Wealth Check: £12,000 in the red and a mortgage to repay

Each week we give 'Independent on Sunday' readers a financial makeover

The problem

Four credit cards, a personal loan, an in-store credit deal and mortgage payments on a new flat have put a severe strain on Graeme Duffy's finances.

His biggest individual debt is £3,500, which he has moved on to a Barclaycard to take advantage of the zero annual percentage rate (APR) for the lifetime of the balance transfer.

But Graeme also has £2,000 on a second Barclaycard with an APR of 15.2. He owes a further £2,000 to Accucard, at 0 per cent interest for the next six months, and £600 on an MBNA card with an APR of 15.9.

Graeme also owes £3,200 to his father and recently bought a £1,000 sofa on credit, although this is a three-year interest-free deal and repayments don't start until August next year.

"I can manage my debts as long as I'm paying off the minimum required each month," Graeme says. "But I really do want to cut them down."

Freeing up spare cash to do this is not easy. Last month Graeme bought his first home - a £245,000 one-bedroom flat in Putney - through a shared ownership scheme run by Notting Hill Housing Group. He has an £85,000 interest-only discount mortgage with Leeds & Holbeck building society, now at 5.29 per cent, but also pays £344 a month in rent to the housing association. On top of this, he has to pay £102 a month for maintenance and ground rent.

With all these outgoings, he feels unable to put money aside in a separate savings plan for his interest-only mortgage.

The property wasn't cheap, Graeme admits, but he adds: "I wanted to get on the ladder. In the long term, I'd like to buy the other two-thirds of the flat."

In a year's time, he hopes to have made enough of a profit to be able to sell up and move, with a deposit for his next place.

He pays 8 per cent of his salary into a "defined contribution" pension scheme and is aware that "it's a good thing to do". But he feels he's too young to worry about a pension and wonders how much value his monthly contributions really have.

Interview by Sam Dunn

The patient

Graeme Duffy, 26, a marketing executive from Putney, south-west London. Income: £27,000 plus bonus of up to 30 per cent of salary. Savings/investments: none. Debts: £9,100 on credit and store cards; loan of £3,200. Goal: to tackle debts and make a profit on his flat.

The cure

Our panel of independent financial advisers (IFAs) are brutally frank about what Graeme must do to get his finances under control - cut his debts.

"They are a millstone that will hinder his ambitions to buy a greater share in his property," warns Justin Modray of IFA Bestinvest.

A sensible move would be for Graeme to earmark the annual bonus he receives as part of his salary to make headway with his debt repayments, suggests Anna Bowes of IFA Chase de Vere.

Making a list of his monthly outgoings and drawing up a budget will help him see where to trim his spending, advises Vivienne Starkey of IFA Equal Partners. This should mean he can free up some money and slowly clear his debts.

Debt

Making only the minimum monthly credit card repayments could leave Graeme grappling with his debts "for many, many years", warns Ms Bowes.

He first needs to sort out the high-interest MBNA and Barclaycard balances by transferring them to 0 per cent deals, either on his existing cards or on new ones.

"Once this is done, Graeme should focus on the card where the 0 per cent deal runs out first," she advises.

If he then fails to clear this in time, the debt should be switched to yet another interest-free deal while he continues to pay it off.

It will take iron discipline but, in the end, Graeme will be able to chip away at the debt.

Although it's quite possible to manage a debt using a raft of 0 per cent deals, it's far better to wipe it out and cut up your cards, Ms Bowes stresses.

Retirement

Ms Starkey recommends Graeme stick with his pension deal, but both Ms Bowes and Mr Modray suggest there is scope for cutting back his pension payments.

"In the shorter term, he could reduce [his monthly contributions] either to help pay off his debts or buy a greater share in his property," says Mr Modray.

But when he is in a stronger financial position, he should increase his contributions.

Property

Graeme should not pin all his hopes on the housing market over the next year, our IFAs warn. Recent reports, including those from property websites Rightmove and Hometrack, suggest London house prices are deflating.

He must also remember that, since he has a discounted mortgage, any interest rate rises will increase his repayments, warns Ms Bowes.

"It is always vital to consider the worst-case scenario so that you could deal with it if it were to happen," she says.

Property prices may climb in Putney but it's all relative if you're looking to move on.

"Unless Graeme considers moving to a different type of property or to a cheaper area, any new place will be in the same sort of price range," Ms Bowes adds.

Since he has only just taken out his mortgage with Leeds & Holbeck, a switch to a cheaper deal is likely to incur penalties.

Savings/investments

Graeme should concentrate on paying off his debts before starting to save regularly, advises Ms Starkey.

Ms Bowes agrees but adds that, when he does have money to put aside, a mini cash individual savings account (ISA) such as Abbey's (currently paying 5.35 per cent) will be the best place to start.