Wealth Check: 'I need to clear my debts so we can plan for children'

Helen Deighton, 29, lives in Bath and has been a marketing controller for four years. She lives with her partner, Eddie, and is currently struggling to pay off her credit card and bank loan debts.

Since moving in with her partner she has been refused low-rate loans and 0 per cent credit cards. She owes a combined amount of £18,500. She doesn't have a mortgage and currently has no savings or pension plan. She wants to clear the debt as quickly as possible so that she can think about starting a family in a few years' time.

We asked three financial advisers for their advice: Danny Cox of Hargreaves, London; Ian Hudson of Hudson Green & Associates Ltd; and Matthew Woodbridge of Chelsea Financial Services.

Case notes: Helen Deighton, 29, marketing controller, Bath

Income: £21,500 pa
Monthly expenditure: £1,040
Debts: £18,500 on credit cards and bank loan.
Savings: None

Debt

The cards that Helen is repaying are on various interest rates. Cox says that she should repay the card charging 21 per cent interest first. " This is costing Helen £210 per year in interest for every £1,000 she has borrowed. This should be repaid first and as quickly as possible."

Cox suggests that Helen should adjust her lifestyle to save money and focus on debt repayment. "This could involve walking instead of taking the bus or taking sandwiches to work." Taking a second job at the evenings or weekends would also increase her income and cut down on any socialising time.

Cox added that there could be a credit problem with the address she is currently at and that credit checks might be able to help with this.

Hudson calculated that if Helen committed to finding an extra £200 to clear her credit card debt, choosing the most expensive card first and repaying £350 in total from this card, the card will be clear of debt by March 2009.

"During this time, you will find your disposable income reduces. However, there is light at the end of this tunnel, and as this specific debt is cleared, you should then use the same principal and employ the £350 to clear your other cards," says Hudson.

Hudson calculated it will take 43 months. "Although the cost of removing the debt will be higher in the initial months costing around £635 per month, it will gradually fall to £440 a month, in month 24, falling to a zero cost in month 43, not taking into account the bank loan."

Woodbridge adds that Helen must curb any expensive spending and use as much income as possible to curb the debt. "Her first action should be to cut up the cards. This is a symbolic action that shows she is on the road to recovery."

Savings

Cox says that once the debts are under control, Helen should budget to live within her means and start to put money in a Mini Cash ISA, where her savings will be tax-free.

Hudson advises clearing all debt before making other provisions. "By clearing your debt and sticking to it, you will then have developed the habit of putting money away, so making provision for other financial commitments should prove less challenging and more rewarding."

Woodbridge says that if Helen wishes to have children, she will need to save for their future but that it's more important to clear the debt first as the interest paid on savings is less than that charged on the debt.

Talking to her bank to lengthen the term of her bank repayments would allow her to reduce debts on her high-interest credit cards in the short term.

Once debt free she can put £50 a month into an ISA and begin a pension matching what her employer is paying on the company pension.

He adds: "The financial position of her partner is unclear, but if they wish to have a family together and her partner is solvent, he should begin to save, while Helen concentrates on debt management."

Payment protection

Cox says that Helen should think about how the debts would be repaid in the event of illness or death.

"Her employer may continue to pay her salary for a time if she were ill and there also could be a death in service scheme. Helen should check the details of her entitlements." Hudson says: "As soon as you feel your debt management is under control, you should review your protection situation in more depth."

To find a financial adviser in your area, visit www.unbiased.co.uk.

For a free financial check-up, write to Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk