Money Makeover

Michelle O'Connor, an assistant psychologist from Nottingham, is nearly £10,000 in debt. On a salary of £16,700, paying it off isn't going to be easy, especially if she refuses to give up her obsession with Duran Duran.... We are looking for advice on how she can ease her debt problems. The best suggestion wins a bottle of champagne.

Read the full story about Michelle's finances here and post your advice below.

Comments

[Jonathan]

Mark Dampier has given some very solid advice, advice that I have based all my savings strategies on. The basic rule is you must spend less than you earn, always. If you go through a period of some personal pain now, not only will you pay off your debt but you will learn some skills that will stand you in very good stead for the rest of your life. My tips would be: Look for ways to reduce your rent, get rid of the car and buy a bike (the exercise of cycling will also allow you to give up the gym), ditch the mobile phone, reduce spending on food by ensuring you always prepare food yourself instead of buying ready made. When you get paid always pay your debts first. Once you are out of debt keep paying yourself first as - into a savings account. Always buy things cash. If you need to buy something on credit you can't afford it. Buying with cash will give you better opportunities to negotiate discounts as well. Finally keep a very close eye on all your outgoings and balance your budgets every week. Doing this allowed e to pay off all my debts (including my mortgage) within 5 years.

[Colin McKenzie]

My advice to Michelle O'Connor: sell the car and ditch the gym membership. Buy a bike and some cycle training, then ride everywhere local. Use the rest of what you get for the car to repay credit card debt. Budget £60/month for longer trips by rail or hired car, and £20 to run the bike.

That's £100 extra a month to play with - and you'll be fitter and healthier too!

[Jessica Chivers]

Michelle, your situation has struck a chord with me as a woman contemplating a return to academia to complete a psychology PhD. This will be tricky as I currently run a coaching practice and am expecting my first child. However, I'd like to extend an offer of coaching (absolutely no cost - call it part of my community involvement for the year) to help get you through the next few months - someone impartial and non-judgemental to help you stay on track. Be a pleasure to hear from you if you are interested, I'm working with a number of clients where financial issues are part of our sessions.

[Simon Jackson]

Hi Michelle, money well spent. But try not to be 'so misled'.
A Pal-omino.

[Trevor Boning]

I note Michelle's consolidation loan is payable over 5 years. At £196 a month, I calculate the real rate of interest at 30.5%, or £5760 in interest. As advised by Keith Tondeur, assuming there are no penalties attached, every spare penny should go to paying this off before anything else. And, should the company have imposed penalties for partial early repayment, then I say name and shame them. I'm sure The Times would be quite happy to publicise the way it exploits those in financial difficulties.

Secondly, open both a mini cash isa, and another (if possible 0% intro offer) credit card. Yes, a credit card! The idea is no ensure that whatever is spent on the card, is first met by paying the same sum into her isa. In this way, she will earn interest during the period before she must settle her monthly credit card - and she will always have enough to ensure she pays it off in full.

Thirdly, I feel a mentor would help, preferably someone not related, nor a friend, but someone who can keep in regular touch by email to provide advice and support. Should Michelle like the idea, I would be happy to do this.

[Gordon Guy]

I thought Duran Duran were great, especially the hairdos. But if you are in a pickle, sell the stuff on e-bay, bin the gym and take up listening Nana Mouskouri.

[Graham Street]

michelle, you MUST get rid of that consolidation loan. Swap it for a personal loan at a much lower rate of interest. Check for penalties for doing so and calculate if the saving would be worthwhile. If you can get a 0% credit card with a reasonable credit limit move other credit card balances to it. Watch out for a fee for doing so. Most seem to cap it at £50.
Assuming in the future you are going to be financially strict with yourself apply for a GE Money Mastercard. Use this to purchase food and fuel ONLY. It pays 3% cashback which is free money. This only works if you pay off the balance IN FULL every month. Who do you bank with? If one of the big four, move your bank account to Alliance & Leicester Internet Banking.
5% interest & 1 years free overdraft facility. You could use this as an interest free loan to help pay off those other debts. This only works if you don't just go out and spend it! and what ever you do don't exceed the overdraft limit.
Hope this helps & good luck.

