£1,380 a Month and Going Backwards
Keiran is 19 and in the second year of a plumbing apprenticeship. He takes home £1,380 a month and still lives with his parents, to whom he pays £250 board. Over the last three months his average monthly spending has been: car insurance £96, fuel £90, phone £44, gym £29, food £210, socialising £340, clothes £130, subscriptions £61 and 'ad hoc' spending of about £260. That totals £1,510. He is £520 into an overdraft charging 39.9% EAR and it has grown by about £130 in each of the last three months. He wants to buy a new phone costing £1,049 on a 24-month plan at 29.9% APR, which the retailer quotes as 'about £59 a month'. He also has a buy-now-pay-later balance of £180 due in three weeks for trainers bought in December. He says he does not know where the money goes and thinks he just needs to 'cut back a bit'.
1. Use the figures to explain why Keiran is going further into debt despite earning £1,380 a month, and propose three specific cuts with amounts and reasoning.
Read the worked answer
The deficit is structural, not a one-off: average spending of £1,510 against income of £1,380 is £130 a month, which matches the overdraft creeping up. He is not 'bad with money' in the abstract; his committed costs plus his discretionary pattern exceed his pay every month, and the overdraft hides it until the interest arrives.
Categorise before cutting:
- Fixed or contractual: board £250, car insurance £96, phone £44, gym £29, subscriptions £61 = £480.
- Essential variable: fuel £90, food £210 = £300.
- Discretionary: socialising £340, clothes £130, ad hoc £260 = £730.
The cuts must come mostly from the £730, because squeezing food or fuel is unsustainable. Three specific cuts:
- Subscriptions: keep one at £12, cancel the rest - save about £49.
- Socialising: set a £180 cash budget for the month, roughly two nights out - save about £160.
- Clothes: one £40 item a month using a 48-hour rule - save about £90.
Total roughly £299, turning a £130 deficit into about £170 surplus. The £260 'ad hoc' spending needs a sinking fund for car repairs and gifts rather than being treated as invisible. Cutting the gym is possible only if he replaces it with free exercise; otherwise it is a false saving that he will reverse.
2. Evaluate the phone offer. Include the real cost, an affordability check and at least one alternative. Explain why 0% buy-now-pay-later can still be risky.
Read the worked answer
The offer: £1,049 over 24 months at 29.9% APR. Approximate repayment is £58–59 a month, so the total paid is about £1,400 and the interest is roughly £350 - a third of the phone again.
Two checks:
- Affordability: on current figures he cannot afford £58, because he is already £130 short each month. Adding £58 widens the gap to about £188, which the overdraft will absorb at 39.9%. The phone would be funded by more expensive borrowing - a clear loss.
- Total cost versus alternatives: a refurbished handset at £250–£300, or keeping the current phone with a SIM-only deal, avoids the interest entirely. Saving £58 a month for six months buys a £350 phone without credit.
APR matters because it is the annualised cost of borrowing including fees; 29.9% is expensive for a depreciating asset. A phone loses value immediately, so he would be paying interest on something worth less than the debt.
Buy-now-pay-later at '0%' is risky for different reasons: the cost is not interest but missed-payment penalties and damage to his credit file. The £180 is a lump sum due in three weeks, not a monthly amount, and it lands in the same month as insurance and board. If he has not set it aside, it becomes a high-cost problem. He should either ring-fence £60 a month now or decline the plan and save instead.
3. Rank what he should tackle first - the £180 buy-now-pay-later balance, the £520 overdraft, or a savings buffer - and justify the order.
Read the worked answer
Order: (1) the buy-now-pay-later deadline, (2) a small buffer, (3) the overdraft, while making minimum payments throughout.
Reasoning:
- Buy-now-pay-later first because it has a fixed date three weeks away and a cliff-edge penalty; missing it damages his credit file and may add charges. Ring-fence £180 from the next pay packet before any discretionary spending.
- Buffer second, even though saving while owing money feels wrong. A £300–£500 buffer stops the next car repair or phone bill from going on the overdraft, which is how the debt is growing. Without it, every repayment is undone by the next emergency.
- Overdraft third, but not indefinitely: at 39.9% it is his most expensive debt, so once the buy-now-pay-later balance is cleared and a £300 buffer exists, every spare pound goes to the overdraft. He should ask the bank about a cheaper overdraft or a repayment plan rather than letting it roll.
The phone purchase should be paused until the buy-now-pay-later balance is cleared and the buffer is in place. A useful rule: no new credit while any balance is growing month on month. Review at each payday, not once a year.