Wealth Check: An Olympic bid to drag down debts

Our financial makeover for readers

Debt looms large in the finances of Rebecca and Andrew Martin. First, there's an £11,500 personal loan with Egg at 6.7 per cent; this paid for a new car.

After this, £8,000 is spread across two credit cards with Egg and Barclaycard, both at 0 per cent interest thanks to introductory offers on balance transfers.

And university costs left Andrew owing £5,000 on a personal loan from Lloyds TSB (at 19.9 per cent), and Rebecca £8,000 in student loans.

Despite this, they have saved £3,900 in a mini cash individual savings account (ISA) with Abbey (paying 4.3 per cent), £100 in premium bonds, and £2,650 in a with-profits bond offering tax-free saving for teachers.

They also set aside £50 a month as part of Savings Gateway, a pilot project under which for every £5 they save, the government contributes £1 (in their case, through the Halifax).

Rebecca and Andrew bought their Essex home via a shared ownership scheme with the East Choice housing association. They have an £80,000 mortgage with Leeds & Holbeck for 60 per cent of the property, and this costs £570 a month, including life insurance.

They also pay £140 a month in rent to the housing association for the other 40 per cent - a stake they are considering buying after the London Olympic bid success.

Andrew has paid into the National Teachers final salary scheme for five years; Rebecca has no pension.

Interview: Esther Shaw

The patients

Rebecca and Andrew Martin, both 28, from Dagenham, Essex.

Jobs: Rebecca is a part-time church administrator, Andrew a history teacher.

Joint income: £46,500.

Savings: £3,900 in a mini cash ISA; £100 in premium bonds; £100 in a Halifax savings account; and £2,650 in a with-profits savings scheme for teachers.

Investments: £170 of shares in Bloomsbury Publishing.

Goal: to pay off their debts and buy the rest of their home.

The cure

The Martins must knuckle down and whittle away their debts, says Selina Short from independent financial adviser (IFA) Towry Law. But their combined income should allow them to buy the rest of their home from the housing association, she adds.

Debts

The 19.9 per cent rate on the £5,000 Lloyds TSB loan is very high, so consider moving to a loan charging less interest (as close as possible to that on the Egg car loan), says Ms Short. There will, however, be a fee for early settlement at Lloyds TSB.

Using 0 per cent balance transfer offers to pay no interest on the £8,000 card debt is a sound move, says Justin Modray of IFA Bestinvest. They should keep rolling over from one deal to another until the debt is paid off.

Rebecca won't have to repay her cheap student loan - charged at 3.2 per cent from next month - until her salary reaches £15,000 a year, adds Vivienne Starkey of IFA Equal Partners.

Savings/investments

Andrew's teacher's bond is invested in a with-profits fund - a type of investment that has struggled in recent years, says Mr Modray. "I recommend he encash the policy [if there aren't too many early settlement costs] and use his annual £7,000 equity ISA allowance to access a diverse investment fund like Jupiter Merlin Growth."

The chance of a big win with an individual premium bond is slim, he adds: one in 13 billion for the £1m jackpot.

While the Bloomsbury shares might produce a slight profit, there is a higher risk attached to investing in just one company rather than spreading the money, warns Ms Short.

The Martins could also get a better ISA deal by switching to the Yorkshire building society's e-ISA, paying 5.2 per cent, says Ms Starkey.

Property

Ms Short thinks the couple can afford to buy the rest of their property - at a cost of £64,000 now - from the housing association. The increased mortgage would be broadly equivalent to the current combined mortgage and rent payment.

Retirement

"Rebecca could contribute to a stakeholder personal pension," says Ms Starkey. Legal & General offers a range of funds with low annual charges of no more than 1.5 per cent, she adds.

Protection

Andrew will have two times salary under the death-in-service benefits with his teachers' pension plan, says Ms Starkey.

If they want extra life cover for Rebecca, adds Mr Modray, "term assurance offers a cheap way".

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