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; request a free guide on NISAs from Hargreaves Lansdown

Suggested Topics
News
people'It can last and it's terrifying'
Sport
Danny Welbeck's Manchester United future is in doubt
footballGunners confirm signing from Manchester United
Sport
footballStriker has moved on loan for the remainder of the season
News
people Emma Watson addresses celebrity nude photo leak
PROMOTED VIDEO
Sport
footballFeaturing Bart Simpson
News
Katie Hopkins appearing on 'This Morning' after she purposefully put on 4 stone.
peopleKatie Hopkins breaks down in tears over weight gain challenge
Arts and Entertainment
Olivia Colman topped the list of the 30 most influential females in broadcasting
tv
News
Kelly Brook
peopleA spokesperson said the support group was 'extremely disappointed'
Life and Style
techIf those brochure kitchens look a little too perfect to be true, well, that’s probably because they are
Sport
Andy Murray celebrates a shot while playing Jo-Wilfried Tsonga
TennisWin sets up blockbuster US Open quarter-final against Djokovic
Arts and Entertainment
Hare’s a riddle: Kit Williams with the treasure linked to Masquerade
booksRiddling trilogy could net you $3m
Arts and Entertainment
Alex Kapranos of Franz Ferdinand performs live
music Pro-independence show to take place four days before vote
News
news Video - hailed as 'most original' since Benedict Cumberbatch's
News
i100
Life and Style
The longer David Sedaris had his Fitbit, the further afield his walks took him through the West Sussex countryside
lifeDavid Sedaris: What I learnt from my fitness tracker about the world
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

    Planning Manager (Training, Learning and Development) - London

    £35000 - £38000 per annum + benefits: Ashdown Group: A highly successful, glob...

    Business Anaylst

    £60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Business Anal...

    SQL Implementation Consultant (VB,C#, SQL, Java, Eclipse, integ

    £40000 - £50000 per annum + benefits+bonus+package: Harrington Starr: SQL Impl...

    Head of IT (Windows, Server, VMware, SAN, Fidessa, Equities)

    £85000 per annum: Harrington Starr: Head of IT (Windows, Server, VMware, SAN, ...

    Day In a Page

    'I’ll tell you what I would not serve - lamb and potatoes': US ambassador hits out at stodgy British food served at diplomatic dinners

    'I’ll tell you what I would not serve - lamb and potatoes'

    US ambassador hits out at stodgy British food
    Radio Times female powerlist: A 'revolution' in TV gender roles

    A 'revolution' in TV gender roles

    Inside the Radio Times female powerlist
    Endgame: James Frey's literary treasure hunt

    James Frey's literary treasure hunt

    Riddling trilogy could net you $3m
    Fitbit: Because the tingle feels so good

    Fitbit: Because the tingle feels so good

    What David Sedaris learnt about the world from his fitness tracker
    Saudis risk new Muslim division with proposal to move Mohamed’s tomb

    Saudis risk new Muslim division with proposal to move Mohamed’s tomb

    Second-holiest site in Islam attracts millions of pilgrims each year
    Alexander Fury: The designer names to look for at fashion week this season

    The big names to look for this fashion week

    This week, designers begin to show their spring 2015 collections in New York
    Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

    'I like Orwell's writing as much as the next talented mediocrity'

    Will Self takes aim at Orwell's rules for writing plain English
    Meet Afghanistan's middle-class paint-ballers

    Meet Afghanistan's middle-class paint-ballers

    Toy guns proving a popular diversion in a country flooded with the real thing
    Al Pacino wows Venice

    Al Pacino wows Venice

    Ham among the brilliance as actor premieres two films at festival
    Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

    Neil Lawson Baker interview

    ‘I’ve gained so much from art. It’s only right to give something back’.
    The other Mugabe who is lining up for the Zimbabwean presidency

    The other Mugabe who is lining up for the Zimbabwean presidency

    Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
    The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

    The model for a gadget launch

    Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
    Alice Roberts: She's done pretty well, for a boffin without a beard

    She's done pretty well, for a boffin without a beard

    Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
    Get well soon, Joan Rivers - an inspiration, whether she likes it or not

    Get well soon, Joan Rivers

    She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
    Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

    A fresh take on an old foe

    Doctor Who Into the Dalek more than compensated for last week's nonsensical offering