Wealth Check: Start by paying off the debts that carry the highest interest

Peter Reynolds lives in a house in Chichester that he bought six months ago. He earns a decent salary, but the £179,500 purchase price left him stretched, and his mortgage is interest-only. That makes the monthly payments more affordable but for now the capital he owes is not being repaid.

Also, Peter doesn't have the money to pay a £10,000 service charge due in 18 months for new double-glazing he was required to install shortly after moving into his new home.

Saving for a pension is Peter's final financial priority - currently he has no retirement savings at all.

We asked three firms of financial advisers - Chase de Vere, Hargreaves Lansdown, and JSP Towry Law - for their help.

Case notes

Peter Reynolds, 29, Chichester, West Sussex

Personal: Peter works in the oil industry, earning between £30,000 and £40,000 a year

Savings: £500 in an online account; no investments or pension

Mortgage: £162,000 Northern Rock loan costing 5.99 per cent a year

Debt: £1,300 on NatWest credit card; £8,000 car loan costing £179 a month

MORTGAGE AND DEBT

"Getting the mortgage sorted is the priority," says Ben Yearsley of Hargreaves Lansdown. "His options are to change to a repayment mortgage or to start a savings plan such as an ISA to cover the mortgage capital."

If Peter puts £200 a month into a stocks-and-shares ISA, Yearsley says, he can still open a cash ISA, which could be a good savings vehicle for needs such as the double-glazing bill. With 23 years to go until the mortgage is due to be repaid, a stock market ISA could be a good bet.

There is a risk the ISA might not grow enough to repay the mortgage, though Peter will be able to monitor performance. But the total monthly payments on this model will be smaller than if Peter switches to a straightforward repayment mortgage. JSP Towry Law's Patrick Connolly adds: "The initial focus should be to pay off the debt where the highest interest is charged - the car loan or the credit card."

Peter is worried about the double-glazing bill, but there's no point saving money if he earns a lower rate of interest on the cash than he pays on his debt. At the very least, Connolly suggests, Peter must consider cheap credit-card deals such as 0 per cent offers and move his NatWest account.

SAVINGS

"Raising £10,000 won't be easy, and the only option may be to take out another loan, maybe added to the mortgage," says Susan Hannums of Chase de Vere. "Peter should also put as much as he can into a high-paying savings account."

Peter must be more organised about money. "Budgets are not simply about saving money; just monitoring it is important," Hannums says. "This shouldn't stop him going out or buying clothes, say, but if Peter puts by a set amount each month to spend on luxuries, he's less likely to overspend."

PENSION

Hannums' colleague Anna Bowes says a low-cost pension could be a good starting point: "A stakeholder pension could be right, if Peter chooses one with a good choice of funds, such as Legal & General or Standard Life." These plans will allow Peter to make contributions of as little as £20 a month, though Bowes suggests he tries to save more.

Yearsley adds: "As a broad rule, you should save half your age as a percentage of your salary each year." In other words, Peter should be saving 13.5 per cent of his salary, which equates, after tax relief, to about £240 a month.

This may not be realistic for Peter, but the earlier pension money can be saved, the more it will produce in old age.

OTHER ISSUES

Yearsley says Peter must address the issue of protection; he has no insurance that would pay out if he was unable to work due to ill health or an accident.

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

PROMOTED VIDEO
Sport
Diego Costa, Ross Barkley, Arsene Wenger, Brendan Rodgers, Alan Pardew and Christian Eriksen
footballRodgers is right to be looking over his shoulder, while something must be done about diving
News
i100
Life and Style
gaming
Arts and Entertainment
Carl Barat and Pete Dohrety in an image from the forthcoming Libertines short film
filmsPete Doherty and Carl Barat are busy working on songs for a third album
Arts and Entertainment
films
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

    Ashdown Group: PR, Marketing & Events Executive - Southwark, London - £35,000

    £30000 - £35000 per annum + benefits: Ashdown Group: PR Marketing & Events Exe...

    Selby Jennings: C++ Developer – Hedge Fund – New York

    $80000 - $110000 per annum, Benefits: Bonus and Employee Investment Scheme: Se...

    Selby Jennings: Java Developer Enterprise Specialist –Paris,France

    €30000 - €50000 per annum, Benefits: Competitive Bonus: Selby Jennings: Java D...

    Selby Jennings: QA Engineer Lead – Hedge Fund – Chicago

    $60000 - $90000 per annum, Benefits: Competitive Bonus and Employee Investment ...

    Day In a Page

    In a world of Saudi bullying, right-wing Israeli ministers and the twilight of Obama, Iran is looking like a possible policeman of the Gulf

    Iran is shifting from pariah to possible future policeman of the Gulf

    Robert Fisk on our crisis with Iran
    The young are the new poor: A third of young people pushed into poverty

    The young are the new poor

    Sharp increase in the number of under-25s living in poverty
    Greens on the march: ‘We could be on the edge of something very big’

    Greens on the march

    ‘We could be on the edge of something very big’
    Revealed: the case against Bill Cosby - through the stories of his accusers

    Revealed: the case against Bill Cosby

    Through the stories of his accusers
    Why are words like 'mongol' and 'mongoloid' still bandied about as insults?

    The Meaning of Mongol

    Why are the words 'mongol' and 'mongoloid' still bandied about as insults?
    Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

    Kenyans still waiting for justice over Mau Mau uprising

    Thousands join class action over Britain's role in the emergency
    Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

    The last Christians in Iraq

    After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
    Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

    Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

    Britain braced for Black Friday
    Bill Cosby's persona goes from America's dad to date-rape drugs

    From America's dad to date-rape drugs

    Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
    Clare Balding: 'Women's sport is kicking off at last'

    Clare Balding: 'Women's sport is kicking off at last'

    As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
    Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

    Oh come, all ye multi-faithful

    The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
    Dr Charles Heatley: The GP off to do battle in the war against Ebola

    The GP off to do battle in the war against Ebola

    Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
    Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

    Flogging vlogging

    First video bloggers conquered YouTube. Now they want us to buy their books
    Saturday Night Live vs The Daily Show: US channels wage comedy star wars

    Saturday Night Live vs The Daily Show

    US channels wage comedy star wars
    When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

    When is a wine made in Piedmont not a Piemonte wine?

    When EU rules make Italian vineyards invisible