Wealth Check: Prescription for a return to financial health

With £20,000 of debts, Kathy Lowe is having trouble managing her money, and seems to be getting deeper into the red. Kathy, 36, works in London for the NHS as the deputy manager of a psychiatric day hospital. She would like to study for a masters degree but is worried about the impact on her finances.

Four years ago, Kathy bought a 30 per cent share in a two-bedroomed flat under a shared ownership scheme with her local housing association. She has no savings, though she has been contributing to the NHS pension scheme since 1995. Kathy would like to pay off her debts in order to boost her available income. She also needs advice on how to invest for the future.

We asked three independent financial advisers for help: James Dalby of Bates Investment, Margie Chavasse of PI Financial Kingsland Wealth Management, and Colin Jackson of Baronworth Investment Services.

CASE NOTES

Kathy Lowe, 36, NHS manager

Personal: Earns £36,000.
Property: Owns 30 per cent of a two-bedroomed flat.
Pension: In NHS pension scheme since 1995.
Savings: None.
Debt: Loan of £18,000 with Tesco; overdraft of £400; £2,000 on credit card.
Monthly expenditure: Mortgage of £280 plus rent of £395; pension contribution of £183; loan and credit card repayments of £465; spending, including bills, of £600.

BUDGETING

Kathy's challenge is to improve her budgeting skills, says James Dalby. She should gain some comfort from the fact she sometimes has funds left over each month, as many people who are in debt don't have any surplus income to cover a social life and holidays.

Kathy should limit her spending until the loan and credit card debts are repaid, he suggests. While the prospect of making changes to her lifestyle will not be appealing, by dealing with the issues now, Kathy will help to set herself up for a better financial future.

DEBT

Dalby thinks Kathy chose wisely when she picked Tesco as the provider of her personal loan, and would suggest staying put as the rate she is paying (6.5 per cent) is very competitive. A seven-year term seems a long-time, but the payments are manageable and the charges are reasonable.

Margie Chavasse would advise Kathy to increase the loan by £2,000 and use this money to pay off her credit card debts, which are more expensive to service. If she keeps the same loan term, her monthly repayments would rise from £265 to £300 but she would not have to pay £200 to her credit card provider.

This would instantly save £165 a month, which Kathy could then save in a tax-free cash individual savings account. Opening the ISA immediately is important, so that she does not become accustomed to the extra money in her pocket. In future, this savings fund could be used to help finance her masters degree.

INVESTMENTS

Colin Jackson accepts that Kathy has barely enough to live on after paying her expenses each month. But he points out that it would be possible to pay a few pounds each month into a stock market fund offering a monthly savings scheme. Holding the fund within an ISA would protect the returns from tax and as long as Kathy does not invest more than £3,000 a year, this will not affect her right to also open a cash ISA.

MORTGAGE

To help reduce her outgoings, Chavasse found two lenders willing to take on Kathy's mortgage at a rate of 4.99 per cent. They were Woolwich, which would also charge legal and valuation fees, and Halifax, which would be fee-free.

Kathy cannot consolidate her £20,000 of debt into the existing mortgage since lenders taking on shared-ownership scheme borrowers do not allow this. However, remortgaging would still reduce her monthly payments by £40 a month.

As Kathy lives in a two-bedroom flat, another option for increasing her income would be to take in a lodger, suggests Jackson, though she will need the agreement of the housing association. Kathy will be able to receive rent of £4,250 before having to pay any tax.

PENSION

Kathy is quite right to contribute to the NHS pension scheme, says Dalby. It provides good value and, as a final salary scheme, doesn't come with any investment risk.

If she remains employed by the NHS she will have accrued 34 years' pension benefits by the time she is 60. This will provide a pension of £15,300 in today's money, based on her current earnings. She will also receive a lump sum of £45,900.

The State Pension, available to Kathy at age 65, will add a further £4,266 at current rates. So her total income at 65 will be about £19,000. If she wants more, Kathy should investigate the option of buying extra years of pension entitlement from her employer.

