Wealth Check: The retail is therapeutic, the debt isn't
Each week we give 'Independent on Sunday' readers a financial makeover
Sunday 13 June 2004
Surely no 21-year-old can be expected to have their finances in perfect working order? Just out of college or school, few youngsters will be investing in individual savings accounts (ISAS) or putting away thousands of pounds for their retirement.
Zoe Peartree is no different but says she has become aware she needs to take action, especially now she is about to move out of her parents' home and rent a house with friends.
"I find it hard to stop spending. I'd like to establish a plan that lets me use my money much better. My credit card debt is really hard to manage."
Her debts amount to just over £8,000. She owes £80 on a New Look store card, £1,200 on a Mint credit card, has a £400 overdraft with HSBC, and owes £6,700 on a personal loan she took out to buy a car
The interest incurred is considerable as Zoe makes either the minimum payment - 5 per cent of the balance - on her store and credit cards each month, or as much as she can afford.
The New Look store card may be her smallest debt but the interest is huge as it has an annual percentage rate (APR) of 29.5.
She pays 14.8 per cent interest on her overdraft but hasn't paid any interest on the balance on her Mint card for the past threemonths as it has a 0 per cent introductory period; this has three months left to run.
The personal loan is with Nationwide but Zoe actually pays her father £236 a month as it is in his name; the lender turned down her application. "I have tried to pay the store card off, but quite often I end up adding more debt to it," she says.
Zoe has made some provision for her future. Since starting her job as an office assistant 18 months ago, she has been paying £50 a month into her employer's final salary pension scheme.
She has managed to save money by living at her parents' home but is poised to move out and rent a shared house near Chatham in Kent for £200 a month. "Renting will be fine but with all the bills that I'm going to have to share, I might find it even harder to keep track of my money," she says.
Although her car is a big expense, she will spend less time and money travelling once she has moved.
Her other savings - £150 in a mini cash ISA with Kent Reliance - earn 4.61 per cent. But she is planning on spending this on a forthcoming holiday.
Interview by Sam Dunn
Zoe Peartree, 21, from the Isle of Sheppey.
Job: office assistant.
Income: £12,500 a year.
Savings: £150 in a mini cash individual savings account.
Debts: £8,400 spread across credit cards, a personal loan and an overdraft.
Goal: to cut monthly spending drastically.
"It's always hard to straighten a crooked tree," says John Donaldson at independent financial adviser (IFA) Positive Solutions, "so Zoe is right to try to get her finances organised at an early stage."
However, today's trend for spending rather than saving means it won't be easy for Zoe to chip away at her debt, warns Caroline Anstee at IFA Destini Fiona Price.
Setting herself a reasonable timescale for whittling down her debt should be the priority, adds Mr Donaldson.
At the end of the 0 per cent period with Mint, Zoe should switch the debt to a similar offer from another card provider to avoid racking up interest, Mr Donaldson says.
With an APR of nearly 30, New Look's store card is expensive and should be switched to the same 0 per cent deal.
One way to clear her overdraft would be to take out a loan and then make the regular monthly payments, recommends Ms Anstee. "It would then be better to run the bank account in credit as it gives a much more positive feeling."
However, Mr Donaldson disagrees: he believes Zoe should simply aim to reduce her overdraft.
It is a tedious chore, but Zoe should make a list of what she spends her money on each month, says Ms Anstee. Whether it's small change for a pint of milk or a full tank of petrol paid for with her credit card, she can then see exactly where her cash is going.
This will enable her to spot when she makes impulse purchases and overspends.
Zoe must then cut back on less important expenditure and set down a "repayment programme" - even if it is as little as £20 a month.
Although it is always wise to build up savings, clearing her debt should be Zoe's priority, advises Ms Anstee.
However, Mr Donaldson suggests she carry on saving in the Kent Reliance mini cash ISA and uses this to build up a "rainy day" fund equal to three months' salary.
She could even consider investing in a stocks and shares ISA, he adds. Some providers accept as little as £25 a month. And even this sum invested for, say, 15 to 20 years should grow into several thousand pounds.
Joining her employer's scheme "was the right thing since a delay of five years at this stage could reduce her eventual benefits dramatically", says Mr Donaldson.
Even after she has reviewed her finances, Zoe should try to maintain her £50-a-month contribution, adds Ms Anstee.
If you would like a financial makeover, write to Melanie Bien at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or email email@example.com
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Pope Francis issues top 10 tips for happiness
- 2 Disney heiress Abigail disowns her share of family profits in West Bank company
- 3 Now diplomacy has failed, boycotting Israel might be the only way we can protect the people of Gaza
- 4 Israel's propaganda machine is finally starting to misfire
- 5 Kelsey Grammer forgives the man who raped and murdered his sister in 1975
The secret report that helps Israel hide facts
Land for gas: Merkel and Putin discussed secret deal could end Ukraine crisis
Woman and two children killed by mob in riots over 'blasphemous' Facebook post in Pakistan
Richard Dawkins tweets: 'Date rape is bad, stranger rape is worse'
Putin is 'thuggish, dishonest and reckless', says British ambassador to US
Boozy, ignorant, intolerant, but very polite – Britain as others see us
- < Previous
- Next >
iJobs Money & Business
£300 - £350 per day: Orgtel: Financial Analyst, Forecasting, Halifax, Banking,...
£500 per day: Orgtel: Business Architect - Banking - Bristol - £500 per day A...
£200 - £500 per day + competitive: Orgtel: I am currently working on a large p...
£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...
Day In a Page
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000