Wealth Check: 'I live totally beyond my means'

Since Richard Petrie left college in 1992 owning around £4,000 he has not been able to clear his debts.

Since Richard Petrie left college in 1992 owning around £4,000 he has not been able to clear his debts. He is the first to admit that until about two years ago he had a very poor grip on money and lived totally beyond his means.

Since settling down with his partner, Mr Petrie has really been trying to sort out his finances, but finds that every time he makes progress something crops up that sets everything back. He has no savings and as he has a poor credit rating the only credit that is available is expensive and leads to debt he cannot manage. The birth of his daughter is an additional strain on finances. Mr Petrie's goal is very simple: to get back on his feet financially, be able to have a mortgage and provide security for his family.

We put his case to Colin Jackson at Barronworth, Steve Martell at Benson McGarvey and Ben Yearsley at Hargreaves Lansdown.

RICHARD PETRIE, 33, TECHNOLOGY COMPANY PR MANAGER

Salary: £25,000; partner earns £12,000

Debt: £8,800 owed to mother; £7,300 HSBC managed consolidation loan; £3,200 Citibank loan costing £165 per month; £2,200 First Direct credit card; £1,250 council Tax; £500 disputed debt from a credit card.

Property: Rent for £375 a month

Savings: None

Investments: None

Pension: Company pension from more than one employer

Outgoings, monthly: Rent £375; bills £150. council tax £123; phone, mobile and internet £115; commuting £120; child care £160; leisure £100; food and clothing £250; debt repayment £800

DEBTS

Mr Petrie's problem, as he readily acknowledges, is his debt. His university and subsequent borrowings have spiralled to the point where he has a poor credit rating, and where the need to service the debt means he has little money left at the end of the month to save. This means he has no contingency fund, so if he has any unexpected demands on his finances, this pushes him further into the red.

The panel are united in saying that Mr Petrie's overriding priority is to deal with the debt. But with borrowings coming to almost £20,000, this will not be easy. Mr Martell says Mr Petrie's debt is excessive, compared with his income. His first step should be to try to find as competitive an interest rate as he can for his borrowings.

One of the best options is to take out a credit card with a 0 per cent period on balance transfers. Mr Martell says Mr Petrie should also look at the interest rate on his loan with HSBC, as an alternative personal loan could be substantially cheaper. Liverpool Victoria, for example, has a personal loan at 5.5 per cent. Extending the repayments over a longer period of time, although more expensive, may be the best way to improve his cash flow.

Mr Jackson notes the loan from Mr Petrie's mother is due to be paid off soon. He should use the money he saves from these repayments to tackle his other debts.

Mr Yearsley suggests Mr Petrie should look at consolidating his debts, but stresses that he should take advice. The Citizens Advice Bureau is one option; another is the Consumer Credit Counselling Service ( www.cccs.co.uk). Neither service charges, and will be able to help Mr Petrie find the best way to cut the costs of his debts.

BUDGETING

Debt repayments eat up a large proportion of Mr Petrie's income, but he needs to make savings elsewhere too.

Mr Jackson cautions that Mr Petrie's bills for the phone, mobile and internet are high. He should look around for more competitive tariffs. Mr Yearsley says unless Mr Petrie takes action to trim his expenditure he will never get on top of his debts or be in a position to take out a mortgage. He needs to cut out all non-vital expenditure, for the next couple of years.

Mr Martell says if Mr Petrie can move some or all of his debt to cheaper lenders that will free up some money. But as he and his partner spend almost all they earn, they need to budget to avoid building up an overdraft. Mr Martell adds that Mr Petrie should build up some savings for emergencies. One option would be to save the Child Benefit payments, and put them into a high interest account such as a mini-cash Isa.

PROPERTY

The state of Mr Petrie's finances means buying a property may be very difficult. Mr Yearsley says Mr Petrie might have to leave this until he has improved his debt position, as right now it will be hard for him to find a lender.

Mr Jackson also says it might be a few years before Mr Petrie can buy, as his poor credit rating is likely to be a barrier.

Mr Martell is a little more optimistic. He says it may be that Mr Petrie can buy a property and have a mortgage that is little more than his current rent. He might also be able to take out a larger loan, and use this to repay his current - and more expensive - debts. Mr Petrie should see a specialist mortgage adviser who can help him find a good deal, and will be able to assess his credit-worthiness.

Advisers' views are given for information only

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

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