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

News
Emma Watson has become the latest target of the 4Chan nude hacking scandal
peopleThreats follows actress' speech on feminism and equality at the UN
News
Alan Bennett criticised the lack of fairness in British society encapsulated by the private school system
peopleBut he does like Stewart Lee
Sport
David Moyes and Louis van Gaal
football
Arts and Entertainment
Sheridan Smith as Cilla Black and Ed Stoppard as her manager Brian Epstein
tvCilla Episode 2 review: Grit under the glamour in part two of biopic series starring Sheridan Smith
PROMOTED VIDEO
Life and Style
tech
Life and Style
Alan Turing, who was convicted of gross indecency in 1952, was granted a royal pardon last year
life
Life and Style
life
Arts and Entertainment
Tennis player Andy Murray's mum Judy has been paired with Anton du Beke for Strictly Come Dancing. 'I'm absolutely delighted,' she said.
tvJudy Murray 'struggling' to let Anton Du Beke take control on Strictly
Life and Style
Vote with your wallet: the app can help shoppers feel more informed about items on sale
lifeNew app reveals political leanings of food companies
Arts and Entertainment
The cover of Dark Side of the Moon
musicCan 'The Endless River' carry on the tradition? See for yourself
Sport
New Zealand fly-half Aaron Cruden pictured in The Zookeeper's Son on a late-night drinking session
rugby
Arts and Entertainment
Worldwide ticket sales for The Lion King musical surpassed $6.2bn ($3.8bn) this summer
tvMusical is biggest grossing show or film in history
Voices
A new app has been launched that enables people to have a cuddle from a stranger
voicesMaybe the new app will make it more normal to reach out to strangers
Arts and Entertainment
Salmond told a Scottish television chat show in 2001that he would also sit in front of a mirror and say things like,
tvCelebrity Trekkies from Alex Salmond to Barack Obama
News
i100
Life and Style
food + drink
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

    Trainee / Experienced Recruitment Consultants

    £20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

    Trainee Recruitment Consultant - Soho

    £20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

    Trainee Recruitment Consultants - Banking & Finance

    £20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

    Quantitative Risk Manager

    Up to £80000: Saxton Leigh: My client, a large commodities broker, is looking ...

    Day In a Page

    Secret politics of the weekly shop

    The politics of the weekly shop

    New app reveals political leanings of food companies
    Beam me up, Scottie!

    Beam me up, Scottie!

    Celebrity Trekkies from Alex Salmond to Barack Obama
    Beware Wet Paint: The ICA's latest ambitious exhibition

    Beware Wet Paint

    The ICA's latest ambitious exhibition
    Pink Floyd have produced some of rock's greatest ever album covers

    Pink Floyd have produced some of rock's greatest ever album covers

    Can 'The Endless River' carry on the tradition?
    Sanctuary for the suicidal

    Sanctuary for the suicidal

    One mother's story of how London charity Maytree helped her son with his depression
    A roller-coaster tale from the 'voice of a generation'

    Not That Kind of Girl:

    A roller-coaster tale from 'voice of a generation' Lena Dunham
    London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

    London is not bedlam or a cradle of vice

    In fact it, as much as anywhere, deserves independence
    Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

    Vivienne Westwood 'didn’t want' relationship with McLaren

    Designer 'felt pressured' into going out with Sex Pistols manager
    Jourdan Dunn: Model mother

    Model mother

    Jordan Dunn became one of the best-paid models in the world
    Apple still coolest brand – despite U2 PR disaster

    Apple still the coolest brand

    Despite PR disaster of free U2 album
    Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

    Despite the result, this is the end of the status quo

    Boyd Tonkin on the fall-out from the Scottish referendum
    Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

    Manolo Blahnik: Flats, Englishness, and Mary Beard

    The shoe designer who has been dubbed 'the patron saint of the stiletto'
    The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

    Scrambled eggs and LSD

    Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
    'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

    'Normcore': Blending in is the new standing out

    Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
    Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

    New leading ladies of dance fight back

    How female vocalists are now writing their own hits