Find the right financial balance

Claire Lodge, 34, lives in Robin Hood, near Wakefield, with her husband Andrew, also 34, and three-year-old son Robbie. Claire is coming to the end of a fixed-term contract with the Department of Work and Pensions in Leeds as a marketing manager, earning £2,000 a month after tax.

She also does occasional freelance work to supplement her income, and is currently looking for a permanent position. Andrew is a team manager at revenue management company 1st Locate in Leeds, earning £1,800 a month after tax.

The couple currently pay £900 a month into a Woolwich repayment mortgage on a fixed rate of 6%. Their home in Wakefield is worth around £210,000. Claire owes £2,700 on a 0% credit card, which she is paying back at a rate of £150 a month.

She has a £900 overdraft facility on her current account and at the end of the month is usually about £500 overdrawn. Claire contributes £30 a month to an HSBC stakeholder pension

Claire is worried about her credit card debt and wants to be able to keep her head above water.

"Since becoming a fixed-term contractor, I have been salaried rather than paid weekly freelance rates. Although this means I have more benefits such as paid leave and sick pay, it also means my income has dropped significantly and I'm really struggling to make everything balance," she says.

Expert opinion

As their household budget is tight, Claire and Andrew should check their employee benefits with their respective employers in case they ever find themselves unable to work, advises Kathryn Andrassy, independent financial adviser at Tony Revans Financial Planning.

It would be wise to find out how much and for how long each would still be paid, if either were unable to work due to accident or illness.

Another option is to consider redundancy cover for Andrew, to protect against the risk of unemployment in the short term. "An accident, sickness and unemployment cover plan in the region of £35 a month would cover their mortgage payments," Andrassy says.

She also suggests both Claire and Andrew ask their employers whether they offer childcare vouchers. These schemes allow both parents to pay up to £243 a month into an account before tax and national insurance is deducted from their pay, saving a maximum of £1,195 a year.

The couple can then use these vouchers to pay their childcare provider directly. Even if their companies don't offer the scheme, it's worth raising the subject with the HR departments as the voucher scheme will also reduce the employers' NI bills.

As Claire hopes to soon be in permanent employment, she should consider stopping her pension contributions to save some money in the short term.

"Until her employment situation is resolved, she could consider suspending her contributions to her stakeholder pension for the next few months," says Andrassy. "When she starts another job, she can join the pension scheme of her new employer."

As to Claire's credit card debt, Andrassy suggests leaving the remaining balance of £2,700 until next May, when the 0% introductory rate ends.

"When her childcare costs reduce next year when Robbie starts school, Claire should be in a position to repay the remainder of the debt," Andrassy adds.

However, Claire must remember to make other arrangements and transfer the balance to another 0% card when the initial interest-free period runs out.

"She should consider paying the minimum on the credit card while it is on 0% and utilising the balance of the £150 monthly payment she is currently paying to minimise her overdraft," Andrassy advises.

To control her day-to-day spending, Andrassy suggests Claire stops spending on cards and starts using cash. By withdrawing a certain amount of money each week it's much easier to monitor your spending and not blow your budget.

"Cards can be dangerous as you don't visualise how much you're 'spending' at the time. When you part with cash, however, reality takes hold and this can help to reduce your actual spending," Andrassy says.

She also thinks that making small cuts to the couple's utility bills will really add up. By using the Moneywise energy switching service they can review their current providers.


Claire and Andrew are committed to investing in their son's future: the Lodges invest their child benefit into their son's child trust fund, with the hope that it can be used for his further education or to help him start on the property ladder when he reaches adulthood. Andrassy says this is a sign of good financial planning.

To provide a modest 'rainy day' fund, she also suggests that Claire pays a small monthly contribution of £25 into a regular cash individual savings account. She recommends the Halifax instant access cash ISA, which pays 2.8% interest.


For more ISAs check our round up of the best rates

With a few changes to the couple's lifestyle, Andrassy believes that next year their financial situation will be much brighter.

"The family are doing most things correctly, with Claire's interest-free credit card and investing their child benefit for their son's future," she says.

"Money will probably never be as scarce as it is now – and I'm sure that many families reading this will see many similarities with their own situation."

Claire found the makeover a valuable experience as it reassured her that she's on the right track with her finances. "It's a comfort to know I've been doing all the right things," she says.

Your Comments

£3800 a month between them and they are having difficulties.

Must be mismanagement because most of the people in my area would be coping on 30% of that amount.


Agree with Mike.

Also amazed that they didn't comment on the mortgage at 6%. I note that this is a fixed rate, but it doesn't say how long for or what the penalty would be for abandoning this rate when there are deals in the market for plenty less than that. Doing the math, they would appear to have at least 25% equity in their home, so 75% LTV not unreasonable.

I'd agree with MIke. I don't see how they can be in debt with their income. There's some serious overspending going on somewhere. They need to buck up their ideas quickly before there's a possibility of only 1 wage coming in.

I am single on half the wage they get as a couple. My mortgage is 72% of what they pay as a couple, plus I often manage to overpay another 80% of my monthly mortgage payment, I pay off all my credit cards every month, have money put aside for big purchases bought on 0% purchases (so I can get the interest rather than the companies) and can still splurge on holidays, etc.

In addition to the advice they have received they need to go through their finances carefully to see where their money is going. Before looking for a mortgage I went over the previous 6 months of bank statements and categorised everything in Microsoft Money. You soon see where you can cut corners. I have done this ever since and have more spare money than ever before! (-: