For many people who have undertaken a post-graduate course, loan debt can be a heavy burden.
For Paula Faircloth, 27, an aspiring book publisher from London who plays the drums in a "math-rock" band called the Quadrilles, the prospect of breaking into publishing will remain a pipe dream unless she can clear her Career Development Loan and budget for a substantial pay cut.
Paula is well qualified for a job in her chosen career; she has an honours degree in English Studies from Sussex University, and an MA in Publishing from University College London. But fierce competition in this highly popular sector means she will almost certainly have to begin at entry level, where average salaries start as low as £16,000. She currently earns £24,000 at her day job, working as an NHS administrator for a London hospital.
Even so, Paula says she has been struggling to clear her debts because of the hefty cost of living in London. She took out a £6,800 Career Development Loan to undertake her publishing course and has credit card debts amounting to £3,500 on her Barclaycard and £100 on her Capital One card, plus an overdraft of £1,700.
Despite renting in one of the least expensive parts of the capital, in Peckham, south-east London, Paula's rent and monthly bills still amount to £650. She uses a bicycle to avoid public transport costs, but has additional outgoing costs of £370 (including repayments for her Career Development Loan and payment for the use of a band rehearsal studio each month).
In an ideal world she would like to retain her freedom, living away from her parents, but she will consider moving back in with her mother and father, who live locally, if this would bring her financial independence in the longer term.
Paula has time on her side in her bid to change career, but she must keep an eye on clearing debts and for long-term savings, our advisers say.
Before Paula can begin to budget for an anticipated pay cut, she would be well advised to consolidate her debts and start paying off efficiently. Nick Platt, director of Walmley-based Henwood Court Financial Planning, has worked out a financial strategy to enable her to do this within 18 months if she moves home temporarily and frees an extra £450 to £550 per month.
"It is important Paula pursues her dreams of working in publishing and recording a studio album while she is still young enough to do so. Therefore the barrier or debt that is preventing Paula from realising her ambitions needs to be removed, and quickly."
"If eligible, Paula could consider transferring her Barclaycard and Capital One credit cards to another provider. For a 3 per cent fee, typically, Paula could obtain an interest-free period for up to 18 months and, assuming payment of £300, this will be settled in just over 12 months," Mr Platt says. "Paula may then wish to consider, again if eligible, consolidating her Career Development Loan to a typical high-street lender that will offer loans to those with a good credit history for a typical APR approaching 8 per cent. Repayments of £330 will allow for the full repayment after 24 months.
"However, if Paula selected a loan provider that will allow for early repayments without financial penalty, the money allocated to repay the credit card, which will be repaid in 12 months, may be saved thereafter and used to pay this loan in only 18 months, saving her further interest charges."
If Paula isn't eligible to consolidate her loans, she could consider borrowing from her parents to pay the debt. This could reduce the level of interest she pays, speed up her rate of repayment and benefit her parents financially. "If they have the resources they will be earning very little [interest] in their deposit accounts and could lend Paula £11,000 to repay the debts for an interest rate of 4 per cent. Assuming a monthly repayment of £640, the debts will be repaid in 18 and a half months while Mum and Dad will have earned a comparatively generous return," says Mr Platt.
When Paula has repaid her debt, she will be in a better place to begin budgeting for a reduction in salary. She will have two options then; to return to independent living or stay with her parents for a few more years to build up enough savings to cover a pay-cut.
Francis Klonowski, certified financial planner at Klonowski & Co, based in Leeds, calculates that Paula could accrue a sizeable savings pot within a couple of years if she stays with her parents, but cautions against making a rash decision.
"If Paula paid her parents £200 a month and had another £100 for personal spending this would leave her with £350 to save. Assuming interest of around 3 per cent after a year, she would have saved £4,257.20 and after two years £8,642," he says.
But while the cost-benefit for grown-up children moving home often outweighs that of renting accommodation, Mr Klonowski says the financial implications for parents should not be overlooked either. "With [additional] food and fuel [costs] I would estimate the additional costs for parents wouldn't be far off £50 per month".
Although still young, Paula would be well-advised to think carefully about her pension options. At present she is contributing 6.5 per cent of earnings, amounting to £130 per month, to her NHS pension scheme and her employer pays 14 per cent, which represents an additional £280 per month.
Jane Gow, a chartered financial planner at 75point3, calculates that if Paula continued working where she is on her present salary, every year of contributions would be worth 1/80th of her final salary; meaning that if she retired with 35 years' worth of contributions this would equate to a pension of £10,560 per annum.
If Paula begins a publishing job, she will have a number of options to consider relating to pension transfer. "She can leave or defer her benefits in the [existing NHS] pension scheme. This means that the benefits she has accrued will be increased each year by the rate of inflation to protect their value and will normally be paid to her when she reaches her normal retirement age," says Ms Gow. "Alternatively, she could choose to transfer the scheme's benefits to another registered pension scheme. This could be a personal pension, a future employer's occupational pension scheme – provided they will accept the transfer."
However, because of the complexities surrounding pension transfers, Ms Gow says Paula should always seek independent financial advice before going ahead with a pension move.
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Write to Julian Knight at the Independent on Sunday, 2 Derry Street, London W8 5HF