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A case like mine and a financial planner’s advice

Here are 3 profiles of people in serious debt, bordering on debt overload. All wanted to rid themselves of the stress and constant pressure they were feeling from their debt load.

Luke

Profile
Luke, 34, freelancer in marketing
Net annual income : $36,000

Dreams about buying a home.

Brief description of financial situation

  • Doesn’t own a car.
  • Has no emergency fund.
  • Rents an apartment in Montreal.
  • Owes $5,000 on a student loan.
  • Owes $12,000 in other forms of debt (credit cards and lines of credit).
  • Pays $60 a month in credit charges.
  • Pays the $1.50 additional ATM fee at any ATM without any question.
  • Doesn’t take the time to assess his financial situation or make a budget.
  • Has gotten used to the idea of being in debt.
  • Luke asked for a salary advance last month.

Recommendations by a financial planner

  • Draw up a budget.
  • Organize your finances.
  • Plan how to pay off lines of credit and credit cards.
  • List priorities in terms of spending.
  • Cut back on miscellaneous expenses (figure out what they are by making a budget).
  • Get into the habit of paying bills off in full.
  • Compare interest rates to pay the highest debts off first. Negotiate with creditors (lenders).
  • Consolidate bank accounts as much as you can (to save on service charges).
  • Take out an unlimited transaction plan that costs no more than $15 or $16 per month.
  • Use credit and debit cards sparingly the entire time you make paying your debts off a priority.
  • Set up an emergency fund that covers at least 3 months of living expenses.
  • Save at least 5% of net income in an RRSP or TFSA.
  • Consult experts to determine the need for insurance, a will and a mandate in case of incapacity.

Max and Donna

Profile
Max, 40, network administrator
Net annual income: $60,000

Donna, 35, graphic artist
On maternity leave and pregnant for the 2nd time.

They have 1 infant and another on the way.

Rent an apartment in a wealthy neighborhood.

Would like to buy a duplex apartment this year.

Brief description of financial situation

  • Spend 67% of their joint income on food, clothing, gifts and day-to-day cash purchases.
  • Expect another child in 7 months.
  • Like luxury items (stainless steel appliances, new car, leather sofas, LCD television, etc.)
  • Donna likes to pamper herself (hairdresser, aesthetician, day spas). She also buys a lot of clothes for herself and the children.
  • Max eats lunch out a lot and goes downtown on a regular basis to meet his friends for a drink.
  • Max has a gym membership he hasn’t used since his first child was born.

Recommendations by a financial planner

  • Determine priorities in terms of spending.
  • Assess financial ability to buy a duplex.
  • Transfer funds out of savings and into RRSPs.
  • Contribute to RESPs for the children.
  • Plan out the expenses that will be incurred for the arrival of the second child.
  • Set up an emergency fund that covers at least 3 months of living expenses.
  • Consult experts to determine the need for insurance, a will and mandates in case of incapacity.

Chris and Susan

Profile
Chris, 47, mechanic
Net annual income: $40,000

Susan, 47, manager
Out of work the last 2 months.
Net annual income: $65,000

They have 3 children: 9, 14 and 16.

Brief description of financial situation

  • Spend a lot and save little.
  • Owe $110,000, on top of their mortgage.
  • Use 9 credit cards to pay for their various purchases, including groceries.
  • Pay extremely high monthly credit charges.
  • Owe $175,000 on their mortgage.
  • Live the high life: big house, 6 televisions, expensive family outings (rock concerts, movies, shopping sprees). They take a winter vacation every year on credit.
  • Own 3 cars, 2 of which leased and 1 bought used for their oldest child who just turned 16.
  • All 3 children have their own iPod, laptop computer and television in their room.

Recommendations by a financial planner

  • Consolidate loans and other credit cards on current mortgage.
  • Make a budget and stick to it.
  • Make choices when it comes to luxury purchases.
  • Consider selling one of the 2 cars to cut back on transportation costs.
  • Resist the temptation to travel on credit and make impulse purchases (clothing, electronics).
  • Bring your lunch to work and make your own coffee in the morning instead of paying high coffee-house prices.
  • Do clothing exchanges with friends or family members who also have children.
  • Consider family outings that are free.
  • Contribute to an RESP for the youngest child.
  • Review insurance, wills and mandates in case of incapacity to make sure they’re up to date.

The next step

You too can take steps to see where you stand financially. Take the time to contact one of your financial institution’s advisors or financial planners. These experts are available to guide you.

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