She has over $60,000 in debt and a mortgage. What can she do?

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Paula, 37, works in tech and earns $92,000 a year, an increase from her previous job in healthcare.

She’s spent years battling over $60,000 in debt, including $11,200 in student loans, $17,400 remaining on a $25,000 personal loan she took out to “pay off credit card debt appalling”, an additional $16,500 accumulated on his credit card and a $16,500 line of credit.

And that’s not all.

“I have my mortgage for my land. It was $76,000. I got a loan of $57,000,” she explained. “It’s awful. I’m so ashamed of it all.”

Reflecting on her finances, Paula said she didn’t feel like she had a “crazy, extravagant lifestyle.” Day-to-day, she mainly eats at home, only occasionally having dinner with friends. On weekends, she’ll drive to see friends or do outdoor activities, but nothing too expensive, she noted.

“I drive a 2009 car that I bought with cash a few years ago. I haven’t traveled for two years,” she said. “Probably my biggest non-essential expense is sporting goods – bikes, skis, gear and clothing,” she said. “I also needed an almost entirely new wardrobe due to the pandemic weight gain.”

Currently, Paula is renting a semi-detached house in a small mountain town for $1,300 a month after leaving Vancouver during the pandemic with her dog “to improve the quality of life.” She bought a piece of land in 2021 and wanted to build a small house on it, but couldn’t find the time or the funds to do so.

“Demand is high and materials and workers are expensive,” she said. “I love my land and I have lots of ideas of what could be built on it – but even modestly it’s very expensive, and I’m afraid my project is stupid and I can never afford it. to permit.”

While she was in trouble over her finances, a little remedy is $7,000 to $15,000 she will soon receive “to settle a pay equity case.”

Currently, she has $4,000 in a savings account, but no TFSA or RRSP. She also doesn’t have a pension plan, but because she worked in the health field for six years, she saved money through this pension.

Paula wants to know if she should sell her land and invest the money in buying a house, as well as how to settle her debt.

We asked Paula to share a week of her expenses to get a better idea of ​​her finances.

The expert: Jason Heath, Managing Director at Objective Financial Partners Inc., on Paula’s situation.

Paula incurred a lot of expense to earn two master’s degrees, but it benefited her career trajectory. She now earns close to six figures. The question now is whether her accumulated debt will weigh her down and whether she should build a house or not.

$61,000 in non-mortgage debt is a lot. His carrying costs are about $1,000 per month and about 20% of his net salary. Whether she builds on her land or sells and buys a house instead, this debt will limit her options. As a result, she may have difficulty qualifying for a construction mortgage.

Paula may want to speak with a mortgage specialist to better understand what she would qualify for. This may be the reality she needs. They may also be able to increase his mortgage based on the appreciated value of the land to pay off some of his credit card debt, but the land is difficult to finance. The challenge for her then will be not to accrue a credit card balance for the third time if she is able to increase her mortgage.

I would be inclined to use the payment expected from his pay equity case to pay off his credit card debt. When you have multiple debts, it usually makes sense to pay off the debt with the highest interest rate first. She will likely have 30% withholding tax on her lump sum payment and her tax liability on that amount could be a little higher. She should therefore anticipate another $500 to $750 in taxes to be paid next April.

She would probably have to budget and make extra payments each month to pay off her credit card debt on the day her pay is deposited. Saving first and spending later – bearing in mind that saving can include paying down debt – is a good habit to develop.

Frankly, I don’t think it’s a bad idea to consider selling her land and paying off her debt so she can start fresh and build up savings for a home and for her future. It might not be the answer she wants to hear given how much she loves her land, but I think it’s worth considering. At the rate she is going, her debt will take years to pay off. She also has a 13-year-old car that is either going to be repaired or will also need to be replaced at some point.

She depends on her income to pay her bills, so her main dependency is her ability to work. Based on that, if she doesn’t have disability insurance through her employer, she should consider getting that coverage in place.

Results: She spent less. Expenses week 1: $823.99 Expenses week 2: $441.39

How she thinks she did: “I think I did well. I had socials planned, and I think they’re important for staying sane, but otherwise I cooked at home,” Paula said, adding that she could stay away from online shopping.

Also, after seeing her expenses, she decided to cancel a few streaming services and is looking to sell clothes. “I realize things add up pretty quickly. I will now be tracking my spending more closely, starting the new month fresh, and sticking to my budget. »

Take away food : With Heath’s line-by-line breakdown, Paula is stunned.

“Coming up with these numbers was a shock to me. I forget that I have a considerable amount of debt to repay, which takes away a good part of my income, and that is why the two ends do not meet and I continue to go into more and more debt on my credit card. credit,” she said.

“The advice scared me a bit,” she said.

As for the land she bought, Paula said she wanted to keep it “given the rise in the real estate market” and her “love” for it. Because of this, she hopes her lifestyle changes can help her.

“With the right mindset, I could keep my spending to a minimum for a few years and get rid of those monthly debt payments so I could eventually save to build,” she said.

More immediately, with the money she will expect from the settlement, she wants to tackle her credit card debt immediately and ask her bank to lower her limit to avoid finding herself in this situation. Along with that, she plans to put the $4,000 from her savings account on her credit card debt.

“It’s a bit more encouraging to see efforts to pay down debt as savings,” she said.

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John A. Bogar