Wealth Check: The spending will have to stop: a wannabe homebuyer gets a reality check

The problem: Debts of £21,000 and no place of her own

Hayley Roberts, 22, from north London, dreams of taking her first step on the property ladder by moving to Reading. However, she is being held back by debts of £21,000.

Alongside £14,000 in student loans, she owes £2,000 on an Egg credit card and has an outstanding overdraft of £2,000 on her NatWest graduate account.

"The Egg card is on a 0 per cent deal," she says. "But this is due to end in September, when I plan to switch to another interest-free deal. I'll also start paying interest on the first £500 of my overdraft [at a rate of 16.5 per cent] at the end of August."

On top of this, Hayley recently applied for a £3,000 graduate loan from NatWest to buy a new car, at an annual percentage rate of 7.9 over five years. She will start repaying £61 a month from September.

Despite her debts, Hayley would like to save towards a first property.

"The sooner I get on the property ladder, the less money I'll be throwing away in rent," she says. "I plan to spend around £150,000 on my first home."

Hayley earns £18,000 as a consultant in a public affairs agency and is trying to build up a cash reserve. She has £600 in a mini cash individual savings account (ISA) with Abbey, earning 4 per cent interest, and £150 in an Abbey Flexi Saver account, at 3.05 per cent.

"I try to put away £250 every month," she says.

She pays £320 a month, including bills, to rent a room in a two-bed flat. She is not contributing to a pension and has no protection policies in place.

The cure: Put the property plan on hold and sort out your finances

Hayley seems to have a "cavalier attitude" to finance, warns Roddy Kohn from independent financial adviser (IFA) Kohn Cougar. "She has oodles of debt, has just bought a new car and now she wants to buy a house - at some point she needs to accept that all this debt is not good for her."

He recommends she "put on hold" her plans to get a mortgage.

Matt Pitcher from IFA Towry Law agrees that Hayley's priority should be better debt management - and not taking on further debt. He suggests she move back to her parents' house rent-free for a couple of years until she has cleared her debts.

Debts

Focus on paying off the most expensive debt first, says Mr Pitcher. "This is likely to be the overdraft."

He recommends that she immediately transfer £500 into her graduate account and ask for the total overdraft facility to be cut to £1,500.

The interest she pays on her debts will be higher than the interest earned on her savings, so she should redirect the £250 she currently saves each month into paying off the debts with the highest annual percentage rate instead, adds Mr Cougar.

Hayley plans to transfer her Egg card balance to another 0 per cent deal when her current deal ends. But Rebecca Taylor from IFA Dunham Financial Services warns that the number of providers offering these deals is shrinking rapidly.

"While Hayley should be looking at competitive products, her priority should be to repay the amount outstanding as quickly as possible," she says, adding that she could also look for a better graduate loan.

Ms Taylor picks out a loan from the Nationwide building society, which has a typical rate of 6.7 per cent for sums of between £5,000 and £7,499, and the flexibility to make overpayments. But Hayley must check whether any early-repayment penalties on the NatWest graduate loan would wipe out the benefits of switching.

Mr Pitcher notes the interest rate on student loans is low and linked to inflation - currently 3.2 per cent. Hayley should continue paying these off gradually.

Savings

Mr Cougar says that while Hayley needs to put aside some "rainy day" money, there is no point saving until she has cleared her debts. She can then start with a tax-free individual savings account (ISA).

Property

Hayley will probably not be able to afford a property of £150,000, Ms Taylor warns: "It is likely that the maximum she can borrow on a mortgage is four times her annual salary."

When in a better position to do so, she recommends Hayley look to save a deposit of around 5 per cent of the property's purchase price. This will enable her to obtain a far more competitive rate than if she opted for a 100 per cent mortgage.

Mr Cougar suggests she may be better off buying with a group of friends, but Mr Pitcher warns that shared ownership is fraught with problems and should not be entered into lightly.

Retirement

In the first instance, Hayley should find out if her employer runs a pension scheme, and whether it will make contributions on her behalf. "It is important to start saving into a pension as early as possible, but this is not a priority until she has cleared her debts," Ms Taylor says.

Protection

As Hayley has no dependants, there is no need for life cover. But she should still check what benefits are offered by her employer.

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