[Craig Watkins]

If I was Michelle I would write to Duran Duran asking if there where any vacancies on their tours.

This way she could visit each tour and get paid for it.

Whilst Michelle was on tour she could save money on rent, bills, gym membership and car and pay off her debts at the same time.

After he tours had finished Michelle could then carry on with her Psychology course in the NHS hopefully after clearing debt and living the highlife.

[Claire]

Michelle needs to really cut down if she wants that reward of Duran Duran next year. The mobile should be converted to pay as you go - Fresh are pretty good at the moment with their deals. She should think seriously about whether she needs her car - what does she actually need it for? Could she survive on car sharing and paying her share of the petrol for example? Gym has to go too. A clear idea of what she spends, needs to pay out to debtors and what she has left would give her the ability to know when she is overspending each month; Write down each item of expenditure (if it's annual, then divide by 12!) and you have your total expenditure for the month. What's left is what you can spend on yourself - if it's only £40 then she's on £10 per month and that's just how it has to be. An acceptance and understanding of her financial capacity would be a massive help here - she has to learn that her means are very small and to learn to live with that.

Finally -- cut up those cards! and swap to 0% asap.

[Elaine]

Take a job with a social aspect, such as working in a fun restaurant, bar or club with lots of other lively, young staff. This will bring in extra income and reduce the amount of time available for going out to spend in the evenings. It worked for me when I was saving to go travelling, and brought in far more money than my day job in a big financial company.

[Gillian Marsden]

Michelle should make her own sandwiches and packed lunches, grow some salad leaves in a pot if she does not have a garden or if she has access to a garden grow her own veg. She should cook meals from scratch which is much cheaper and consider giving herself a financial limit each day for food. It is surprising how many meals can be made from one chicken or some mince if they are bulked out with veg etc. She could also consider going shares with friends and taking on an allotment to grow their own veg.

[Margaret]

Michelle read Dickens' David Copperfield.
The difference between happiness and misery is living within your income. If you want to get back on track then get an second job!

[Rubinsson Thomas Augustine]

First step is to make a list of all your monthly outgoings (list them however small they are). Next is to split them by each week that you have to pay or buy/spend on the commodity. This should highlight the biggest expenses that you need to tackle first (which would give you a maximum impact to reduce your debt). I agree with all other good suggestions on this link so the car and gym memberships should definitely go. That itself will save you around 180 pounds a month. With your credit history I dont know if you would get a 0% credit card but there are several cards on the market that charge a 3 - 6% APR which would still be better than your current credit rates and being a normal credit card you wont get penalised to pay extra each month. Next step is to make money from your Duran Duran collections. I know I wont be liked to advise this but you cannot imagine how much people are ready to pay some valuable memorablia from such popular bands. If you can trade some of your stuff on any internet auction sites you can generate some more cash to pay off your debts. Remember once you have money again you can always buy new stuff. If you can work extra hours or take up another job that will help you go a long way. I would also advise reducing your night outs to once in a fortnight till you are able to repay your loan. That does not mean you skip important personal dates/events in your life but keep to a minimum. One of the ways could be to avoid a night-out and to meet up in a house/club and spend time together. One more key thing the listing of all expenses will give you is an opportunity to plan ahead. Use and update that monthly expenditure spreadsheet from now on and you will soon be a careful spender and become a good saver. Good luck to a successful future ahead.

[KATE O'MEARA]

Why not sell some of your Duran Duran CD's and other articles via a web auction site. If your family are into the same music you must be duplicating some items. You may raise some extra cash which would help to pay off some of your debts. If you are planning on getting a part time job why not go for a good restaurant where you may get a reasonable share of tips on top of what you earn - you certainly would n't need to use the gym either!

[charlotte docking]

1 Cut up all credit cards-in the words of Oscar Wilde 'I can resist everything except temptation' credit cards are simply temptation!

2 Learn to live within your means. Set yourself a realistic weekly spending budget - take it out in cash so that you can actually see the money available. It's easier to relate to the hard cash than a card printout.

3 Take up a pay as you go mobile-you will be much more careful with the usage when you have to top up in cash. Make sure you allow for those nights out too!

