bills, going out and food. Since so many magazines are London-based it is likely that this is where she will start work, which concerns her as wages in the capital are not usually high enough to offset higher living expenses.
Joanne has taken out student loans of £3,000 a year amounting to £12,000. Since she has other debts to deal with, she will defer repayment of this sum, on which the interest rate is only 3.2 per cent, until she has started earning at least £24,137, at which threshold she must start repaying.
Joanne has no savings but is keen to get a mortgage as soon as she can. She would also like to start paying towards a pension.
We asked three independent financial advisers for help: Justin Modray of Bestinvest, Marcus Hodges at Savills Private Finance and Ashley Clark at Needanadaviser.com.
Personal: Joanne is about to complete a postgraduate diploma at Cardiff University.
Income: £100 a week from her parents and grandparents (until completion of diploma).
Monthly outgoings: about £700 a month on general living expenses and travel.
Debt: £12,000 in student loans; £6,500 career development loan with Barclays Bank; £5,000 graduate loan and overdraft, also with Barclays.
Justin Modray says that Joanne's priority has to be clearing her loans since the interest charged will compound the problem. This is not going to be easy when you consider that, earning £15,000 a year, she'll end up with around £1,000 a month after tax and National Insurance. This won't leave her much to live on after meeting debt repayments of £400 a month relating to a career development loan and overdrafts.
Joanne's biggest hope is self discipline, he says. The solution to paying off debts is to cut outgoings to the bone and use any surplus income to clear debts as quickly as possible.
Ashley Clark says assuming a starting salary of £15,000, Joanne's debts will be unmanageable. She should reduce interest costs as early as possible by shopping around for banks with low rates rather than settling for the one she started with, as so many students do.
Loan rates at Cahoot and Northern Rock are 5.8 per cent, compared with the 12.9 per cent she would pay were she to stick with Barclays. To make monthly payments more bearable he suggests taking out loans over five or 10 years, which would reduce payments to £125 or £72 respectively.
Marcus Hodges says Joanne will be in a far better position to take out a mortgage once she has cleared her debts. Not doing so would mean she wouldn't be able to borrow so much in the first place. Most lenders take outgoings as well as income into account when deciding on the amount you can borrow so this is crucial.
Once her debts are cleared, if she is earning £15,000, any mortgage within Joanne's grasp would be limited. Northern Rock's Together mortgage, which allows borrowers 4.8 times their income, would give her a mortgage of up to £72,000.
Some graduates seek the help of their parents, either with a deposit or asking them to be guarantors, says Hodges. If they are happy to help, he says, her parents would apply for a joint mortgage with her. But they must be prepared to step in if she were unable to pay.
Modray says that Joanne's best bet is to start saving as much as is practical once her debts are cleared. A stakeholder pension would be a good starting point if her first employer does not have an occupational scheme for staff.
For a free financial check-up, write to Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail cash@ independent.co.uk
- 1 Reader dilemma: 'Our son is 34 with an IQ of 85, and spends all his time in his room. What will happen to him when we're no longer here?'
- 2 Tunisia hotel attack: Locals form 'human shield' to protect hotel from gunman Seifeddine Rezgui
- 3 Russian officials ban yoga because it's too much like a religious cult
- 4 German ethics council calls for incest between siblings to be legalised by Government
- 5 Ginger Pride festival to take place next summer, organisers say 'time of bullying gingers is over'
The moment a Queen's Guard soldier lost it and drew his gun at annoying tourist
Greece crisis: The wider lesson is that it’s time to abandon this failed experiment in currencies
'I wish the BBC would stop calling it Islamic State' – David Cameron unleashes frustration at broadcaster
Greece crisis: IMF was pushed around by Angela Merkel and Nicholas Sarkozy – and now it is being humiliated
Pentagon accuses Russia of 'playing with fire' over nuclear threats towards Nato
They are neither a 'state' nor 'Islamic': Why we shouldn't call them Isis, Isil or IS
iJobs Money & Business
£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....
£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...
£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...
Negotiable: Recruitment Genius: This extremely successful and well-established...
Day In a Page
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
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.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
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 six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.
Spanning three storeys, this late-Victorian five-bedroom farmhouse is a spacious family home with a modern interior and B&B potential.
With an original church arch, this triplex one-bedroom church conversion has a light, spacious, feel and comes with a secure off-street parking space.
This recently-refurbished three-bedroom home has bi-folding doors that lead out to a decked seating area - ideal for alfresco dining this summer.
Well-located for coastal walks and popular restaurants, this detached four-bedroom home offers views over farmland, to the Solent, the Purbecks and Bournemouth.
If you love high ceilings, school conversions like this one are bang on the money. This two-bedroom flat is minutes from Burgess Park and the foodie haven at Borough Market.
Set within a church conversion in Bermondsey, this two-bedroom maisonette combines existing features, such as original arches and brickwork, with a contemporary finish.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
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.
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.
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.
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 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.