I think I've been playing my cards badly

'I am a 26-year-old nurse living in London and need advice about how to get my finances sorted out. I have £5,000 debts on my credit and store cards. The main problem is that I love buying new clothes and shoes and find it very difficult to resist the temptation to spend because I know I can use one of my cards.

'I make the minimum payments on my storecards by direct debit so I don't have to post off a cheque each month, but this is probably a mistake as it has meant my debts have mounted up and I can't see when I will be able to to them off. A few years ago I did clear my card debts after I inherited from my father, but my debts have built up again.

'I still have most of the money I inherited in investments, although they have fallen in value because the stock market has been so bad. I kept some shares in Glaxo for sentimental reasons - my father inherited them from his father - worth about £20,000. I also bought two unit trust Isas, now worth about £8,000.

I would like to save more. I earn around £25,000 and pay into the NHS pension scheme. I live with my boyfriend and we are buying a flat. The problem is that after the mortgage and other bills have been paid, there is not much spare money. Despite my investments, I am struggling day to day and have all these debts on my credit and store cards to worry about. It's a nightmare.'

If you want Money Coach to inspect your finances - without naming you if you prefer - write to: Money Coach, Cash, The Observer, 119 Farringdon Road, London EC1R 3ER or email: cash@observer.co.uk We will feature as many cases as we can, but regret we cannot give personal financial advice. Advice is for guidance only.

Action plan: Sell - and control yourself

The first thing Sarah must do is take control of her debts, which will involve some hard decisions. She also needs to see her finances as a whole. It is debatable whether hanging on to her investments is a good idea when she is paying so much to borrow money.

Interest rates on storecards are still sky-high, with stores such as Oasis, Debenhams and IKEA charging 29 per cent or more. Even on ordinary credit cards, rates are typically 15 per cent or more. It means she is in effect betting that her invest ments will produce better returns than the interest she is paying on her debts - pretty unlikely in the current low-interest, low-inflation environment.

She has several alternatives. The first is to consolidate all her debts on to one credit card which has a low six-month introductory rate. A number of cards currently offer a 0 per cent rate on balance transfers, such as Nationwide, Virgin Money and Tesco. She should then start to pay off as much as she can afford each month, not just the minimum. After six months she could switch to another card with a low- interest introductory offer. However, keeping up a high level of repayments on this credit card will require considerable discipline.

Another, more disciplined, approach would be to take out an unsecured personal loan to clear her credit-card debts. According to Moneyfacts, Northern Rock is charging an APR of 7.1 per cent for loans of £5,000 over three years and repayments are fixed at £154.10 a month. There is no redemption penalty, which means that if she wants to clear it in one go, she could do so at no extra cost. Nationwide and Intelligent Finance also offer low-cost personal loans with no redemption penalties.

However, as she is feeling stretched anyway, even these payments may be too much of a burden. A better alternative in many ways would be for her to consider selling some of her investments to clear her debts immediately.

There is a good reason for her to consider selling her shares anyway, says Gordon Wilson of independent financial advisers Thomson Shepherd: 'It is understandable that Sarah wants to hang on to the Glaxo shareholding as it has served her family well over the years. But my advice would be that she reduces it in order to clear her debt. It is a high-risk strategy to be invested heav ily in any one company, no matter how good it may look. Even the strongest blue-chip companies encounter difficulties which can lead to sharp falls in share prices. Her unit trust investments provide a broader spread of investment risk.'

Now comes the really difficult part. Once Sarah has cleared her debts, she must make sure she does not repeat the mistake of running up bills on her cards yet again. She must cancel her storecards at once and cut up her credit card so she is not tempted to use them again. She need not deprive herself entirely of new clothes and shoes, but should set herself a monthly shopping budget and stick to it. She should pay for these items using a debit card so that the money comes straight out of her bank account and she does not run up a further debts.

Once Sarah is no longer having to pay off her debts she can put the money she was using for repayments to better use. She and her partner could consider overpaying their mortgage. This would lead to interest savings and reduce their outgoings in the long run. She should also build an emergency cash reserve in a tax-free mini cash Isa where she can put up to £3,000 in the current tax year.

The reaction: Pass the scissors

'I Felt my finances were getting completely out of control. Now I can see there are ways out. I can understand the logic of using some of my investments to pay off my debts, but am still rather reluctant to part with the shares my father left me. I think I will use a personal loan so I know exactly what my repayments need to be each month. If I find that difficult to manage, I could still sell some shares and pay the money back if there is no early redemption penalty on the loan. I think cutting up my cards is the only way I am going to stop spending beyond my means.'