3 Your reward fund! Set up a direct debit for a small monthly amount into a high interest account with limited access. eg Post Office investment account. This will be your 'Duran Duran' account. So when you know there is a concert you want to book tickets for, you will already have funds available + be incurring interest for these treats rather than having to find them in an already tight budget.
And when one day you grow out of your Duran Duran obsession (??) you can keep it up as a fund into your first property deposit and turn that rent into bricks and mortar investment!

4 Car v gym - get rid of both and walk as much as you can. Maximise the money you have saved to get rid of that groaning debt as soon as possible. That way you will be back in the black sooner rather than later and lessen the incurred interest your debt is costing you and your lifestyle.

5 If you live alone (not specified) go into a flatshare-its much cheaper to live with 2-3 people than to live as a single girl!

6 Last resort-offer to crew on Simon le Bon's yacht-you certainly won't need a car. You'll get fit so no more going to the gym,
You'll save on nights out, as you will be somewhere in the middle of the Atlantic You wont have to fund your obsession to see the band as you'll be up on deck with them 24/7.
Plus Mr Le Bon will probably take pity on you and pay off your loan too!

[Alicia Fox]

Firstly, keep a record of everything you spend so you can see where the money goes - you will probably be surprised!
If at all possible, get rid of the car. Walking or cycling will keep you fit so the gym membership can go. Change your mobile phone to pay as you go if you really need one.
Your present job is not well paid. Are you really that keen on your present career choices? If not, you could try to find something which uses your skills but is much better paid. If this is not for you, could you do a few evenings a week in a pub - this will give you a bit more of a social life as well as a bit of extra cash. Your friends could see you there. Booze is expensive, particularly in pubs - cut it down or give it up altogether. You could learn to cook. This will save you quite a lot of money and entertaining at home is a much cheaper way of having a social life. Probably much healthier too. Home-made soups, for example, are filling, cheap and nutritious - try making a few. Take a packed lunch into work. Buy fresh, seasonal food at the market when they are packing up - you can get some real bargains and it is much cheaper than the supermarket. Also, large supermarkets do a range of 'value' or 'economy' things like baked beans or tinned tomatoes - these are OK if you stay off prepared items like sausages and pies and the like. Ditch any book club/music club memberships - you can buy these things second hand at Amazon. Oxfam has bookshops which also do CDs, DVDs, videos, etc for a very reasonable price. There are also web sites where you can swop things. Suggest you sell anything you really don't need (like your exercise videos) on eBay. You can swop clothes with friends when you get tired of them, ditto books, CDs, DVDs, etc. Finally, cut up your credit cards and pay cash - if you have to put it on your card, you can't afford it!

[julia chandler]

Could Michelle either return home to live with her parents, or rent out a room in her flat, using the Inland Revenue Rent-a-room scheme, enabling her to get additional tax free income? Obviously she would have to check the terms of her tenancy agreement first. Or she could move to a flat which she could share with a friend and possibly reduce her outgoings.Alternatively, look to purchase a studio in conjunction with a housing association, who share the equity.

[Nigel Brookhouse]

Hi, Michelle has ovious been given some good advice after the fact, but my old pastor taught me the 70-20-10 factor.

70% to live on now
20% To put away for the future in case of problems
10% To give to charity (in my case my church)

Finally self control.
I haven't always managed it but it is a good principle and perhaps we should have systems in place during our formative years to mentor prior to debt rather putting out fires later. (I needed to take some of my own medicine once, so I do symapthise0

[sue wilshaw]

Keep your chin up Michelle. Small savings in the form of home cooked meals and perhaps only seeing your friends once per week at the pub (you could even offer to let them meet at your's as long as you all bring a few cans- much cheaper and usually cosier than the pub) soon add up. I note you have already changed your mobile 'phone tariff- send texts and limit your actual conversations. At one time I had 3 jobs to make ends meet- not to be recommended for too long- but you are young and think of all the money you could repay. Whatever you decide, remember you will succeed if you really want to.

