Wealth Check: 'I want to pay off all my debts and buy a flat'

Paul Baker, 25, lives in Edinburgh with his partner. He became a commercial airline pilot 18 months ago and earns £36,000 a year. His main goal is to pay off two HSBC professional studies loans that helped him train to be a pilot, whilst still having enough spare cash for a comfortable lifestyle. However, he is also interested in getting on the property ladder and wants to know if it is the right time for him to buy a flat.

We asked three financial advisers to take a look at Paul's financial situation: Martin Bamford from Informed Choice; Mike Pendergast from Zen Financial Services; and Danny Cox of Hargreaves Lansdown.

Case notes: Paul Baker, 25, Edinburgh

Salary: Paul is a commercial airline pilot on a starter salary of £36,000.

Monthly outgoings: Paul spends about £2,700 on paying back a large loan that paid for his training, as well as rent and living expenses.

Debts: Two professional studies loans totalling £70,000. One of £65,000 with 7.75 per cent APR, the other £5,000 with 8.5 per cent APR.

Savings: £0

Pension: Paul contributes roughly £150 a month into his employer's pension scheme.



Debt & Savings

At the current rate of repayment, Paul's loans will be cleared in six years. Bamford and Cox both agree that this should be Paul's priority and is the best use of any spare income he has in the short term.

Paul has £2,500 in a bank account and Bamford says that although it might be worth keeping it there as an emergency fund, Paul should focus on using all his resources to pay off the loan with the higher APR because it is costing him the most to service. "People often feel more comfortable having some savings when they are in debt but in reality this is financial madness," says Bamford.

Cox and Pendergast both advise Paul to move the money from his bank account into a mini cash ISA, as the interest tends to be higher than in standard bank accounts and is tax free. Both Abbey and Barclays are recommended, offering 6.25 per cent and 6.31 per cent on their Direct ISAs respectively.



Property

All the advisers are concerned by the uncertainty of the market and Bamford advises Paul not to rush into buying a property as it would result in more financial pressure and debt.

Paul does not have a deposit and if he were to buy a property, he would either have to raise one from his limited spare cash, or borrow 100 per cent of the value of the property. "Mortgages that lend the full purchase price tend to be more expensive and have higher fees, including high loan to value fees," explains Cox.

Because of the falling demand for rental property, all three advisers agree that if Paul does buy a property, it should be viewed as a place to live rather than a short-term investment.



Pension

Paul's current pension scheme is projected to provide £9,000 a year if he retires at 60. While this represents only half the amount he needs, Cox accepts that his priorities are currently elsewhere.

Furthermore, Paul is only at the early part of what should be a long and lucrative career as a pilot, and his earnings should increase dramatically over the next 10 years. Therefore, Bamford says that pension saving should take a back seat for Paul in his twenties and even thirties while he focuses on debt repayment.

Cox advises Paul to increase his pension savings when he gets pay rises, either through additional payments to his present scheme or by paying into a low-cost self-invested personal pension (Sipp). Pendergast agrees, but stresses that if he uses a money purchase pension, he should ensure that he spreads his contributions between at least five or six funds to spread the risk.



To find an independent financial adviser in your area, visit www.unbiased.co.uk

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

Suggested Topics
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

    Recruitment Genius: Digital Optimisation Executive - Marketing

    £30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

    Recruitment Genius: Financial Reporting Manager

    £70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

    Recruitment Genius: Payments Operations Assistant

    £23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

    Recruitment Genius: Telephone Debt Negotiator

    £13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

    Day In a Page

    Sepp Blatter resignation: The beginning of Fifa's long road to reform?

    Does Blatter's departure mean Fifa will automatically clean up its act?

    Don't bet on it, says Tom Peck
    Charles Kennedy: The baby of the House who grew into a Lib Dem giant

    The baby of the House who grew into a Lib Dem giant

    Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
    Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

    The harrowing testament of a five-year-old victim of Syria's endless civil war

    Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
    The future of songwriting: How streaming is changing everything we know about making music

    The future of songwriting

    How streaming is changing everything we know about making music
    William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

    Recognition at long last

    Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
    Beating obesity: The new pacemaker which helps over-eaters

    Beating obesity

    The new pacemaker which helps over-eaters
    9 best women's festival waterproofs

    Ready for rain: 9 best women's festival waterproofs

    These are the macs to keep your denim dry and your hair frizz-free(ish)
    Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

    Wiggins worried

    Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
    Liverpool close in on Milner signing

    Liverpool close in on Milner signing

    Reds baulk at Christian Benteke £32.5m release clause
    On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

    On your feet!

    Spending half the day standing 'reduces risk of heart attacks and cancer'
    With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

    The big NHS question

    Why are there so few new GPs when so many want to study medicine?
    Big knickers are back: Thongs ain't what they used to be

    Thongs ain't what they used to be

    Big knickers are back
    Thurston Moore interview

    Thurston Moore interview

    On living in London, Sonic Youth and musical memoirs
    In full bloom

    In full bloom

    Floral print womenswear
    From leading man to Elephant Man, Bradley Cooper is terrific

    From leading man to Elephant Man

    Bradley Cooper is terrific