A pile of debt - but I want a mortgage

Lyndsey Broadhead
Age: 23
Lives: in East London
Occupation: Children's assessment officer
Earns: ?19,500
Mortgage: None
Debts: Student loan, bank loan and credit cards
Investments: None
Pensions: Member of occupational scheme
Aims: To get finances in order and find out about
shared ownership

The government's decision to look again at providing maintenance grants for students will come too late for Lyndsey, who graduated from Newcastle University in 1999 with a degree in politics and significant debt, including student loans of £5,000 and a bank overdraft.

When she finished university Lyndsey decided to stay on in Newcastle to be with her boyfriend. But things did not work out as she had hoped. She says: 'It was difficult for me to find any type of job there, let alone one related to my degree.' She ended up taking temping jobs.

Her income was irregular, which led to an increase in her overdraft and credit card balances. Her existing bank was none too sympathetic, but Lloyds TSB offered her a graduate loan to consolidate her debts, plus some extra money on top. 'I used the extra cash - about £1,500 - to go on a flash end-of-millennium skiing holiday in Italy,' she says.

It seemed like a good idea at the time but Lyndsey admits the bank loan, which now totals £6,000 has become 'a bit of a millstone'.

'It was lovely to have that extra money when I first got a loan, but when I think about how long it will take to pay it back, I realise it was not the wisest decision.'

Indeed, last year she had to reschedule the debt to take a three-month payment holiday when things got tight. She is currently paying back her loan at £150 a month.

Lyndsey is glad she has an understanding bank, but the bank has recently tempted her further into debt by sending her a new credit card on which she already owes £500. She is hoping that recent freelance work will provide her with enough money to clear that balance. But she has two other cards - a Barclaycard on which she has £350 outstanding and a store card with Top shop on which she owes £90.

Last year Lyndsey moved to London to find a job. She first worked with National Children's Homes, and is now starting a new job with Westminster Council as an initial assessment officer dealing with children at risk. She is hoping to obtain a social work qualification.

Lyndsey shares her accommodation, which costs £433 a month, with three others. But she would like to stop renting and is interested in shared ownership.

'It's my understanding that teachers and nurses will be entitled to some support with home ownership from the Government, but I am unclear as to whether social workers will.'

She has no savings. The proceeds of a savings plan set up by her parents which matured when she was 21 have been spent. Although she had £1,000 in a Tessa, she withdrew that this July to take a holiday in Cuba.

She admits her finances are 'a shambles' and wants advice on getting things in order.

Adviser 1: Ray Boulger

Lyndsey's situation is not untypical of many
recent graduates living in London. Her
outstanding debts total about ?12,000, so her
priority should be to progressively reduce this.
Her store card charges 29.9 per cent, one of the
highest rates in the UK. I suggest she switches the
debt on her three cards to one with a cheap rate
and focuses on repaying this during the
cheap-rate period. The Tesco credit card has a
rate of 1.5 per cent for both balance transfers and
purchases until 1 July 2002.

Lyndsey must ensure she lives within her means.
Once she has paid off her credit card debt she
should increase payments on her graduate loan
to pay it back quicker. There is little point in
paying back her student loan any quicker as the
interest rate is so low. She cannot afford
expensive holidays.

Before she gets her foot on the property ladder I
would recommend she reduces her debts
significantly. Details of shared ownership
schemes can be obtained from 020 7963 0246 and
www.housingcorp.gov.uk. The new Government
Starter Homes Initiative will not help her as social
workers are not included .

An alternative option may be to buy a home with
friends, but this needs very careful consideration
as circumstances can change when, say, one
person wants to move out.

Ray Boulger works for mortgage and financial
adviser Charcol.

Adviser 2: Gary Morris

Lyndsey has not demonstrated much
self-discipline. If she maintains the same amount
of control over her finances, the chances of
keeping up her mortgage repayments would be
remote. I recommend she has a dry run at a
mortgage to make sure she can cope.

On her current salary she could obtain a
mortgage of ?60,000, requiring a repayment of
?600 a month. With the other costs of running a
home, I would budget for ?750.

She should then ask her bank to consolidate her
store and credit card debt into her graduate loan.
The repayment should be set at around ?200 a
month, which is close to her current repayments
on her existing loan and credit cards. She should
ask for the loan to be arranged on a daily interest
rate repayment basis. All her credit and store
cards should then be cancelled before she is
tempted to use them again.

Repayments should be made at ?750 less her
current rent of ?433, being ?317 per month. By
repaying in excess of the agreed amount and on
a daily interest basis the outstanding balance on
the loan will reduce much sooner than the agreed
loan period. I estimate three years would be
needed.

This way her loan will be cleared and her bank
will have a history of repayments it could use to
consider a proper mortgage.

Gary Morris works for financial adviser Towry Law.

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