Drama to get out of a crisis

Meriel Whale
Age: 28
Lives in: London
Occupation: Special needs and drama teacher
Earns: ?20,000
Mortgage: None
Debts: Student loans, overdrafts, personal loan
Investments: None
Pensions: Teachers' pension
Aims: To get out of debt and invest ethically

For Meriel Whale, boosting her income is child's play, but this does not mean it is easy.

Meriel performs at children's parties, takes drama workshops and directs children's plays. This brings in at most £100 a month, but the extra money is important because she has difficulty making ends meet: 'When my wages come in, my overdraft goes down to zero, but by the end of the month it is back up again. I never have a credit balance in my current account, I don't know what a credit balance looks like.'

She is depressed about this because she does not live extravagantly: 'I don't spend much on going out, I try to keep down my spending on clothes, and I don't have a car. It is demoralising to see my salary disappear as soon as it arrives. I still need to borrow from my parents from time to time.'

Her finances are dragged down by debt - two student loans, overdrafts with Lloyds and Halifax and a personal loan: 'I would like to reduce this debt, but it will be slow.'

Her money problems started a few years ago when she ran a community theatre company: 'It paid very little and was only part-time, so I did it for love, really. That is how I got into this pickle.' So last October she took a full- time special needs teaching job in Ealing 'at the bottom of the pay scale'. Another drain on her income is paying for alternative therapy to help her back problems.

Meriel wants to start building up her freelance work again. Her background in community theatre is proving useful for this: 'I have access to costumes at the theatre and I am good at making things and buying at charity shops. Working at the community theatre made me very resourceful.'

As well as reducing her debts, she wants to sort out her pension: 'I assume I am automatically entitled to the Teachers' Pension, but I don't know. I want advice on an ethical pension because I don't think I will be teaching for much longer. When my freelance goes up and teaching goes down, I want a pension that will travel with me.'

At the moment Meriel pays £387 a month in rent. She would like to buy a home in a year or two, but knows she will not be able to afford London prices.

She says: 'I want to find a way of getting out of debt and living within my means but I don't see how I can save. The last week of the month is always very tight. I never seem to have any money to spare.'

Adviser 1: Claire Speller

Meriel's take-home pay is around ?1,200 a
month which, after rent, bills, food and loan
repayments, leaves about ?500.

Reducing debt is a high priority. Meriel should try
to live on her salary and reduce her debts with
her freelance earnings, keeping back a quarter
for tax.

She should prioritise the loans by interest rates.
An authorised Lloyds overdraft charges 18.6 per
cent; Halifax charges 9.3 per cent. If the Halifax
overdraft is unauthorised, she should ask to
switch to an unsecured loan, at 15.9 per cent APR.
She would repay capital as well as interest so
must check she can afford it. Repaying student
loans is a low priority as the interest is just 2.3 per
cent.

Membership of the Teachers Pension scheme is
automatic so Meriel is probably a member. Her
payslip will show deductions from salary, around
?78 a month.

The Teachers' scheme is the ultimate ethical
pension as it has no investments, ethical or
unethical. It is valuable as benefits are linked to
final salary rather than investment performance.

Unless Meriel is certain she will not complete two
years as a teacher, she should stay in the pension
scheme. Permanent employment has many
advantages besides guaranteed income. It will be
more difficult to buy a property if she is
self-employed, particularly if she has no deposit
or long earnings history.

If Meriel wants to buy in London, she should
investigate local authority shared ownership
schemes.

Claire Speller works for financial adviser Advisory
& Brokerage Services

Adviser 2: Gary Morris

Meriel should complete a budget planner,
obtainable at banks, so she can identify exactly
how much she has to spend. On the face of it she
has a manageable amount. Most people are
surprised when they see how much should be left
at the end of the month compared with reality.
Money goes on incidentals: 50p here, ?2 there -
before you know it you've spent ?20.

Meriel needs to stabilise her finances and reduce
her debt before she contemplates moving into a
less financially stable environment than teaching.
House purchase is easier to arrange with a history
of stable income and the ability to manage within
one's means.

If Meriel is employed by the local education
authority, she may well be in the Teachers'
Superannuation Scheme. This is one of the best
pension schemes available and should not be
discarded lightly. The benefits, providing Meriel
meets the service requirements, are a tax-free
lump sum and an index-linked pension starting at
50 per cent of final pensionable earnings.

Portable pensions with ethical investment funds
are available from a limited number of pensions
companies and Meriel should take individual
advice on which most suits her definition of
ethical. Some companies include oil companies
in their ethical fund. If a portable pension is
appropriate I recommend Meriel considers
stakeholder plans as they have the same access
to funds as traditional personal pensions but
lower charges.

Gary Morris works for financial adviser Towry Law

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