DURAN DURAN may have experienced a boost to their fortunes since they re-formed in 2001, but the pop group’s second wind hasn’t done Michelle O’Connor’s finances any favours.
A fan since the age of 7, she has attended a number of their concerts in the UK and Europe over the past few years, at no small expense. “It is a bit of an addiction,” she says. Many of her friends are similarly besotted, so it has become a part of her social life.
However, while fun can be costly, the main cause of Michelle’s financial troubles is more vocational than recreational.
The 32-year-old, from Nottingham, hopes to become a clinical or a forensic psychologist, but finding a training post is not easy. “Clinical psychology is a ‘bottleneck profession’ and the situation has got worse recently as a result of reorganisation within the NHS and cutbacks,” she says.
After taking a degree in psychology, Michelle worked for several years as an assistant psychologist. In 2004 she took a masters degree in forensic psychology to extend her options. Since she finished that course last year, she has returned to work as an assistant in a private hospital and earns £16,700 a year. She is now trying to find a two-year training post as a forensic psychologist.
Her decision to take a masters degree has left her with mounting debts. Although her mother helped her financially while she was studying, Michelle found it difficult to make ends meet and accrued credit card debts. After falling behind with her payments, she decided to consolidate her outstanding balances into a £6,000 loan last December.
Late credit-card payments meant that her credit record was less than perfect, so she was turned away by high street loan providers. She ended up going to a specialist loans company, which charges a punishing 25.74 per cent for her five-year loan.
Michelle now regrets the move, which costs her £196 a month. “I thought it would make my life easier but I may have shot myself in the foot,” she says. She is finding it difficult to cope and the balances on her three credit cards have been rising again, to £3,800 in total. “I can’t seem to afford to live otherwise,” she says.
From her take-home pay of £1,100 a month, £347 goes on rent and £120 on food. Car costs are £150, her mobile phone bill is as much as £45, her internet connection costs £10 and gym membership is £30. Once or twice a week she goes to the pub with friends.
Michelle is so worried that she went to her local Citizens Advice Bureau, which provided a self-help pack. She has written to her creditors to ask if they will accept reduced monthly payments and freeze the interest.
Her position will improve if she can obtain a training post because her income will increase by up to £7,000. At least she will have one less expense this year — Duran Duran will not tour again until next year.
What the experts say
BUDGETING
Keith Tondeur, national director, Credit Action
“Michelle is struggling like many a young professional to make ends meet and balance a relatively low salary with higher expectations and demands from friends.
“Where can she cut back on her spending? Obviously, the gym membership could go and she may be able to trim spending on her mobile phone, car insurance and other bills. Keeping a record in a notebook of all spending would really help her to see where her money is going and make further cutbacks.
“Although her lenders may allow her a brief period of up to three months to pay less, they will usually do this only if there is a good reason such as loss of a job or ill-health. If the debts are rescheduled over a longer period they do not go away, and even though the monthly payments will be lower they will take longer to repay and cost more overall.
“If she could cut her monthly spending by £100 and use this to reduce her debts this would really improve matters.
“Because of the high rate of interest on the loan, it would also help if she could persuade a family member to help her to pay it off early. She would first need to check that there are no penalties for early repayment. She also needs to ensure that this is a process she will not repeat.”
DEBT MANAGEMENT
Frances Walker, spokeswoman, Consumer Credit Counselling Service (CCCS)
“One course of action that Michelle could take would be a debt management plan. This would involve just one regular monthly payment to CCCS, which would distribute the money to her various creditors. If she does this, some of the creditors may be willing to freeze the interest, although this cannot be guaranteed.
“As she says, it is a pity that she took out the consolidation loan. It is rarely a good idea to borrow more money to get out of debt.
“The rest of Michelle’s expenditure appears reasonable. There is very little room for cutting back and most creditors would accept her cost-of-living budget.
“Declaring herself bankrupt is a possibility, but it is not her best option and it may have implications for her future career. There is also a fee for going through the process of bankruptcy.”
CREDIT
RIchard Mason, director, Moneysupermarket.com
“Where possible, Michelle should pay more than the minimum repayment on her credit cards otherwise it could take her 25 years to clear her debts. As a priority, she needs to investigate switching her balances to a 0 per cent credit card deal if she can. This may not be possible as she has been a late-payer in the past, but I would try MBNA, which seems to be the most forgiving at present.
“The rate of 25.74 per cent on her consolidation loan is a complete rip-off. This is a lesson that it is vital to be on time with all repayments to creditors to ensure an untarnished credit file. If you do want to consolidate, the interest rate should be a maximum of 10 per cent.
“Michelle could consider taking a temporary second job until she is more in control of her finances.
“She needs to think carefully before implementing a creditor’s arrangement. It will be recorded on her credit file and could damage her chances of obtaining credit in future, including a mortgage.”
MONEY MANAGEMENT
Mark Dampier, head of research, Hargreaves Lansdown
“Balancing a budget should be common sense: simply put, you need to spend less money than comes in. This is the recipe for financial happiness, even if it does not provide you with the lifestyle that you want. The trouble with credit is that it catches up with you in the end and makes life a misery.
“Michelle clearly needs to reduce her outgoings. I know I am not going to be very popular by saying this, but I suggest that the car goes, even though it will take her longer to get to work by public transport. I suspect that the actual costs of the car are more than £150 a month.
“Spending on things such as holidays and Duran Duran concerts in Europe also needs to be curtailed. The simple truth is if you haven’t got the money, you can’t do it.
“Saving will have to wait until debts have been cleared. However, Michelle should then get into the saving habit as soon as possible with a cash mini-Isa. She should also look at her pension requirements. Retirement may seem many years away, but every year that she delays saving will cost her dearly in the long run.
“For a little pain over the next 18 months or so, she will save herself lifelong pain. Perhaps she should have a treat in mind as a reward.
“Finally, she definitely needs to cut up those credit cards.”
- Do you have any advice for Michelle? Submit suggestions to www.timesonline.co.uk/money-makeover and the best will win a bottle of champagne.
Michelle’s response
“I realise now, although too late, that the consolidation loan was a big mistake. I will try asking my family to help me with my loan or alternatively switch it to another loan with a lower rate of interest once my credit rating has improved.
“I will also try to transfer my credit card balances to a 0 per cent deal to reduce interest, again when my credit rating is better. In the meantime, I will give my credit cards to my mother.
“Unfortunately, the areas where I can make cutbacks are limited.
I have just switched to a lower mobile phone price plan and have reduced my monthly bill. I intend to cancel my gym membership and start using my many exercise videos that are gathering dust.
“I am currently looking into agency care work at weekends. I would use this extra money to pay my creditors. If I am strict with myself, I believe I can manage
my debt without further damaging my credit rating. If I am successful I will reward myself with a treat next year by going to a concert when Duran Duran tour again.”
