Wealth Check: 'I want to save but my debt drags me down'

We give 'Independent on Sunday' readers a financial makeover


The problem

The problem

Joanna Drane is struggling to pay down a handful of different debts.

She owes £5,000 in student loans and £1,800 on her Morgan Stanley credit card, and carries a £1,300 overdraft on her HSBC current account.

"I find it really hard to save any of my wages because I seem to spend half of them just paying off my debts," she says.

However, she hopes a recent £5,000 pay rise will give her a chance to address her lack of savings and investments.

Her other priorities are to start a pension and consider getting a foot on the property ladder, she adds.

"I have been meaning to arrange a pension for years but never seem to have earned enough to do so. With extra money, I hope to change this, but I'm not sure how to go about it."

Joanna is also keen to stop renting and to have a stake in a home. "I currently pay £500 a month but plan to move in with my boyfriend in the summer," she says. "Once we've saved some money by renting together, we hope to start looking at buying a place."

Interview by Esther Shaw

The patient

Joanna Drane, 26, from Balham, south London.

Job: media agency account manager.

Income: £30,000.

Savings: £100 in a Post Office account.

Investments: none.

Goal: to clear debts, start a pension and buy a property.

The cure

If Joanna used all her extra income to reduce her debts, she could clear her £1,800 credit card and £1,300 overdraft in a year, says Mike Pendergast of independent financial adviser (IFA) The One Group. "This will then free her finances to start a pension and a small savings plan."

Anna Bowes of IFA Chase de Vere recommends going back to basics and drawing up a strict budget to account for everything she spends. "On a £30,000 salary, she should be able to manage her debts and [new] savings comfortably."

Debts

Joanna's pay rise should give her an extra £280 a month - after tax and national insurance - to cut her debts, estimates Vivienne Starkey of IFA Equal Partners.

She should start by reducing her HSBC overdraft (charging 14.8 per cent) and then turn to her Morgan Stanley credit card. "Once [this card's] six-month interest-free period is over, it will become her most expensive debt at 15.9 per cent," she adds.

However, Joanna could switch this debt to another provider offering an interest-free balance transfer - if she hasn't managed to repay it by the end of the 0 per cent offer.

Property

Joanna's debts may affect her ability to buy a home with her boyfriend in the next year, depending on their joint financial circumstances.

"Lenders will take these debts into account when deciding how much she is able to borrow," warns Ms Starkey. "Joanna will also need some savings to cover the extra costs involved in buying a home."

Savings

Open a savings account for unexpected events or big purchases such as a holiday, says Ms Bowes. At first, Joanna need contribute only £50 a month to this.

This sum can be increased once a large chunk of her debt has been cleared, she adds, and then used to help fund a property deposit too.

Ms Bowes recommends a mini cash individual savings account (ISA) and picks out deals from Alliance & Leicester and Abbey - paying 5.4 per cent and 5.35 per cent respectively.

Retirement

Joanna needs to address her pension "sooner rather than later", says Ms Starkey.

"She should check whether her employer offers a pension scheme - and if it makes a contribution."

A stakeholder pension would be a cost-effective vehicle for Joanna, explains Ms Bowes, as the charges are low at 1.5 per cent.

"As she is so young, she should consider an equity [stakeholder] fund such as those offered by Legal & General and Standard Life."

Protection

With no mortgage or dependants, Joanna has no need for life insurance at the moment, says Mr Pendergast.

She should check to see whether her employer offers any sort of income protection if she were to fall ill.

If you would like a financial makeover, write to Sam Dunn at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or email s.dunn@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

PROMOTED VIDEO
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: Software Development Manager

    £40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Product Manager - (Product Marketing, Financial Services)

    £30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Recruitment Genius: Compliance Assistant

    £13000 per annum: Recruitment Genius: This Pension Specialist was established ...

    Ashdown Group: Market Research Executive

    £23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

    Day In a Page

    As in 1942, Germany must show restraint over Greece

    As in 1942, Germany must show restraint over Greece

    Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
    Britain's widening poverty gap should be causing outrage at the start of the election campaign

    The short stroll that should be our walk of shame

    Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
    Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

    Homeless Veterans appeal

    The rise of the working poor: when having a job cannot prevent poverty
    Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

    Prince Charles the saviour of the nation?

    A new book highlights concerns about how political he will be when he eventually becomes king
    How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

    How books can defeat Isis

    Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
    Judith Hackitt: The myths of elf 'n' safety

    Judith Hackitt: The myths of elf 'n' safety

    She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
    The open loathing between Barack Obama and Benjamin Netanyahu just got worse

    The open loathing between Obama and Netanyahu just got worse

    The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
    French chefs get 'le huff' as nation slips down global cuisine rankings

    French chefs get 'le huff' as nation slips down global cuisine rankings

    Fury at British best restaurants survey sees French magazine produce a rival list
    Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

    Young carers to make dance debut

    What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
    Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

    Design Council's 70th anniversary

    Four of the most intriguing prototypes from Ones to Watch
    Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

    Dame Harriet Walter interview

    The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
    Art should not be a slave to the ideas driving it

    Art should not be a slave to the ideas driving it

    Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
    Bill Granger recipes: Our chef's winter salads will make you feel energised through February

    Bill Granger's winter salads

    Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
    England vs Wales: Cool head George Ford ready to put out dragon fire

    George Ford: Cool head ready to put out dragon fire

    No 10’s calmness under pressure will be key for England in Cardiff
    Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

    Michael Calvin's Last Word

    Time for Old Firm to put aside bigotry and forge new links