Gina Coldrick, 31, from Warrington says that her biggest financial goal is to be debt-free by the time she turns 40. But with a young daughter to support, and a restrictive salary, she is struggling to break even. "I am only making enough to cover bills," she says. "I have found myself eating into my savings and using my credit card for extras."
Three financial advisers gave Gina help this week: Mark Wapshott from St Edmundsbury Financial Services; Kevin Anderson from Budge & Co; and Dennis Hall from Yellowtail Financial Planning.
Case notes: Gina Coldrick, 31, Warrington
Salary: Gina's job with the Environment Agency gives her an income of around £18,000 before tax.
Monthly outgoings: Although her partner pays the rent, Gina spends £700 on her bank loan, credit card, utility bills, food, and phone.
Debts: Gina has credit-card debts to which she continues to add, paying for everyday expenses she can't cover with her income, and a bank loan.
Savings: Gina has around £3,000 in an HSBC ISA.
Pension: Gina saves around £60 a month into a pension scheme set up via her bank.
Debt & savings
Our advisers agree that Gina is making a mistake by saving into an ISA while having outstanding loans that are probably costing her more in interest than her savings earn.
"Gina is lending the bank £3,000 via an ISA account at the same time as borrowing from it, probably at a higher rate," says Dennis Hall. "She should cut out the middleman and repay some of her borrowing using part of her cash ISA."
Meanwhile, she is in the same situation with her credit cards, warns Kevin Anderson. "Saving in an ISA is laudable but repaying expensive debt may be a better option," he says. "I would recommend using her ISA to repay the bank loan to ease that worry, and then using her monthly savings to repay into her ISA on a monthly basis."
Gina should also find out about the working family tax credit, the advisers say. This could supplement her income by £545 every year, in addition to child benefit.
Gina wants to retire at 65 with an annual income of around £25,000, but her retirement savings require urgent attention, the advisers warn. Gina currently pays £60 per month into a pension scheme recommended by her bank, but Mark Wapshott says that if she fails to increase that saving, it will earn her just £43 a month in retirement.
"Gina's pension should be reviewed soon," he says. "Most bank products use managed funds [basic funds investing across a number of asset classes], but by utilising investment specialists such as Neil Woodford of Invesco Perpetual, invested money could be working as hard as Gina does to increase her pension."
But Gina is paying as much as she can into her pension, and still often has to use credit cards to make ends meet. "Gina has debt and no property. She should make a new budget to live within her income, even if this means stopping her pension contributions," Anderson says. "I'm not sure Gina was given the right advice when her bank recommended a pension when she still had considerable debts," adds Hall. "Gina should consider how much quicker her debt would reduce if she paid an extra £60 per month toward her bank loan."
Gina has income protection, but Wapshott suggests that she consider life assurance, which would provide for her daughter if Gina were to die suddenly. "Gina should review the terms of her income-protection plan to ensure that it's not simply a payment protection insurance policy, which has far fewer benefits," he says.
But Hall adds that Gina should also think about the effects if her partner were to die or became incapacitated. "Family Income Benefit is a form of life assurance that should be considered, as it can provide a lot of cover for a relatively small premium."
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