This 37-year-old single mom is $161,000 in debt and only makes $48,000. She has goals to send her son to university and save for retirement, but is that possible?

“I need help.”

At 37 years old, single mother Pat is deep in debt. With a line of credit at $ 110,000, $ 16,000 on her credit card and $ 35,000 in student loans, that comes out to a total of $ 161,000.

Making $ 48,000 a year working as a credit analyst, she has aspirations of sending her son to university, but that’s a dream that seems unattainable. “My son is 15, hence the reason for trying to keep my finances in order at best; in a few years he will go off to university. My top priority is to ensure he doesn’t rely on student loans.” On top of that she wants to start feeling settled for her own future, in hopes she’ll be able to turn the negative balance into savings for retirement.

But before that all happens, she needs assistance finding ways to hurdle over the debt. “I feel out of control.”

On a regular workday, Pat says she usually brings food to work for lunch and, only on the rare occasion, once or twice a month, will she opt for lunch out. Dinners are usually prepared at home. Weekends leave a little more time for bonding with her son, when she’ll spend $ 50 to $ 70 on brunch or dinner.

One of her biggest monthly spends? Before COVID-19 restrictions, it was $ 610 on transportation, for a car, car insurance, gas, highway tolls and a Presto card for her son to get to and from high school. Also, food for her family, which totals $ 650 per month.

Taking home less than $ 3,000 a month, with her monthly spends over $ 2,600 before even thinking about paying off her large debt, Pat reached out to Millennial Money to get some advice.

We asked to her to share her weekly spending to get an idea of her day-to-day habits.

The expert: Jason Heath, managing director at Objective Financial Partners Inc., has words of advice for Pat.

“It looks like things are pretty tight for Pat. She has a modest income given the high cost of living in Toronto. She is obviously keeping her expenses fairly low right now. Good on her for still finding room in her budget for charity. However, I am concerned about Pat’s past spending and providing financial support for herself and her son first and foremost.”

  • The glaring item for Pat is the $ 161,000 of unsecured debt. I’m guessing the interest rate on this debt averages in the high single digit range or maybe even low double digit range. At a 10 per cent rate, that debt would have $ 16,100 per year in payments — that’s over $ 1,300 per month. Given her take home pay is about $ 3,000 per month, that means nearly half of her income would disappear to servicing debt. And that wouldn’t even make a dent in the principal. I suspect that’s how the debts get so high in the first place, because the interest just continues to accumulate.
  • At the expense of being pessimistic, the reality is that Pat may never be able to pay that debt off, much less adequately save for her son’s post-secondary cost or her own retirement without something drastic. That debt would also make home ownership unlikely.
  • Sometimes people get into difficult debt situations where repayment is not possible. The same can apply to individuals as well as businesses who get in too deep. Sometimes it’s due to circumstances beyond someone’s control, and the recent pandemic job losses and business closures highlight that fact.
  • I think in Pat’s case, the best thing she could do in the long run is to speak to a licensed insolvency trustee to get some advice on dealing with her debt. This may include a consumer proposal or even a bankruptcy. It may not be something she wants to do, but the sooner she gets advice from a professional, the sooner she can get focused on her saving goals for her and her son.

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Results: She spent less. Week 1 spending: $ 1,862.93 Week 2 spending: $ 1,272.45

How she thinks she did: With the pandemic, Pat says that her spending has changed quite a bit and that she’s able to save a bit more on transportation costs and her son’s extracurricular activities.

“Before COVID-19 I would be spending at least $ 200 on gas, $ 150 on the 407 ETR toll, $ 200 on lunch allowance for my son, $ 100 for my son’s Presto pass and $ 150 on sports activities.”

With those savings aside, Pat thinks, in general, she did fairly well, despite spending more on groceries than usual.

Take-aways: After putting it off for some time, Pat got the confirmation she needed from the money coach about her situation, even though it was difficult to hear. “The coach’s review was bang on, especially due to circumstance beyond my control,” she says. “The hardest part in getting this advice was the confirmation that I may never be able to get out of debt.”

Pat says declaring bankruptcy isn’t an option she’d like to explore — but it doesn’t mean she is giving up. Her next steps are to find ways to become more frugal or pick up another job to make additional income.

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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