Wealth Check: 'I want to pay off my debts but still live comfortably'

Alma Stewart-Burgess, 39, is bringing up two young children aged seven and five in Preston after her 44-year-old journalist husband died from cancer five years ago. She is looking for a job after completing a postgraduate diploma in newspaper journalism at the University of Central Lancashire. "I want to be debt free, but still able to live comfortably," says Alma.

Finding a job is proving difficult, but Alma wants to pay her debts off without taking the first mediocre job that comes along. She receives tax credits, so working wouldn't be financially worthwhile unless it paid over £400 per month.

Case notes

Income: £17,000 per year from late husband's pension
Monthly outgoings: car £230, gas/electricity £120, mobile phone £40, food £350, health insurance £40, life insurance £35, credit card payments £100, petrol £40, phone/TV £50 (total: £1,005 per month)
Debt: £4,000 in recent postgraduate fees, £3,500 on credit cards and £200 per month at 24% APR on car loan.
Savings: none

Advice this week is given by John Kelly of Chelsea Financial Services, Dennis Hall of Yellowtail Financial and Kevin Anderson of Budge and Company...

Income

Alma's monthly outgoings do not exceed her late husband's pension income, so she can live off that for now. However, John Kelly says she will have to earn more before she can pay off debts and start making savings for her own pension. "She will need to consider her pension requirements when she has some disposable income," he says.

Dennis Hall also recommends checking the rules surrounding the pension, particularly what level of payments her children would receive if she were to die prematurely: "Depending on the amount and type of life assurance cover already in place, there may be a case for purchasing some additional Family Income Protection insurance until the children are financially independent. This should be placed in a trust so any payments are not transferred to her estate should she die." Dennis agrees with John that Alma should look at making provisions for a pension as soon as she finds paid employment.

Debt

Alma has debts of £3,500 on credit cards and swaps the balances to get 0 per cent interest. She also has a car and student loan.

Kevin Anderson says she should address this: "Alma is in the very common situation of being asset rich and cash poor. The major asset is her property, on which there is no mortgage. One solution may be to raise a mortgage on the property while rates are relatively low to pay off her car loan, credit cards and student loan. This will free up more of her monthly income for savings. Her income is very secure as it is a pension and her borrowing will be small so the rate should be very attractive."

John Kelly says her car loan should be her debt priority, as it has a high interest rate (currently 24 per cent APR). On the question of her credit cards versus the loan, he says the key issue is the rate payable. "She is able to manage the credit card debt by moving them around to whoever is offering 0 per cent. So, in the short term, she is probably better off doing that than moving it somewhere with a higher interest rate."

However, Dennis Hall's advice differs: "The reason why even 0 per cent interest credit card debt is more expensive than the 1.5 per cent interest charged on student loans is that when transferring from one 0 per cent deal to another there is typically a 3 per cent transfer charge. With an average 0 per cent interest rate period of three months, this could mean four transfers a year at a cost of perhaps 12 per cent. Suddenly these 0 per cent deals don't appear so cheap."

Instead, he suggests a cheap, unsecured personal loan, as it has the added advantage that the debt is paid down over an agreed number of years, whereas credit card debt can take decades to repay when paying the minimum each month. "Sainsbury's and Tesco each have finance divisions offering personal loans from as low as 7.9 per cent APR."

Dennis agrees with John that Alma's priority in terms of debt reduction should be paying off her car loan, although he advises her to check the terms and conditions, as some of these types of loans have additional charges because of the commission that might have been paid to the firm that arranged the finance.

Savings and investments

Alma is reliant on her widow's pension and tax credits. Kevin Anderson says saving is not an option until Alma can secure a job. However, John Kelly advises building up a cash emergency fund to at least three months' outgoings – just over £3,000. "This could be done by saving monthly into a cash ISA. The best rate on instant access cash ISAs is currently offered by Barclays at 2.55 per cent."

He also suggests that, while paying off debt is currently more important than investing, she could start monthly saving into a stocks and share ISA, starting with a core fund like M&G Recovery, or Invesco Perpetual High Income. She could then add riskier funds like First State Asia Pacific Leaders or Rathbone Global Opportunities.

Dennis Hall agrees that using an ISA to build up a cash reserve will ensure she can save tax efficiently. Abbey and Nationwide (both part of the Santander Group) are offering an ISA savings rate of 5.5 per cent, which includes a 4.5 per cent bonus for 12 months.

"The savings don't actually affect your entitlement to Child Tax credits, but the interest earned on the savings could affect the amount of tax credits received."

