Reader Mail: Buried in Debt, Help!

I received an email from Curtis last week regarding how to deal with all his debt. This was the email:

I have a question in regards to student loan debt. Myself and my wife both have student loan debt over $40,000 combined. We both have good paying jobs with a total income of about $80,000-$85,000. We have purchased a modest home and own a modest car. We find it very difficult to get any kind of savings going other then investing in our RRSPs every year. Do you have any advice or recommendations when it comes with balancing this amount of debt?

Curtis, I've felt your pain, we were in a very similar situation when we first graduated also.  $40k in student loan debt, new mortgage, and a new car loan. 

What we did was sat down and created a cash flow spreadsheet (budget).  To start, determine what you spend on a regular day. Do you buy coffees or go out for  lunch?  Does your wife?  Eliminate the unnecessary spending, and put it towards your debt.  Also, when you receive unexpected income like a tax return, or job bonus, save it up and put it on your debt.

Some tools to help manage your cash flow? 

I use MS Money at home, but I hear that Quicken is a really good package for Canadians. If you create your own spreadsheet, it doesn't have to be complicated.  Open up your favorite spreadsheet program and use 2 columns, expenses and income.

For the expenses (monthly):

  • Mortgage + property tax
  • prop insurance
  • utilities (heat and light)
  • cable/tel/cell/internet
  • home improvement
  • car payment
  • car insurance
  • car maintenance
  • license
  • gas
  • groceries
  • gifts
  • dining out
  • hobbies
  • RRSP contributions
  • debt repayment

Income is self explanatory.

This will help determine what you have left at the end of the month. If it's not much, then you'll have to look at where you can cut back. What I found to be a real eye opener was when my wife and I sat down and went through what we spent money on in the run of a day. Those coffees/cigarettes/beers/fast food can be killer on the budget. Get rid of those unnecessary expenses, and you'll have thousands more in your pocket every year. For example, cigarettes are around $10/pack, if you have one pack a day, that's $3,650/year! Even having a couple of coffees a day at Tim Hortons will result in $1000/year.

In the end, it comes down to 2 things, either reduce your expenses or make more money. Ideally, do both. :)

To summarize:

  1. Create a budget and figure out where you can reduce costs.
  2. Put all extra income onto your debt.That's basically what we did and we're now debt free (except for mortgage).

Hope this helps!  Do you have any tips for Curtis?

Disclaimer: The articles posted on Million Dollar Journey are the opinion of the author and should not be considered professional financial advice. Please consult a financial professional before using any information provided by this site. 

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FT

FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
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Best of August 2007 and More! | Million Dollar Journey
13 years ago

[…] Reader Mail: Buried in Debt, Help! (21 comments) […]

Andrew
13 years ago

I may well be missing something here, but isn’t the above disagreement caused by mixing references to short-term versus long-term strategies?

We used to ask the question: Do we keep investing our savings, or do we buy a home? It didn’t occur to us until reading about readvanceable mortgages that we could do both. By being careful about what we bought, and the mortgage terms used to buy it, we didn’t need to take on additional jobs. I think that might qualify as an example of “scale”, if I understand the use of the word here.

We don’t have to move/sell to realize a gain in property value; we simply reappraise, then reinvest. The gain is translated into additional power to generate wealth. It’s a long-term plan, so the gains are realized indirectly, deferred so that they can compound. Using the purchase of increasingly valuable real estate to also further our investments elsewhere seems to me a valid example of getting the best value for our investing dollars.