This 23-year-old student is more than $15,000 in debt, was laid off and has to buy groceries for her family. How can she gain control of her finances?

This 23-year-old student is more than $15,000 in debt, was laid off and has to buy groceries for her family. How can she gain control of her finances?

Janine, a 23-year-old undergrad student, is finally on her last year of post-secondary school. Working part-time at her university, making around $ 430 a month, she knows she has a lot of ground to make up when it comes to paying off her student debt when she graduates.

“I am graduating next year, and I am not sure if I will be securing a full-time job by the time I graduate so I know I need to save money, but I am not sure how,” Janine says. “I would like to know if there are other options to reduce my spending or reduce my debt.”

Due to COVID-19, she has been let go from her on-campus job and has applied for the Canadian Emergency Response Benefit (CERB). She wants help from the Millennial Money coach to help her figure out if she should use the majority of the CERB money to pay off her credit card or save it.

For now, her debt sits above $ 15,000, with a monthly interest charge of $ 235. “Due to high interest I wanted to know if I can apply for a line of credit and use that to pay off my high-interest credit card,” she says.

An added pressure to her full-time school schedule and making ends meet personally is helping her family make ends meet. Though she lives at home, her parents will have to borrow money from her credit card each month to put food on the table. “My parents also rely on me to make payments on our furniture instalment plan,” she says.

Most of the money she makes goes straight back into paying for her food and, before the pandemic, into transportation and other personal costs. These challenges also lead to a “tendency to splurge on shopping” whenever she feels stressed out.

She’s hoping that Millennial Money and the money coach can help her gain control of her situation as her growing debt looms.

The expert: Jason Heath, managing director at Objective Financial Partners Inc., offers his advice to Janine.

  • It sounds like Janine will qualify for the Canada Emergency Response Benefit as a result of her job loss. She volunteers at the school already, but if she is open to volunteering in a sector providing COVID-19 support, she could receive up to an additional $ 5,000 toward her tuition next year under the Canada Student Service Grant.
  • She is fortunate to live at home and not have to pay rent. Her coffee and lunch costs are fairly modest, but if the food is free at home that’s definitely an area to cut costs if she brown-bags it. Using TTC to save on car costs is a good move and can save money for just about anyone willing to forgo the convenience of a car.
  • I think Janine’s goal to have an emergency fund is good in theory but, in practice, her credit card debt should be her first priority. She has about $ 16,000 in credit card debt and she’s only making the minimum payment. If she hasn’t already, she should see if her credit card lender is one of those who is willing to lower rates to provide pandemic relief. She should put any extra cash flow to pay down her credit card as building a savings account that earns 1 per cent interest is not as good an option as paying down her 10 to 20 per cent interest rate credit card.
  • Janine may also qualify for a student line of credit, or just a regular unsecured line of credit, and this could be a lower cost interest rate option than her credit card. The caveat is if it gives her more access to credit, she needs to be sure to avoid the temptation to utilize that credit for more spending.
  • For a young person starting out, there may be pressure to open an RRSP or TFSA account and start saving for the future, but I would generally focus on debt repayment first. Start with credit cards and then student loans. And ideally, time at home rent-free with parents should be a time to not only pay off debt, but also start to save for future short-term expenses. Moving out costs money, not only in terms of the monthly costs of rent or a mortgage, but also the cost of acquiring furniture and the ongoing incidentals that come with being on your own.

Results: She spent more! Week 1 spending: $ 257.69 Week 2 spending: $ 982.79

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What she learned: Despite spending more, Janine says she did better with personal spends and only bought lunch once the past week at Subway. “My expenses are higher this week because I had to pay my tuition fees for my summer semester. Also, because of the pandemic, we try to stockpile on groceries, which is why we buy more in bulk.” An added cost? This weekend is Mother’s Day and also happens to be her father’s birthday, so she decided to order gifts off Indigo.

Due to COVID-19, Janine is also spending less money dining out and buying coffee because her university is closed. “I am trying to make more food at home, so I am taking this time to learn how to cook more and meal prep instead of ordering takeout, which is tempting,” she says. Another cost that has been cut? $ 130 that’s normally put toward a TTC monthly pass.

In the near future, Janine is unsure if she’ll be able to take part in her monthly summer trips with friends to Wasaga or Muskoka, which usually cost $ 100 to $ 200 per trip. Looking at her expenses last summer, between May to August, Janine says she spent around $ 1,000 in total for food, transportation and personal spending — something she will have a leg up on this year because of the closures.

Take-aways: “I learned that debt repayment is the number one priority for me.” With the help of the money coach, Janine will be taking any extra cash from her CERB to put toward her credit card. “I am also eligible for the RBC emergency relief fund, thus my monthly interest is halved for this month and my minimum payment is also deferred for now, but I will continue to pay down my credit card debt.”

A bigger takeaway? “This experience and reading Millennial Money made me realize that I should improve my financial literacy.” Janine says when she first applied to universities, she didn’t think much about what OSAP meant. “I didn’t think about all the expenses that came with university and the long-term implications it had on me financially. I think because most of my friends and classmates applied for OSAP, it made it normal.”

In hindsight, Janine wishes that she had taken a year off and worked enough to save for university. “For now, I know that I have to start thinking long-term, otherwise my debt situation will get worse.”

Are you a millennial living in Toronto or the GTA and need help with saving your money? Be a part of #MillennialMoney and email ekwong@thestar.ca
Evelyn Kwong

TORONTO STAR

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