[Iwona Kowalska]

Generate extra cash by decluttering your house, hunt for bargains in Charity shops and sell them on E-bay.
use extra cash to pay off your consolidation loan

[linda rouse]

when I was a young girl forty years ago, debt was a disgrace, so firstly stop getting things on credit and learn to live within your means, even if beans on toast is the main meal of the day, gyms are over rated, walk everywhere or buy a bike and pedal your way to work and keep fit that way, £120 pm for food is too much for one person, live frugally try cutting it to £60 pm like a lot of pensioners have too. Try room sharing, like I did when I left home that will cut your rent by half, why so much on mobile calls, try walking to see friends or text only, my payg is only £10 pm, I agree the £10 for the internet is an essential, great company and if you get addicted it will cut your eating and your travelling as well as your chatting on the mobile.you have now saved £562 pm, spending £60 pm on food, £160 on room share pm, no car, £10 on mobile calls, £10 on the internet, and no gym fees, this is how the less well off have to live so give it a try. Good Luck!

[Keith R. Jones]

On my first visit to a city (by chance Nottingham)I sought directions from a passer-by.The reply was "If I were going there m'duck, I wouldn't start from here". So firstly the good news for Michelle,many others are/have been there before,and she is now trying to do something about it.
The published information is inadequate to offer specific guidance beyond three outstanding items.
1)I doubt the veracity of the costs of the car. I have guesstimated(?)her monthly mileage, and conclude that a car is not a necessity. Selling it will release some capital,enabling some debt reduction,and reduce her expenditure.
2)I note the change of contract for the mobile phone. Good, as long as it is only used within the limits of the contract.But is such an item a necessity? Is it essential for her to be contactable/able to make contact 24/7? Examine closely how it is actually needed while the contract runs its course,not simply how it is used."Free minutes" equate to a "free lunch"-neither exists- they are really pre-paid time. By the way, most such contracts are in the form of a credit agreement, and are logged onto one's credit history, with the same potential consequences.
3)The loan (The Carol Vordermann effect). I too cannot reconcile the repayment rate with the quoted interest. There may be grounds for cancellation of the contract,but only after an alternative is secured in principle.This requires very close examination.
Note:- a free credit overview is available on-line from Experian,the detailed record and rating costs less than £5 (perhaps ToL could help?)
STEP 1--you have taken it.Recognise it, face it,start to deal with it.--How?
STEP 2--Record your income-exactly--the nearest £100 is not close enough.It would suffice for a high earner, not for Michelle.
STEP 3--I use a spreadsheet. Record all your unavoidable expenditure=Rent,Gas, Electricity,Bus Fares etc.,and do it exactly.(again),and pay everything possible by direct debit.I note that the statement of outgoings makes no provision for heat,light,clothing,gifts etc.Everything must be preplanned.On a small budget,small amounts are larger percentages.
STEP4--every evening,no exceptions,record that day's expenditure,in the correct column and date line.Make the categories specific-e.g.£40 at Asda is meaningless.£25for food,£10 for clothing,£5 for chocolates(a gift?),all at Asda is useful information. Total time=10mins.Keep the receipts.Pay for everything by credit card.This defers payment for between 14 to 56 days, and makes a permanent record.Avoid using cash.You will not remember how it was used.It will be spent because it is there.If the pub will not accept c/c, then use a different pub,or better still,invite your friends round for a glass of wine (or two).I know that it is not the same, but the real purpose is for you all to enjoy each others company ,within affordable limits. Mention to your friends that you are currently under some financial pressure. I did .It cost me two friends(?),and it became almost impossible for me to buy a round for quite some time.
STEP6--Every week,at the same time and on the same day,sub-total your columns.I think that you will be surprised at how you actually spent your money.Review your receipts and tick them off against the entry.This helps you remember your spending pattern/habits.(20mins)
STEP7--Every time that you receive a bank/c.c/loan statement,go through in detail.Review same against your spreadsheet and your receipts(again),and write against each statement entry the category of purchase (30mins).
STEP8--Every month,I suggest upon receipt of your bank statement,repeat step 7,and add in your c.c./loan payments.Make up the monthly totals and know how you spent your money.(40mins)
STEP9--Find out why it doesn't balance,make the corrections on your spreadsheet until you are sure that it does balance.It will balance the first time after two or three months.(30mins reducing).
STEP10--Highlight every spreadsheet entry using three colours-Yellow=necessary,Blue=highly desireable, Red=unnecessary,avoid in future!(15mins).
In less than 2hours per week, you now know how you are really spending your money.No special skills required,11plus(!) standard.
You are now in control of your small business--Michelle plc, and potentially able to reduce your debts which equate to your gross income for the next 9 months,before paying for essentials!Frightening isn't it.
I have alread suggested that expenditure is easily categorised as needs, desires,wants.For the forseeable future the last two should only be recorded as separate lists,and used as targets to aim for.If you don't,your loan/c.c/bank will eventually make the choice for you.An easy reference point is to work out how many hours,days,weeks you will have to work to make the purchase. It is likely that usually you will conclude attending a concert(?) in Berlin is not worth as much as two whole weeks earnings.
There is a huge plus in all this,as long as you remember that effectively you are in effect currently working for your creditors. one day this will all be behind you.If your family are able to help, then I shall be very pleased for you. But still follow something like the above and thereby take control.Your nights out/in with the girls will become much more enjoyable.
My last concern to wonder how realistic is your choice of career.If your Bank Manager believes that you "have prospects" he will try to support you.He needs your business--if the potential is there.
If you think that all of this is pompous rubbish-then that is fine.But I close by saying "been there etc", even a career in the NHS, and now, by mischance, am also in Nottingham! This the method I chose. Essentially it is how businesses are run.It worked for me,and I still use it but not in quite so much detail and diligence any more.21 years ago my total assets were one 200,000 mile Ford Cortina.At risk of sounding like a pushy insurance rep. I am currently actively reviewing my finances to minimise any IHT liability .
I would be quite content for ToL to put you in contact with me.I would have benefitted from some hand's on help.

