Wealth Check: 'I want to pay off my student debt and save for a wedding'

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Clarissa Wallis-Eade is keen to pay off the debts she racked up as a student, totalling more than £20,000.

She is a graduate trainee at a City insurance broker, earning £25,000, and on leaving the graduate programme next year she will be in line for a promotion and salary increase.

Clarissa is planning to get married in 18 months and wants to make a " considerable contribution" to the wedding, but she has little put by in the way of savings.

"I only seem to have £200 left at the end of the month," she says. "And I only have money left over if I don't go on holiday, or have any other big expenditure."

Clarissa is weighed down by debts, including £15,000 in student loans, which she pays back at £76 a month, and £3,600 in graduate loans, which she pays back at £190 a month. She owes £2,000 on a Tesco credit card, a 0 per cent interest-free deal for 12 months.

"I want to be free of my student debt by the time I'm 30," she says. "I'd like to invest any spare income that I have wisely. I am interested in the stock market but am clueless about it."

Clarissa pays £515 a month for a room in a flat in Camden. She has just inherited a three-bedroom villa in Spain, valued at £90,000.

At present, Clarissa does not have any pension provision in place. "I decided to postpone joining my work scheme until next year when I will have paid off my credit card," she says.

Clarissa adds that but she would like to get to a situation where early retirement is possible. "I'd like to do this through a good pension, or savings that offer a good return," she says.

Clarissa has life insurance and income protection through her employer.

We asked three financial advisers for their suggestions: Malcolm Lyons of Music Media IFA, Keith Churchouse at Churchouse Financial Planning and Alex Pegley at Calculis.

CASE NOTES

Clarissa Wallis-Eade, 24, insurance broker, north London

Income: Annual salary of £25,000.
Pension: None.
Savings: None.
Property: Pays £515 a month to rent a room in a three-bed property.
Debts: £2,000 on a Tesco credit card; £15,000 in student loans; £3,600 in a graduate loan.
Monthly outgoings: £1,000.

DEBTS

Clarissa needs to begin by prioritising her debts, says Pegley. "I would recommend focusing initially on the graduate loan, and then the credit card," he says.

Clarissa should consider repaying the Tesco credit card in full during the interest-free period, says Churchouse. This equates to around £166 a month.

He adds as the student loans are at a low rate of interest – 2.4 per cent – there is no rush to pay these off.

SAVINGS

Clarissa needs to decide how she wants to contribute to the wedding and then set a figure to save each month, says Pegley.

In the first instance, he recommends she make use of her mini ISA allowance and picks the Direct ISA from National Savings & Investments at 6.05 per cent.

Churchouse adds that HSBC and Lloyds TSB both offer regular saver accounts paying 8 per cent with minimum deposits of £200.

"If Clarissa wants to invest for the longer-term, she should use a stocks and shares ISA, which can be funded from £50 a month – up to a maximum of £4,000 a year," he adds.

PROPERTY

Clarissa is in the fortunate position of owning a property, says Pegley.

"If she intends to live in Spain, she would do well to keep the property," he says. "However, the evidence points to a slowing property market there, and there is plenty of talk that holiday letting is becoming more difficult due to over-supply."

Pegley recommends Clarissa sell the Spanish property and use the proceeds as a fairly substantial deposit on a flat in London. "This would give her a home and, unlike rent, the mortgage payments wouldn't be money down the drain."

Lyons, on the other hand, thinks she would be better off renting out the Spanish property, suggesting this would enable her to repay her short-term debt, provide capital to fund her wedding, and build up her long-term investments and retirement savings.

"Clarissa should contact local agents to find out the rental value and then take out a Euro-mortgage on the property – thereby raising capital," he says. "The rental income can then be used to pay the mortgage on the property and the capital raised to build up savings in a mini cash ISA for repayment of the credit card, and to pay off her graduate debt and help fund her wedding. Any money left over can then be used to repay the student loan."

He advises her to consult a UK-based tax adviser and legal adviser to deal with some of the more complex issues attached to renting out a property overseas.

PENSION

Clarissa should join her employer's pension as soon as possible, says Pegley. "If her employer contributes to the plan, then by not joining she is not collecting her full remuneration package," he says. "By deferring the start of pension contributions she is also missing out on investment growth."

Churchouse suggests she also check that her state pension is up to date to ensure she will receive full benefit on retirement. She can do this by completing a BR19 state pension forecast form at www.hmrc.gov.uk.

PROTECTION

Because Clarissa is covered by her company scheme for both death in service and income protection, she has adequate protection for the time being, says Churchouse.

But he adds that when she buys her house she should consider increasing her level of protection.

For a free financial check-up, write to Wealth Check, The Independent, 191 Marsh Wall, London E14 9RS or e-mail mailto:cash@independent.co.uk

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