Debt + Planning For the Future

[chathamf]

I've done a lot of screwing around throughout my 20's (as I'm sure most have) and really need to get my shit together financially. I've got a student loan (only about 15,000 left) and about 7 grand on a line of credit. I've got my credit card debts down quite good over the past year or so.

I'm an apprentice electrician, and I've got a wife and kids. So basically I'm not making fat cash, and I have quite a few bills. Every year though I am making more money, and in a few years I will be making a decent income as a journeyman.

I want to start saving up for a house and hope to make the purchase in 5 years time. I know there are a lot of wealthy people on here, and people who really know what they are doing financially.

I'd like to start putting 10 percent of my pay cheques away in savings. But it seems kind of stupid to save when I owe. Should I just work on paying off my debt before even considering putting cash into a TFSA or RRSP's or anything like that? I know the debt is costing me more than I could make off of interest in any kind of account, but I feel like I would save better if I just put that money into an account I can't touch every month rather than on a credit card I can just keep using.

Any suggestions?

[Disoblige]

Regarding pay off the debt, pay off the highest interest debt first. If I am not mistaken, it will be in this order 1) your line of credit, 2) Canada Student Loans portion, and 3) Alberta Student Loans (assuming you took the loans here).

You can still save money while you still owe money. Just balance it out in a way that works for you. You should take into account what I said above in how you're balancing this payback.

[Kloubek]

I'm no financial guru. In fact, I just posted a question of my own in this forum.

If you're going to save, I imagine you'd want to do so in a TFSA so you could invest it.

But if the debt is at a higher interest rate than you could make with your savings (like you said) then it totally makes sense to pay it off first.

[ercchry]

i find there are two types of people, those that can save and those that wish they can. if you have issues keeping a balance in your bank account a regular old tfsa with auto withdraws aligned with your pay cheques is where its at.

keep a low limit on the CC and ditch the LOC once you pay it off if you cant handle it. once you have enough in your tfsa just pay it off in a lump sum.

as for saving for a house, chances are one of the requirements will be to have your CC paid off, and the LOC just existing might lower what you qualify for.

as for me, i find the best way to save is to just make more money. sounds like you are on the path, and once you get that j-man dont say no to side work

[triplep]

It sounds like this could be a viable option for you if you want to save money for a future home purchase.

Home Buyers' Plan

But as stated before, chances are you will earn less investment income than the interest costs you will incur on your debt, so it might be a good idea to focus on paying that stuff off first.

[chathamf]

I'm not really that crazy with my borrowing. I actually have a Visa with a 12k limit with just a couple hundred on it. I pay it off every month. I also have an Amex charge card I use to collect aeroplan miles that I pay off every month.

I think maybe as someone above stated the way to go may be the TFSA until I have enough in it to pay off the LOC and do it in one lump sum. Then move on to the student loan. Then I guess I could finally start house saving haha.

[roopi]

There is no point in saving money when you have a line of credit with a balance. Each month you are paying interest. So if you just put as much money as you can against the LOC you are really saving more money for yourself then actually putting money into a savings account.

Once you have the LOC paid off then go after the student loans. With the student loans your interest is tax deductible so pay these off after the LOC.

If you are paying 3-9% interest a year to carry debts that is potential savings being lost. I personally would pay them off before you start putting a percentage of your salary away. Once these debts are gone your savings will grow much quicker.

[GotRice?]

I'm no expert neither but pay yourself first. Alot of people will say to pay off your debts before even thinking about saving but that doesn't work for everyone. I tried that before and it just didn't work out for me. Everyone is different and even though paying off the debts first makes the most sense. For alot of people its kind of hard.

It's all about the feeling of progress. Even if you save a small amount atleast it's something that you can see. If you have a big ball of debt after a certain amount it just blurs into one thing and it's hard to keep focus and stay on track. But I would say majority of it should be focused on paying off the debts.

[Hallowed_point]

Pay off the high interest debt. See if you can qualify for a balance transfer 0.99% interest card for 6 months through Scotiabank etc. Only transfer what you can pay off within those 6 months.

I've been on a similar road since last March and I'm setup to be debt free by this coming April. Cut up the cards and transfer balances to the lowest interest rate. Every couple percent helps. This month I've been bad though..ebay & paypal are a horrible combo

[ExtraSlow]

For sure, if you have any credit card debt, it's madness to save a single cent. Pay off that debt right away, scrimp and save every dine until that milestone is achieved.

[chathamf]

I think I have to be one of those pay myself first people. I totally understand that it makes the most sense to pay off the credit cards, and honestly that is what I've been doing and I'm having some success with it. I basically just put all the money I get on my credit cards. I then use my credit cards for basically everything, but I am making big payments on them each month. I've seen the balances go down, but when I look at it as someone said it's just a blur of debt.

If I could login to an account and see what I've saved and see it grow it may give me more motivation and lessen the stress.

[ercchry]

Originally posted by chathamf
I think I have to be one of those pay myself first people. I totally understand that it makes the most sense to pay off the credit cards, and honestly that is what I've been doing and I'm having some success with it. I basically just put all the money I get on my credit cards. I then use my credit cards for basically everything, but I am making big payments on them each month. I've seen the balances go down, but when I look at it as someone said it's just a blur of debt.

If I could login to an account and see what I've saved and see it grow it may give me more motivation and lessen the stress.

the nice thing about setting up a basic bank tfsa too is its super easy to setup the auto withdraw, but a huge pain in the ass to get the money back out. helps curb impulse buying... not that i have ever had issues with impulse buying or anything

[roopi]

Originally posted by ercchry


the nice thing about setting up a basic bank tfsa too is its super easy to setup the auto withdraw, but a huge pain in the ass to get the money back out. helps curb impulse buying... not that i have ever had issues with impulse buying or anything

If your TFSA is with a major bank it only take 1 day to have the funds transferred to your account (I can confirm this with RBC and TD).