[gill trott]

just a small thing but it really helps day to day, buy a notebook and write down everything that you spend, it is surprising how much a daily paper, coffee, sandwich etc add up to. then cut out as much as you can of these extras and put away the money that is saved

[Brenda Hadfield]

Michelle needs to 1 /cut up her credit cards.
2 /reduce her living costs, needs to reduce rent if possible
3/decide what other field of employment her job skills may be tranferable to and then dio some serious thinking about her career options.
4/Write down every penny she spends, she may get a ashock, bit it will be useful, enabling her to identify where her cash goes.
5/sell the car and buy a aweekly or monthly bus pass, will save her aa fortune, or she could perhaps share travel costs with a friend or colleague

[Suzanne Mantha]

You don't have to cut up your credit cards, just put them "on ice" for a few months. If you stick them in the freezer in a container of water, they won't be as accessible. You'll think twice about purchases if you have to defrost the cards first.

Writing down every penny after having spent the money doesn't work for me either: instead I withdraw my cash "allowance" and spend it as I please. When it's gone, it's gone. This gives me pause before I spend, because I think about how many days I have to go before the next payday.

I have certain monthly expenses automatically debited from my bank account, like my monthly transit pass. Fixed monthly expenses are the way to go when your income is limited.

One more thing, never ever buy Christmas gifts on credit. You will always spend more than you intended, and you won't enjoy the holiday anymore than if you paid cash. You don't need a financial hangover in the new year.

These few tricks have helped me eliminate my debt, and now I'm working on building my savings. Good luck!

[tv bracket]

Live far below your earning. The lower you get, the faster you get off your debt. It won't be a comfy way changing your life style, but for me, the freedom afterwards sure is worth the fight. Go for basic and frugal, go for the best and cheapest deal, cut off your gas consumption (no car, bike & on foot are advisable), rent cheaper apartement (get a small room with least electricity if you could) Bring your lunch from home, Eat home (if you can't, do not buy expensive meals).

[Pcbooboo]

Thanks for the info. That great post.

[Pcbooboo]

The best advice I could give is hire a financial advisor. They are not expensive like $300 a year. that person will manage Michelle's finances and design a plan based on her current salary and financial desires. They will defenitly help you get out of dept within an appropriate timeframe.