Wealth Check: 'How will I live with all this debt?'

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.

Case notes

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.

Savings: none

DEBT

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.

MORTGAGE

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.

PENSION

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

News
A 1930 image of the Karl Albrecht Spiritousen and Lebensmittel shop, Essen. The shop was opened by Karl and Theo Albrecht’s mother; the brothers later founded Aldi
people
Arts and Entertainment
Standing the test of time: Michael J Fox and Christopher Lloyd in 'Back to the Future'
filmA cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
Arts and Entertainment
Flora Spencer-Longhurst as Lavinia, William Houston as Titus Andronicus and Dyfan Dwyfor as Lucius
theatreThe Shakespeare play that proved too much for more than 100 people
News
exclusivePunk icon Viv Albertine on Sid Vicious, complacent white men, and why free love led to rape
PROMOTED VIDEO
Arts and Entertainment
Stir crazy: Noel Fielding in 'Luxury Comedy 2: Tales from Painted Hawaii'
comedyAs ‘Luxury Comedy’ returns, Noel Fielding on why mainstream success scares him and what the future holds for 'The Boosh'
Life and Style
Flow chart: Karl Landsteiner discovered blood types in 1900, yet scientists have still not come up with an explanation for their existence
lifeAll of us have one. Yet even now, it’s a matter of debate what they’re for
Arts and Entertainment
'Weird Al' Yankovic, or Alfred Matthew, at the 2014 Los Angeles Film Festival Screening of
musicHis latest video is an ode to good grammar. But what do our experts think he’s missed out?
Sport
New Real Madrid signing James Rodríguez with club president Florentino Perez
sportColombian World Cup star completes £63m move to Spain
Travel
Hotel Tour d’Auvergne in Paris launches pay-what-you-want
travelIt seems fraught with financial risk, but the policy has its benefits
Arts and Entertainment
booksThe best children's books for this summer
Life and Style
News to me: family events were recorded in the personal columns
techFamily events used to be marked in the personal columns. But now Facebook has usurped that
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

    Programme Director - Conduct Risk - London

    £850 - £950 per day: Orgtel: Programme Director - Conduct Risk - Banking - £85...

    Business Analyst (Agile, SDLC, software)

    £45000 - £50000 Per Annum + excellent benefits: Clearwater People Solutions Lt...

    Finance Manager - Bank - Leeds - £300/day

    £250 - £300 per day + competitive: Orgtel: Finance Manager - Accountant - Bank...

    Compliance Officer - CF10, CF11, Compliance Oversight, AML, FX

    £100000 - £120000 per annum + BONUS + BENEFITS: Harrington Starr: A leading fi...

    Day In a Page

    Noel Fielding's 'Luxury Comedy': A land of the outright bizarre

    Noel Fielding's 'Luxury Comedy'

    A land of the outright bizarre
    What are the worst 'Word Crimes'?

    What are the worst 'Word Crimes'?

    ‘Weird Al’ Yankovic's latest video is an ode to good grammar. But what do The Independent’s experts think he’s missed out?
    Can Secret Cinema sell 80,000 'Back to the Future' tickets?

    The worst kept secret in cinema

    A cult movie event aims to immerse audiences of 80,000 in ‘Back to the Future’. But has it lost its magic?
    Facebook: The new hatched, matched and dispatched

    The new hatched, matched and dispatched

    Family events used to be marked in the personal columns. But now Facebook has usurped the ‘Births, Deaths and Marriages’ announcements
    Why do we have blood types?

    Are you my type?

    All of us have one but probably never wondered why. Yet even now, a century after blood types were discovered, it’s a matter of debate what they’re for
    Honesty box hotels: You decide how much you pay

    Honesty box hotels

    Five hotels in Paris now allow guests to pay only what they think their stay was worth. It seems fraught with financial risk, but the honesty policy has its benefit
    Commonwealth Games 2014: Why weight of pressure rests easy on Michael Jamieson’s shoulders

    Michael Jamieson: Why weight of pressure rests easy on his shoulders

    The Scottish swimmer is ready for ‘the biggest race of my life’ at the Commonwealth Games
    Some are reformed drug addicts. Some are single mums. All are on benefits. But now these so-called 'scroungers’ are fighting back

    The 'scroungers’ fight back

    The welfare claimants battling to alter stereotypes
    Amazing video shows Nasa 'flame extinguishment experiment' in action

    Fireballs in space

    Amazing video shows Nasa's 'flame extinguishment experiment' in action
    A Bible for billionaires

    A Bible for billionaires

    Find out why America's richest men are reading John Brookes
    Paranoid parenting is on the rise - and our children are suffering because of it

    Paranoid parenting is on the rise

    And our children are suffering because of it
    For sale: Island where the Magna Carta was sealed

    Magna Carta Island goes on sale

    Yours for a cool £4m
    Phone hacking scandal special report: The slide into crime at the 'News of the World'

    The hacker's tale: the slide into crime at the 'News of the World'

    Glenn Mulcaire was jailed for six months for intercepting phone messages. James Hanning tells his story in a new book. This is an extract
    We flinch, but there are degrees of paedophilia

    We flinch, but there are degrees of paedophilia

    Child abusers are not all the same, yet the idea of treating them differently in relation to the severity of their crimes has somehow become controversial
    The truth about conspiracy theories is that some require considering

    The truth about conspiracy theories is that some require considering

    For instance, did Isis kill the Israeli teenagers to trigger a war, asks Patrick Cockburn