[ercchry]

Originally posted by roopi


If your TFSA is with a major bank it only take 1 day to have the funds transferred to your account (I can confirm this with RBC and TD).

BMO... have to book an appointment cause the tellers cant do it, then sit down with them, tell them how much and then yeah its a day or two... i closed that account a while ago so the details are slightly foggy

shows up as an account in my online profile but cant do anything with it online

[Strider]

Originally posted by chathamf
I'm not really that crazy with my borrowing. I actually have a Visa with a 12k limit with just a couple hundred on it. I pay it off every month. I also have an Amex charge card I use to collect aeroplan miles that I pay off every month.

I think maybe as someone above stated the way to go may be the TFSA until I have enough in it to pay off the LOC and do it in one lump sum. Then move on to the student loan. Then I guess I could finally start house saving haha.

Originally posted by chathamf
I think I have to be one of those pay myself first people. I totally understand that it makes the most sense to pay off the credit cards, and honestly that is what I've been doing and I'm having some success with it. I basically just put all the money I get on my credit cards. I then use my credit cards for basically everything, but I am making big payments on them each month. I've seen the balances go down, but when I look at it as someone said it's just a blur of debt.

If I could login to an account and see what I've saved and see it grow it may give me more motivation and lessen the stress.

Here's my suggestion... Put away the credit cards until your consumer debt is paid off - don't worry you won't miss out on that many aeroplan points, etc. Pay for living expenses with cash and set up an auto-payment to your line of credit instead of savings. That way all your debt is in 2 buckets, and you can watch it disappear faster instead of fluctuating up and down like credit cards. Then you can really get motivated about paying it off.

[Toma]

Human psychology is your biggest enemy.

Conventional wisdom is in place to keep you a broke ass consumer.
Are you the type that can pay off debt and NOT replace it with new debt?

Iv always hated ALL debt. I'm allergic to it. I'd rather drive a 1500$ beater chev truck than owe money on a worthless mega depreciating asset, like a 'nice' car.

Common wisdom is save WHILE you pay off highest interest debt. Reasoning is that you are human, you'll never be debt free, so you may as well start saving anyway.

My method is superior IMO. Pay off your smallest debt first. It builds confidence and momentum, and much more likely to be successful. Go hard. Put every extra penny into this.

Then hit the second lowest one... Get rid of it... Etc. As you then prepare to tackle your biggest debt, it is easier and much faster because you can put much more money into it. You will literally be on a roll.

Once you are debt free, you'll be able to save much faster. Don't worry about the BULLSHIT argument of compound interest you'd lose etc. Horseshit. Really. Unless you have an inside track, you're gambling with most investments.

[sabad66]

Here's what I would do if i were you:

1. Put away 5% of your net pay every time you get your paycheck. Open up a basic savings account inside an RRSP if you don't already have one... I wouldn't mess around with investing at this point in time. Just build up a nice nest egg and watch it grow. Even if it's a measly 0.5% it doesn't really matter. Because this is in an RRSP, it will make it a PITA to pull out and also give you a tax refund.
2. Pay the minimum payment on your government student loan(s). As mentioned, interest is tax deductible.
3. Continue to pay off your credit cards in full every month - don't carry a balance.
4. After all your bills, anything left over should go towards paying off your LOC. Pay this off agressively.


After your LOC is paid off:
- increase your RRSP savings contributions to 15% or 20% instead of 5% and look into moving into something that pays better interest. Stop when you get to 25k balance (the max you can use for HBP)
- anything left over after bills, put it towards your student loans (higher interest one first)

After you get to 25k in RRSP:
- pay off student loans agressively if you still have
- this should be enough for a DP on a house, but if not continue to save 20%, btu this time inside a TFSA

[chathamf]

Originally posted by sabad66
Here's what I would do if i were you:

1. Put away 5% of your net pay every time you get your paycheck. Open up a basic savings account inside an RRSP if you don't already have one... I wouldn't mess around with investing at this point in time. Just build up a nice nest egg and watch it grow. Even if it's a measly 0.5% it doesn't really matter. Because this is in an RRSP, it will make it a PITA to pull out and also give you a tax refund.
2. Pay the minimum payment on your government student loan(s). As mentioned, interest is tax deductible.
3. Continue to pay off your credit cards in full every month - don't carry a balance.
4. After all your bills, anything left over should go towards paying off your LOC. Pay this off agressively.


After your LOC is paid off:
- increase your RRSP savings contributions to 15% or 20% instead of 5% and look into moving into something that pays better interest. Stop when you get to 25k balance (the max you can use for HBP)
- anything left over after bills, put it towards your student loans (higher interest one first)

After you get to 25k in RRSP:
- pay off student loans agressively if you still have
- this should be enough for a DP on a house, but if not continue to save 20%, btu this time inside a TFSA

Appreciate all the suggestions everyone. This one really seems like it's something that could work. I really need to start reading up on different forms of savings I think (RRSPS, TCS, ETC).

[J-D]

Originally posted by ercchry


BMO... have to book an appointment cause the tellers cant do it, then sit down with them, tell them how much and then yeah its a day or two... i closed that account a while ago so the details are slightly foggy

shows up as an account in my online profile but cant do anything with it online

I don't think the standard RBC Tellers can withdraw your TFSA either (the account managers can) but you can do it online.

[chathamf]

Another question. Say I go with the RRSP 5 percent idea. My old lady works and we want to put away a portion of her pays as well. Should we put it all in one RRSP or one each? Or would it maybe be smart to put hers in a TFSA so we have an emergency fund that's a little easier to get at.