Wealth Check: Up to his neck in debt - but full of dreams

The problem

The problem

Daniel Bettridge was willing to get into financial difficulty to pursue a Masters degree in film studies in September last year, but a disappointing academic course has turned his £6,100 career development loan into a millstone around his neck.

Although he is now trying to get off the course and recover £3,200 in tuition fees, he still has to find £300 a month when the loan repayments start in October. That will come on top of his living costs for rented accommodation in Brighton.

Additionally, he already owes £9,000 in student loans from his undergraduate degree and has a £2,000 overdraft; about £160 is outstanding on a credit card.

Daniel has some savings - £652 in a Lloyds TSB account and £250 in an online Egg account - but says his monthly £326 rent will soon swallow this up. His part-time job is critical to easing the financial load, covering household bills and other student living costs.

His aim is not to have to scrimp and save. "I want to free myself from my financial burdens rather than always playing catch-up," he says.

"I'd like to be able to save for a deposit on a house and travel around the US. It's my dream to study at an American university some day."

Although he is mired in debt today, Daniel has plenty of plans for the future. He is passionate about the idea of running an online comic book shop as a business with his friends - beside a full-time job.

"I'd like to save a small sum so I could begin thinking seriously about this venture," he says, "but at the moment my finances are holding me back."

While Daniel wants to start saving for a pension and a deposit on a property, he cannot even consider this at present.

Interview by Esther Shaw

The patient

Daniel Bettridge, 22, from Brighton.

Job: full-time MA student and part-time media account manager.

Debts: a £6,100 career development loan, £9,000 in student loans, a £2,000 overdraft, and £160 owing on a credit card.

Income: up to £13,000 a year.

Savings: £900 in two accounts.

Investments: none.

Goal: to dig himself out of the red and, ultimately, save up for travel, a deposit on a home and a pension.

The cure

Daniel needs a reality check, says Drew Wotherspoon of independent financial adviser (IFA) Charcol. "He wants to draw together his finances to fund various ambitions, yet he has no real income."

He should wait until he is in full-time employment, adds Mr Wotherspoon, before seeking to realise his dreams.

As a starting point, Daniel should look at the interest he is paying on his various debts, says Patrick Connolly from IFA John Scott & Partners. "He should then look to restructure the debt with the highest rate or move it [if possible], so as to reduce his overall interest payments."

Debts

Daniel won't have to start repaying his student debt until he is earning £18,000 a year, says Mr Wotherspoon - so that at least can be deferred.

Mike Pendergast at IFA The One Group says Daniel should look at ways of boosting his disposable income - such as living with his family instead of renting, or renegotiating his loan repayments so they begin at a later date.

He could speak to both the loan provider and the university to explain that he has little income. "They may well understand and allow him to defer payments if he is not earning enough.

"While this will mean he incurs more interest, at least his current outgoings will be far more manageable."

He adds that if his course has genuinely not delivered what it promised in the prospectus, Daniel may have a case for taking action to recuperate his costs. Mr Wotherspoon recommends approaching a Citizens Advice Bureau for legal guidance.

Mr Pendergast says Daniel should look either to complete the course and then get full-time work for 12 months to reduce his debt, or pull out now and start work straightaway. "Daniel's business could be run alongside the full-time job to provide additional income."

But Mr Connolly warns that the venture could hinder rather than help Daniel's finances. "It is debatable if he should proceed with this while still in debt. [Much] will depend on the costs involved and whether Daniel is sure he'll make a success of it."

Savings

Other than holding some cash in an instant-access account to meet any short-term emergencies, Daniel should leave additional savings on hold, says Mr Connolly. "There is no point unless you are sure the return on your savings will exceed the interest payable on your debt."

Mr Wotherspoon recommends Daniel use some of the funds in the Egg account to pay off his credit card.

Property

Daniel "should not think about buying a house until his debt problems have been resolved", says Mr Connolly.

Retirement

"At 22, Daniel has a couple of years before he really has to start a pension," says Mr Wotherspoon.

Mr Pendergast adds that Daniel's pension savings can wait until his debt is reduced.

If you would like a financial makeover, write to Sam Dunn at The Independent on Sunday, Independent House, 191 Marsh Wall, London E14 9RS, or email s.dunn@independent.co.uk