Wealth check: a surgical strike to cut debt

Being a nurse can be hard work, writes Ben Chu, and so can managing money

It can be tiring being a staff nurse, especially on the dreaded 12-hour shift. But Sasha Strike says she really enjoys the job. "I get on well with the patients and the doctors are fine," she says. "They sometimes have their moments but I think we work well as a team."

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It can be tiring being a staff nurse, especially on the dreaded 12-hour shift. But Sasha Strike says she really enjoys the job. "I get on well with the patients and the doctors are fine," she says. "They sometimes have their moments but I think we work well as a team."

Ms Strike qualified five years ago for a salary of £12,000 a year. Not a fantastic salary, but she dodged debt by living with her mother during her training, and now she is earning more. After a couple of years at the Freeman hospital she is 27, and at the psychiatric unit of Newcastle General Hospital in the Fenham district on Tyneside.

She lives with her partner, Carl, in a three-bedroom semi-detached house in Westerhope, a suburb of Newcastle. "Some people call it 'West of Hope'," she says. But things are not quite that bad yet for Ms Strike and her partner, who plan to start a family in a few years.

They have a shared-ownership mortgage, which means they own 50 per cent of the house and pay rent on the other half to the builder, Nomad. They will buy the house eventually, although Ms Strike is still worried about her partner's financial situation. "He works in a factory on a week-to-week contract," she says. "They've been telling him they're going to put him on a permanent contract for years, but it's still not happened."

Her other headache is her credit card debt. "I've got so many store cards and credit cards, and it's sometimes hard to keep up with the bills, and I worry about how much interest I'm paying," she says. Ms Strike has a second-hand Rover Metro she bought a year ago, essential since she does shift work and cannot rely on late-night buses.

She has been paying £100 a month into the NHS pension scheme since she was 22, and has no other savings. Her main aims are to buy their house outright, add value to the property by refurbishing it and to take things from there.

We put her case to Robert Clayton, the co-director of Cathedral Financial Management in Exeter, Paul Willans, financial planning manager of Bell Potter Solicitors in Surrey and Amanda Davidson of Holden Meehan, a London-based independent financial adviser.

Profile

Name: Sasha Strike

Age: 27

Status: Living with partner, Carl

Occupation: Staff nurse in psychiatric unit at Newcastle General Hospital, Tyneside

Education: Diploma in psychiatric nursing

Salary: £18,800 per annum, partner approximately £1,000 per month

Property: three-bedroom semi-detached house in Westerhope, Newcastle

Motoring: Rover Metro Rio

Outgoings: Per month: Mortgage £182; Rent £110; Isa for mortgage £44; Council Tax £76; Gas/Electricity £57; Water £20; Car insurance £82; Telephone £20; Loan interest £97; Pet insurance for dog £14; TV rental £33; Digital subscription £32; Food £140; Petrol £70; Gym membership £14.95; Credit card repayment £400 (partner pays this); Going out £100

Investments: none

Debts: Overdraft £400; five credit cards; six store cards; £50,000 mortgage with the Halifax

'Cut up your cards and your £600-a-month debts'

Solution one: Debt

All advisers agree Ms Strike's main priority has to be debt consolidation. She owes £3,500 on her overdraft, loan and credit and store cards. She is paying £600 a month in unsecured interest and debt repayments. Her interest rates are 18 per cent APR on the credit cards and more than 28 per cent APR on the store cards. Amanda Davidson says Ms Strike is effectively paying almost half her total net yearly income in interest, working days a week just to pay the interest.

"She must stop being a credit-card slave," Ms Davidson says. Robert Taylor says she should consolidate her debts on one credit card, which would give her a zero per cent APR on transfer balances for six months. Bank of Scotland or Birmingham Midshires can do this.

Ms Davidson says there is no shame being an "interest rate tart" by shopping around for the best deal. This would give her time and space to start making inroads into that debt. Mr Willans says she could consolidate her debts now by taking out a more attractive personal loan. A three-year one of £3,500 with Northern Rock at an APR of 8.1 per cent fixed would cost her £110, freeing £490 per month. Ms Davidson, Mr Clayton and Mr Willans all says whatever else she does, she should cut up those cards.

Solution two: Spending

The IFAs say Ms Strike must get her expenditure sorted out. That means all store cards must go. "They are absolute killers," Ms Davidson says. "You have to be very tough with them and ignore those special offers."

Mr Clayton says little things might make a big difference to Ms Strike's finances. For instance, she is paying £33 a month to rent a TV. She could buy a TV for not much more than that. He also asks whether they need a digital TV subscription. Mr Williams agrees Ms Strike needs a car to do her job, since she does not want to be travelling on late-night buses, but Ms Davidson says her car insurance does seem high and she should hunt for a lower rate. Mr Clayton wants Ms Strike to set up a contingency fund in case she needs ready cash., such as her car needing new tyres. He says £4,000 would be suitable.

Solution three: Pension

Ms Strike has been paying into the NHS pension scheme since she qualified five years ago. Robert Clayton says this is a particularly generous scheme, a 1/80th final salary one with the employee paying in 6 per cent of salary. Midwives and mental health workers also have the option of retiring at 55. On top of this there is a clause which means that after 20 years' service, each year worked counts double, up to a maximum of 40/80ths. Mr Willans agrees she has already made an excellent start in terms of retirement planning. But he says she and her partner may wish to make further contributions via a stakeholder pension. This would allow them maximum flexibility and low charges.

Ms Strike has life insurance, which the advisers regard as shrewd, but Robert Clayton suggests she might want to get critical illness cover as well.

Solution four: Property

The house Ms Strike and her partner have is worth about £100,000. They have a £50,000 shared-ownership mortgage with Halifax which means they own half of it. The other half is owned by Nomad, the housebuilder, to whom they pay rent to cover the remainder. They hope to buy the other half of the house. Ms Davidson thinks buying the house outright is a good aim and a positive move. Mr Clayton says her mortgage lender would want proof of a work contract for her partner if they were to lend on the security of his income.

He thinks two options are open to Ms Strike. She can either go for an "income stretch" option which would mean a 100 per cent loan-to-value mortgage, but for that she would need greater income or her partner to have a permanent contract. The other option is to go for "self-certification". This would mean that a prospective mortgage provider would check they were in permanent employment and allow them to get a mortgage slightly bigger than they would usually be allowed on their salaries.

Either way, Ms Strike and her partner would need to find a deposit of around 10 per cent of the value of the house, which is £10,000.