How can I pay off my debts and start saving?

He lives in a rented property, which he shares with his girlfriend, paying roughly £700 a month in rent and utility bills.

Due to the sporadic nature of his work as a freelancer, he sometimes has periods of up to three months between contracts, which has caused Alex to run up debts. He has a credit card bill of around £4,215, costing around £400 per month. He also owes his parents £1,800, repaying around £300 per month. In total, he currently spends around £1,700 a month, giving him only £80 to clear debts.

He has no savings. His main objective is to clear his debts as soon as possible so he can start saving towards a home deposit.

IFA response

Alex met Helen Howcroft, managing director of Equanimity IFA, in London to discuss improving his finances. His focus is currently on managing his debts better, with his main goal of becoming debt-free as quickly as possible. However, he is unsure how to go about this.

Howcroft says: "Having reviewed Alex's finances, they show that he has insufficient disposable income each month to clear his debts. These are costing £700 per month, representing 39% of his take home pay."

To tackle his debt, Howcroft recommends Alex transfer his current credit card debt on to a 0% balance transfer deal for at least 12 months. If he continues to pay off £400 per month he could have his debt cleared in less than 11 months. If he increased his monthly payments, he could clear his debt sooner.

The current best buy on balance transfer credit cards, according to Compare, is the Barclaycard Platinum with Balance Transfers, offering 0% for 26 months, with a 3.5% fee on the transfer amount, and 0% on purchases for six months.

Tesco Bank's Clubcard Credit Card takes second place, offering 0% for 25 months on balance transfers, with a transfer fee of 2.9%, and 0% on purchases for three months.

Having previously been turned down for a credit card, Howcroft says Alex should review his credit rating before he applies for another card, as rejected applications will appear on his credit file.

As it's been a few years since Alex previously applied, Howcroft believes he should also check his file to ensure it accurately reflects his debts and payment history. It has never been easier to view your credit report and Alex can do this online via credit-rating agencies Equifax, Experian and Callcredit, for just £2 for a one-off copy.

However, Alex could also get one for free as most credit rating agencies offer a free trial of their premium membership for one month. If he decided to take advantage of the trial, he must make sure to cancel the membership before payment becomes due.

In terms of repaying his parents, Howcroft recommends he discuss with them whether he might be able to reduce his monthly payment to £100, as they have told him they don't need the money back by a set date. This would give him an extra £200 per month he could use to pay off his credit card debt.

At their meeting, Howcroft looked at ways Alex could also boost his income, such as trading as self-employed. As he is usually employed as a contractor on a PAYE basis, his employer is responsible for the tax paid on his salary. As a result of this, Alex is currently paying the highest level of National Insurance.

Howcroft explains: "Generally, trading as a sole trader will have the benefit of being able to offset certain business-related expenses against his income. In addition, sole traders pay a lower level of National Insurance."

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