Wealth Check: 'I'm up to my neck in debt and facing redundancy'

CASE NOTES
Ben Waits, 28, Edinburgh
Personal: Ben is a technical- support adviser for a software company. He is being made redundant in July. He lives in rented accommodation with his girlfriend.
Income: £17,665 a year full-time. £3,000 a year part-time.
Monthly outgoings: £853 on general living expenses, travel and repayment of loans.
Debt: £12,000, including £7,000 loan and overdraft, £3,500 on credit card with Morgan Stanley and £1,500 on credit card with the Bank of Scotland.

Ben Waits, 28, has been a technical-support adviser at a software company in Edinburgh for two years. He is expecting to be made redundant in Julybut the payout won't go far given that he is only entitled to one week's pay for each year worked - a severance package of around £580. He has debts to cover, two of which are on credit cards with aggressive interest rates. He has a part-time job that pays £3,000 a year.

Ben pays £225 a month in rent, but wants to buy a home. He is also keen to save and start a pension. But these may have to be postponed given his employment predicament. He has a £7,000 overdraft and owes £5,000 on credit cards (£3,500 with Morgan Stanley and £1,500 with the Bank of Scotland). His monthly rent, bills, food and debt repayments add up to £853, leaving him with £290. He has no savings.

We asked three independent financial advisers for help: Ashley Clark of needanadviser.com, Chris Holmes of One Advice Group Ltd and Susan Hannums of Chase de Vere.

REDUNDANCY

Holmes advises Ben claim for redundancy benefit on his payment protection insurance and take advantage of any possible claims against his redundancy.

Clark says that there are few loan companies, if any, that will now lend him money to consolidate debt into one manageable monthly payment. The only companies that would lend to someone in Ben's situation are those charging extortionate interest rates.

Ben's main concern, says Clark, should be surviving the coming year by focusing on getting a job and agreeing terms with his existing creditors. His pension, mortgage and savings plans will have to be relegated to the bottom of his list of priorities for the time being.

EXPENSES

Budgeting and prioritising spending is vital, says Hannums. A spending plan, properly mapped out, will allow him to keep on top of everything. Prioritising is key here. For example, does he really need to pay a £50 mobile phone bill each month or would he be better off using this to pay off his debts?

While it is imperative he gets this in order, Hannums says that he shouldn't deny himself his social calendar, too. Holidays, Christmas, New Year and birthdays all have to be included in the spending plan. Budgets are not just about cutting back, she says, but also about not missing out.

DEBT

The payment protection insurance on his credit cards could save him for the next year, says Clark. This would allow him to reduce his monthly minimum payments and redirect the savings to other unprotected debts. Ben would not be able to do this if he transferred his debt to a cheaper card as this would mean losing the payment protection. Knowing this is taken care of for the next 12 months will give him breathing space; he should do this immediately.

Clark adds that Ben should be proactive, immediately notifying all loan providers about his redundancy and potential difficulty in meeting future payments. The more bankers know, the more they can help. He could ask them immediately for a temporary interest suspension which would prevent his debt growing and he might even want to ask if they can postpone payments whilst he is not working. This is far better than burying his head in the sand and defaulting on a loan or an overdraft arrangement.

Once Ben gets a job, Holmes suggests he converts any balance of debt to a credit card with a 0 per cent rate to allow him time to consider his new income position. Thereafter, a longer-term, low-interest loan could be negotiated. Ben must whittle his interest payments down to an absolute minimum, says Hannums. As far as his credit cards are concerned, he should consider free 0 per cent balance transfer deals without a balance transfer fee such as Lloyds Amex, which offers nine months at 0 per cent. To deal with his overdraft, he could look at moving to Alliance & Leicester, which offers 5 per cent credit interest on overdrafts for the first year.

Ben could then make a real dent in his debts, says Hannums. He has £290 left each month. Add to this his £100 credit card repayments, and he could clear both cards in just over a year.