Wealth Check: 'I want to clear my debts and start my own business'

Sarah-Jane Sherwood works as an account executive at a media company in London, her second job since graduation. Unusually for someone at this stage, she owns a flat and has built up significant equity.

Sarah-Jane Sherwood works as an account executive at a media company in London, her second job since graduation. Unusually for someone at this stage, she owns a flat and has built up significant equity.

Ms Sherwood bought a flat in Kent during her second year at university, and worked around her studies to pay the mortgage. She now lets it out, but would like to sell the property and use the money to buy something larger, or to take on a project. She would also like to clear her debts and bring her finances under control. Ideally, she would also like to start her own business by the time she is 30.

We put her case to Philippa Gee at Torquil Clark, Ben Yearsley at Hargreaves Lansdown and Justine Fearns at Chase de Vere.

SARAH-JANE SHERWOOD, 24, ACCOUNT EXECUTIVE

Salary: £22,000.

Education: English Literature and Media Communications, London South Bank University.

Debt: £1,500 overdraft; £3,000 credit card loan; £10,000 car loan; £18,000 student loan.

Property: Flat worth £100,000. Repayment mortgage of £56,000. Interest 6.4 per cent.

Savings: Endowment of £21,000 from part of mortgage, matures in 19 years.

Outgoings: Rent £250 to partner. Car loan £250. Personal loan £106. Credit card £60. Gym £35. Other outgoings £300 a month.

DEBT

Ms Sherwood's debts come to £32,500, excluding her mortgage. Transferring the credit card debt to a card with a 0 per cent introductory rate would save Ms Sherwood some £60 a month. Ms Gee says that Ms Sherwood should look to clear her overdraft, and adds that the student loan will have a low rate of interest, so paying that back need not be a priority. She should check for early repayment penalties on the personal loans. Ms Gee suggests that Ms Sherwood pay off £14,500 from the sale of her flat, leaving her with just the student loan.

MORTGAGE AND PROPERTY

Mr Yearsley suggests that Ms Sherwood is paying a relatively high rate of interest on her flat. She should be able to fix at a lower rate for a few years, although if she is keen to move it might make sense to wait until she buys another property.

There might be a capital gains tax liability if she sells her flat, but Ms Gee points out that there are exemptions for people who are letting a flat that they did originally occupy.

SAVINGS, PENSION AND INVESTMENT

Ms Sherwood has £230 left at the end of each month after bills. This will increase when she pays off her personal loan, and again if she receives an expected pay rise. A good option would be to build up a reserve fund of three months' salary. A mini-cash Isa would be a good, tax-free home for the money. Ms Fearns suggests that Ms Sherwood could look at investing in a UK or global fund. Invesco Perpetual's Higher Income fund could be useful.

Planning further ahead, such as for pensions or equity investments, will be difficult until Ms Sherwood has made inroads into her debt. In the meantime, the endowment policy may not be the best investment vehicle. Mr Yearsley suggests that she should at least see what the cash-in value is on her policy.

Ms Gee recommends that Ms Sherwood investigate her workplace pension arrangements as she could be missing out on valuable employer's contributions, as well as tax relief. The trick, Ms Gee says, is to find the right balance between pension arrangements and shorter-term savings. Ms Fearns points out that stakeholder pension plans accept contributions of as little as £20 a month, and Ms Sherwood can pay in up to £3,600 a year, with tax relief.

* Wealth Check, 'The Independent', 191 Marsh Wall, London E14 9RS, or e-mail cash@independent.co.uk