Can't cope, won't cope

Rebecca, 31, wishes her finances were simpler. She writes:

'I'm losing the will to sort out my finances. It all seems so complex! I got my first mortgage in 1996 and increased it in 1998. I remortgaged again with the Woolwich two years ago to buy my present house. The discount deal on my £109,000 mortgage has just ended and I am considering moving to another lender. I have temporarily put the mortgage on a tracker deal with no penalty. I was wondering about setting up an offset scheme but there never seem to be enough hours in the day to investigate deals.

Two thirds of my loan is on an endowment basis; the rest is repayment. There is likely to be some shortfall in the Commercial Union endowment policies I took out but I understand it is one of the better insurance companies so I'm hoping they'll come good. Am I being naive?

My pension arrangements are similarly complicated! I contracted out of Serps when I was 17 to Windsor Life but feel I was mis-sold. Now I wonder if I should contract back into Serps. I have had a final salary company pension with my current employer - a travel company - for the last six years, but I am expecting to be made redundant later this month.

If this happens I may travel and rent out my house. The Woolwich has advised me I would need to be on the standard variable rate if I do - is this true of all lenders? I am concerned about tax implications.

I am on my fifth 0 per cent credit card but am managing to keep my debt under £2,000. I am paying it off at £180 a month, to get it cleared as soon as I can. Will having so many cards affect my future credit rating?

Then there is my current account. I am sure I could earn more interest on this, although I generally have a £1,000 overdraft by the end of each month. I did open a Nationwide Flexaccount but didn't transfer my current account there because I was worried about hiccups with direct debits. But I have managed to save £1,000 in that account.'

You are doing better than you think

Don't get too dispirited about the complexity of your finances. It's always necessary to review your situation regularly and many of the things you have done in the past have stood you in good stead - such as getting onto the housing ladder and joining a pension scheme.

However, it may be better to wait until you know whether you are being made redundant to make any decisions. If you are convinced it is going to happen, Ray Boulger, senior technical manager at mortgage advisers Charcol, suggests you may want to switch your mortgage right away. He says: 'While Rebecca is still employed she could switch her Woolwich mortgage on to one of their new business rates. While these are not currently very competitive for residential mortgages, they are cheaper than the best rates available on a buy-to-let basis.

'Woolwich's normal policy is to allow existing customers who want to let their property to retain their existing mortgage deal. Therefore it could make sense for Rebecca to switch her mortgage on to a fixed or discount rate. Although fixed rates are likely to get cheaper next year, if she is abroad a fixed rate would make budgeting easier. And if she decides to stay here she will have switched to a respectable, though not particularly competitive deal.'

Regardless of whether you stay or go, an offset mortgage is probably not for you, says Boulger. If you had more savings this can be a very tax efficient and flexible way to save, but according to Boulger you need at least 20 to 25 per cent of the mortgage balance in a savings account to benefit.

If you decide to rent out your property, you will be able to offset your mortgage interest and other expenses against your rental income, which will reduce your tax liability. If you sell the property within three years of renting it out then you would not be liable for capital gains tax, as the property had previously been your main residence. If you return to the UK within three years and then reoccupy your property, you would not have any capital gains tax to pay anyway.

Don't rely on your endowment policies 'coming good'. You should think about how you will repay the shortfall. The best way to do this will be to switch more of the mortgage to a repayment basis, but it may make sense to defer doing this until you know what you are plans are.

As regards your pension, Justin Modray, of financial advisers Bestinvest, says you should contact Windsor Life and ask for it to be reviewed to establish whether it was mis-sold.

Regarding whether you should stay contracted out, you need to weigh up the pros and cons. Modray says: 'The idea behind contracting out of Serps, renamed the Second State Pension (S2P), is that by investing the partial National Insurance rebate in a pension fund you may enjoy a higher pension than you will receive from Serps/S2P. In practice, the returns required can be high and in a time of difficult stock market conditions some insurance companies are telling customers to stay in the S2P scheme - probably to avoid future mis-selling claims. At Rebecca's age she would need to earn about 7 per cent per annum in a contracted-out scheme to match S2P. Staying in the state scheme is safer, so she should only stay out if she is happy to risk trying to earn returns in excess of 7 per cent.'

It is good that you have started saving, but your Nationwide Flexaccount does not pay much interest. The fact that your other current account goes into overdraft each month could negate the interest you are earning. If you receive less interest on your savings than you pay on your overdraft you should use your savings to repay your overdraft.

After that, it would be better to save in a mini cash Isa. These pay competitive rates and there is no tax to pay on the interest. Abbey is offering a postal Isa paying 5.35 per cent per annum.

Don't worry about being on your fifth credit card. This is unlikely to have much impact on your credit rating providing you have not missed any monthly payments. Justin Modray points out: 'An unblemished track record with several credit providers may actually boost Rebecca's credit rating.' If you do go travelling, apply for a Nationwide credit or debit card. Nationwide does not make a foreign currency charge when its cards are used overseas. ·Advice is for guidance only

Rebecca's to-do list

1. If you are certain about your redundancy, move your mortgage on to a fixed rate or discount deal with your current lender now.

2. If you are not, shop around for a better deal.

3. Start thinking about how to make up for the shortfall in your endowment policies.

4. Contact Windsor Life and ask for your pension to be reviewed to see if it was mis-sold.

5. If you prefer a safer option, contract back into S2P.

6. Compare your savings interest with the cost of your overdraft - it may be better to pay off your overdraft.

7. If you are going to travel, apply for a Nationwide debit or credit card.

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Do you need some financial coaching? We help readers to solve their financial challenges. This might be to stop spending and start saving, pay off debts, plan a pension or even to choose a bank account. You do not have to be identified. We deal with as many cases as possible in the paper but cannot give personal advice if your letter is not selected for publication. Write to: Money Coach, Cash, The Observer, 3-7 Herbal Hill, London EC1R 3EJ or email: cash@observer.co.uk