Financial Makeover: VICTORIA FRANCIS - Sinking in a sea of debt

NAME: VICTORIA FRANCIS AGE: 22 OCCUPATION: UNIVERSITY STUDENT

Victoria is in the final year of a three-year degree course in information and media at the University of Brighton.

She has the following debts: pounds 5,000 to the Student Loan Company; an overdraft of pounds 1,600 (which is up to its limit) and two credit-card debts totalling pounds 1,700. She has reached the expenditure limit on one of the cards. The loans have all been spent.

Victoria is finding it difficult to manage to live and pay the minimum payments on these debts on her income (pounds 34 per week from a part-time job and pounds 200 per month contribution from her parents, which pays her rent). Her average weekly expenditure, not including the credit-card repayments or her rent, is pounds 102. Victoria is currently looking for work after she graduates, in either IT or the media.

The adviser: Sue Edwards, London Money Advice Development Officer at the National Association of Citizens Advice Bureaux. All Citizens Advice Bureaux (CAB) can provide free, impartial, confidential and independent advice about personal debt problems. Look in your local phone book or Yellow Pages to find your nearest CAB.

The advice: Victoria's debt problem is typical of that faced by many students in higher education today. Since 1990, successive governments have taken away most students' rights to state benefits during the vacations, have reduced entitlement to grants and have set up a system whereby students are expected to fund their higher education through student loans and through other forms of credit.

CAB advisers go through a systematic process to enable people in debt to deal with their problem. This includes checking whether they are liable to pay their debts; looking at ways of increasing their income; assisting them to plan their budgets; sorting out which of the debts are priority according to the way in which each creditor can enforce the debt; helping them choose the most appropriate strategy for dealing with their debt problem, and assisting by advice or negotiation the implementation of the chosen strategy.

For the strategy to work, the debtor should not take out any further credit - however, this can be nigh-on impossible for students, as they are expected to live on credit.

Victoria's problem is that her average expenditure exceeds her income by nearly pounds 70 per week. She has been using the sources of credit available to her to live on.

She is not in a position to increase her income very much by working additional hours, as she needs to have time to do her coursework and study for her finals in June.

Victoria is unable to claim any state benefits until her course finishes. She will then be able to claim income-based Jobseekers' Allowance of pounds 40.70 per week and housing benefit to cover all or part of her rent (the rules relating to housing benefit are quite complicated, particularly for those aged under 25). The only realistic source of increasing her income at the moment would be to check whether her parents are able to provide her with extra money.

Consequently Victoria needs to look at whether she could reduce her expenditure. Her average weekly expenditure is broken down as follows: food pounds 35; electricity pounds 5; telephone pounds 5; launderette pounds 5; bus fares to college pounds 10; lunches and drinks at college pounds 6; clothes and cosmetics pounds 15; entertainment pounds 15; books and stationery for her course pounds 4; and TV licence pounds 2.

However, even if Victoria cuts out items of expenditure such as lunches at college, clothes, cosmetics and entertainment, and reduces her food expenditure to pounds 20 per week, her expenditure will still exceed her income by pounds 16 per week. Victoria is therefore not in a position to pay anything towards her debts at the moment without increasing her debt problem.

Priority debts are those where non-payment would lead to homelessness, loss of supply or loss of liberty. Debts in this category include rent or mortgage arrears; gas or electricity bills; council tax arrears and magistrates' court fines. Other creditors can enforce debts only by suing in the county court (sheriffs' court in Scotland). All Victoria's debts are non-priority.

Victoria does not have to worry about repaying her student loans yet. She will not be expected to start repaying these until April 2000. If she has not found work by then, or her gross income is less than 85 per cent of the national average earnings, she can apply to the Student Loans Company for a deferment. Once Victoria is earning above this amount, she will be expected to repay the debt within 5 years.

The preferred money advice strategy would be for Victoria to contact the credit-card companies and the bank to explain her current personal and financial situation and ask them to freeze any action on her accounts until she is able to find work.

She should agree to contact them again with an update after she graduates. When she starts work, she should work out her income and expenditure again. If she has available income, this should be shared between her creditors on a pro-rata basis according to the amount she owes each. At this point Victoria should also consider opening a new bank account to pay her wages into.

The drawback is that it may affect Victoria's future access to credit. Creditors pass information about the regularity of payments as well as county court judgments to the main credit reference agencies, Experian and Equifax.

However, future access to credit depends on other factors, such as length of employment, housing status and salary. Victoria can request a copy of her credit reference by sending pounds 2 to each of the agencies and can ask the agencies to alter any inaccurate information.

This strategy also assumes that Victoria does not increase her indebtedness. As shown above, this is going to be difficult whilst Victoria is still at university.

In order to get to the end of her course, Victoria will have to cut her outgoings and ask either her parents for more money or the bank to extend her overdraft. The reality is that Victoria will have a debt repayment problem for the next five years or so.