Wealth Check: 'I have to shift student debts.
Should I go for bankruptcy?'
By Stephen Pritchard
Published: 17 April 2004
This article appeared in The Independent
Save and Spend Supplement.
Phyllis Holloway's work involves preparing lists
for cases in court, calling defendants and witnesses, preparing
summonses and collating lists of those due to appear.
Ms Holloway completed her degree in January, and has just started
her job. She has several debts, including one on her Barclaycard
to pay for a three-month stay in France for her degree; she has
a poor credit rating.
She wants to stretch her budget and cut outgoings. One option
is a graduate loan, but she is considering bankruptcy. She wants
to pay her debts quickly, but she knows that a poor credit rating
might limit her options.
We put her case to Justin Modray at Best Investment, David Higgins
at Glazers Financial Services and Mike Metcalf at the Metcalf
IFA consultancy.
PHYLLIS HOLLOWAY, 34, COURT WORKER
Occupation: List caller in a London court
Education: BA (Hons) International Business and French
Debt: Approx £31,000 (including student loan)
Salary: £16,758
Property: Rents council flat
Savings: None
Investments: 40 shares in Stagecoach and 50 in Marks & Spencer
Pension: None
Outgoings: Around £500 a month excluding food, entertainment
and debt repayments.
DEBTS
Ms Holloway's debt is her greatest issue. Apart from her student
loan, her borrowing is expensive. Mr Higgins suggests that Ms
Holloway consolidate her loans, apart from her student loan, into
a graduate or personal loan package. A loan of £12,250 would
cost £216 a month over six years.
Mr Metcalf says a graduate loan would reduce her interest burden.
Her priority should be to pay off the Barclaycard debt. With her
poor credit history, says Mr Modray, her own bank might be the
most sympathetic to consolidating her debts.
SAVINGS
Mr Metcalf suggests that Ms Holloway sell her shares to pay off
some debt. "The shares are unlikely to grow as much as her
debt," he says.
If Ms Holloway can set aside some money to save, a cash Isa would
be the best method, according to Mr Higgins. This gives tax-free
interest on savings. The best Isa to meet the Government's CAT
standard, is Abbey's, paying 4.6 per cent, says Mr Higgins. "It
is important for Ms Holloway to save on a regular basis and build
an emergency fund so that she can cope with unexpected expenditure,"
he says.
PENSION
Ms Holloway has no pension arrangements. Mr Higgins says that
she should join her workplace scheme, which as a public sector
employee, is likely to be generous. Ms Holloway should check if
she has cover for accident or sickness from her employer.
SPENDING
Mr Metcalf recommends that Ms Holloway contacts the Government's
benefit enquiry line to see if she is eligible for any help with
rent, council tax or even income support. Mr Higgins recommends
that Ms Holloway works out a budget for items such as food, travel
and entertainment. Cheaper utilities, for example through the
uswitch website (www.uswitch.com),
will help with saving.
BANKRUPTCY
The panel agrees that bankruptcy should only be considered as
a last resort. A number of less drastic options, such as negotiation
or an individual voluntary arrangement, should be explored first.
The local Citizens' Advice Bureau will be able to give advice,
as will a specialist debt advice service, such as the not-for-profit
Debt Advice Bureau (www.debtadvicebureau.org.uk).