Alma does have some life cover, which all three experts agree is important in view of the fact that she has two young children. Kevin Anderson recommends that she continues to review the adequacy of this, and John Kelly agrees that the cover should be a priority to financially protect her children.

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

Arts and Entertainment
Gregg Wallace in Summer's Supermarket Secrets
tv All of this year's 15 contestants have now been named
Arts and Entertainment
Inside the gallery at Frederick Bremer School in Walthamstow
tvSimon Usborne goes behind-the-scenes to watch the latest series
Life and Style
A picture taken on January 12, 2011 shows sex shops at the Paris district of Pigalle.
newsThe industry's trade body issued the moratorium on Friday
News
Winchester College Football (universally known as Winkies) is designed to make athletic skill all but irrelevant
Life...arcane public school games explained
PROMOTED VIDEO
Arts and Entertainment
Could we see Iain back in the Bake Off tent next week?
tv Contestant teased Newsnight viewers on potential reappearance
Life and Style
Silvia says of her famous creation: 'I never stopped wearing it. Because I like to wear things when they are off the radar'
fashionThe fashion house celebrated fifteen years of the punchy pouch with a weighty tome
News
i100(and it's got nothing to do with the Great British Bake Off)
News
Angelina Jolie with her father Jon Voight
peopleAsked whether he was upset not to be invited, he responded by saying he was busy with the Emmy Awards
News
Bill Kerr has died aged 92
peopleBill Kerr appeared in Hancock’s Half Hour and later worked alongside Spike Milligan and Peter Sellers
News
news It's not just the world that's a mess at the moment...
Sport
footballPremiership preview: All the talking points ahead of this weekend's matches
News
Keira Knightley poses topless for a special September The Photographer's issue of Interview Magazine, out now
people
Voices
The Ukip leader has consistently refused to be drawn on where he would mount an attempt to secure a parliamentary seat
voicesNigel Farage: Those who predicted we would lose momentum heading into the 2015 election are going to have to think again
Arts and Entertainment
Cara Delevingne made her acting debut in Anna Karenina in 2012
film Cara Delevingne 'in talks' to star in Zoolander sequel
News
i100
Sport
Mario Balotelli pictured in his Liverpool shirt for the first time
football
Life and Style
tech
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

    Data Scientist (SQL,Data mining, data modelling, PHD, AI)

    £50000 - £80000 per annum + benefits+bonus+package: Harrington Starr: Data Sci...

    SAS Business Analyst - Credit Risk - Retail Banking

    £450 - £500 per day: Orgtel: SAS Business Analyst, London, Banking, Credit Ris...

    Project Manager - Pensions

    £32000 - £38000 Per Annum Bonus, Life Insurance + Other Benefits: Clearwater P...

    KYC Analyst, Birmingham - £200-£250 p/d

    £200 - £250 per day + competitive: Orgtel: KYC Analyst, Key Banking Client, Bi...

    Day In a Page

    Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

    The phoney war is over

    Russian troops and armour pour into Ukraine
    Potatoes could be off the menu as crop pests threaten UK

    Potatoes could be off the menu as crop pests threaten UK

    The world’s entire food system is under attack - and Britain is most at risk, according to a new study
    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
    From Mozart to Orson Welles: Creative geniuses who peaked too soon

    Creative geniuses who peaked too soon

    After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
    Caught in the crossfire of a cyber Cold War

    Caught in the crossfire of a cyber Cold War

    Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

    Salomé: A head for seduction

    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
    From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

    British Library celebrates all things Gothic

    Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
    The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

    Is the Hard Rock Café worth fighting for?

    The restaurant chain's owners are currently embroiled in a bitter legal dispute
    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

    In search of Caribbean soul food

    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
    11 best face powders

    11 best face powders

    Sweep away shiny skin with our pick of the best pressed and loose powder bases
    England vs Norway: Roy Hodgson's hands tied by exploding top flight

    Roy Hodgson's hands tied by exploding top flight

    Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
    Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

    Di Maria and Ronaldo: A tale of two Manchester United No 7s

    They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
    Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

    Robert Fisk: No victory for Israel despite weeks of devastation

    Palestinians have won: they are still in Gaza, and Hamas is still there
    Mary Beard writes character reference for Twitter troll who called her a 'slut'

    Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

    The Cambridge University classicist even wrote the student a character reference
    America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

    America’s new apartheid

    Prosperous white districts are choosing to break away from black cities and go it alone