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

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

News
i100
Arts and Entertainment
Billie Piper as Brona in Penny Dreadful
tvReview: It’s business as usual in Victorian London. Let’s hope that changes as we get further into the new series spoiler alert
Life and Style
A nurse tends to a recovering patient on a general ward at The Queen Elizabeth Hospital in Birmingham
health
News
science
Arts and Entertainment
No Offence
tvReview: No Offence has characters who are larger than life and yet somehow completely true to life at the same time spoiler alert
News
Chuck Norris pictured in 1996
people
Arts and Entertainment
Sarah Lucas, I SCREAM DADDIO, Installation View, British Pavilion 2015
artWhy Sarah Lucas is the perfect choice to represent British art at the Venice Biennale
News
A voter placing a ballot paper in the box at a polling station
i100
News
people
Arts and Entertainment
The Queen (Kristin Scott Thomas) in The Audience
theatreReview: Stephen Daldry's direction is crisp in perfectly-timed revival
Sport
football
Finacial products from our partners
Property search
  • Get to the point
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

    SThree: Trainee Recruitment Consultant - Swiss Banking and Finance

    £20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...

    Ashdown Group: Marketing Executive - 6 month FTC - Central London

    £25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...

    Ashdown Group: Junior Project Manager (website, web application) - Agile

    £215 per day: Ashdown Group: Junior Project Manager (website, web application ...

    Guru Careers: Software Engineer / Software Developer

    £40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...

    Day In a Page

    General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

    Miliband's unlikely journey from hapless geek to heart-throb

    He was meant to be Labour's biggest handicap - but has become almost an asset
    General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

    On the margins

    From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
    Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

    'This is the battle of young Egypt for the future of our country'

    Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
    Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

    Why patients must rely less on doctors

    Improving our own health is the 'blockbuster drug of the century'
    Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

    Flesh in Venice

    Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
    11 best anti-ageing day creams

    11 best anti-ageing day creams

    Slow down the ageing process with one of these high-performance, hardworking anti-agers
    Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

    Juventus vs Real Madrid

    Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
    Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

    Ashes series looks a lost cause for England...

    Whoever takes over as ECB director of cricket, says Stephen Brenkley
    Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

    Fishing is on Nigel Farage's mind

    Ukip leader casts a line to the disaffected
    Who is bombing whom in the Middle East? It's amazing they don't all hit each other

    Who is bombing whom in the Middle East?

    Robert Fisk untangles the countries and factions
    China's influence on fashion: At the top of the game both creatively and commercially

    China's influence on fashion

    At the top of the game both creatively and commercially
    Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

    The man known as GOD has a reputation for getting the job done

    Lord O'Donnell's three principles of rule
    Rainbow shades: It's all bright on the night

    Rainbow shades

    It's all bright on the night
    'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

    Bread from heaven

    Dutch survivors thank RAF for World War II drop that saved millions
    Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

    How 'the Axe' helped Labour

    UK will be 'run for the wealthy and powerful' if Tories retain power