Digging a Hole
Schlesinger, Joel, Winnipeg Free Press
Haunted by fears of being buried under a mountain of bills
Norm has dug himself a deep hole, and he fears he'll soon be buried by bills and interest payments.
"I don't know what I do with my money," says the manufacturing worker in his late 20s. "I guess I just suck at managing it."
Norm earns about $40,000 a year, taking home about $2,300 a month, but he owes more than $20,000. And all of his debts bear interest rates exceeding 18 per cent, including a car loan for more than $13,000. He says he asked his bank for a consolidation loan that would charge a lower interest rate, but he was turned down earlier this year.
Still, he has been chipping away at his debts over the last year, making a little more than the minimum payments. Yet missteps from the past continue to haunt him.
Collection agencies are hounding him for a loan from a U.S. bank from four years ago, an unpaid utility bill and a speeding ticket an ex-girlfriend got while driving his car.
"All in all, I've been through a couple of bad relationships where I've invested a lot of money and just came out of them with nothing at all, except debt."
Now living with his parents, Norm says he wants to get out of debt as quickly as possible and save for the future.
The problem is, he's not sure how.
"I want to learn how to budget and become debt-free, but where do I even start?"
Debra Jonasson-Young is a money coach, a for-fee profession that helps people develop better personal-finance habits.
She says things aren't as bad as they may seem for Norm because he's got a good income and his cost of living is low.
"With Norm living at home, it's a great time for him to deal with his outstanding debts and develop some solid money-management disciplines," she says. "Once his fixed and discretionary monthly expenses are taken into consideration, including his car payment, he appears to have enough money to manage his outstanding debts within a reasonable period of time."
His monthly fixed expenses are rent, his cellphone and car expenses, including his car-loan payment. They total $957.
His other costs, such as clothing, cigarettes ($240), groceries and entertainment, are about $800 a month.
He should also start saving -- which he can do, even though he's got substantial debt payments.
"It's important that Norm sets up a savings account in order to get used to saving, as well as set up an emergency fund for such items as car repairs," she says. "Norm can afford to save $100 every month, and this money should go into a separate account."
Even after paying all these expenses, he still has about $450 a month for debt payments.
"Norm currently is $6,871 in debt, not including his car loan for $13,225," Jonasson-Young says. "Although one quick solution would be for him to sell his car to pay his debts, the value that he would get for it would not fully solve his problem, and he still requires transportation to get to work."
Norm will have to grind it out each month, paying what he can until his debts are paid in full.
His most pressing debt is a $2,764 bank loan that's been turned over to a collection agency.
"They are willing to settle for a one-time payment of $1,650; however, he would need to come up with the money now, which he is unable to do," she says. …