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To pay down debt, Canadian couples in their 30s need a strategic long-range plan. They also need to be realistic. (Getty Images/iStockphoto)
To pay down debt, Canadian couples in their 30s need a strategic long-range plan. They also need to be realistic. (Getty Images/iStockphoto)

Thirty and Counting

Can these thirtysomethings take on their debt monster – and win? Add to ...

Charles Blood and Aidee Arias want to get married next year and plan to do so on a shoestring budget of $7,000.

That’s about all they can afford to spend on their big day after having accumulated about $60,000 in debt since meeting each other six years ago in Victoria.

They currently rent because they lack the funds to qualify for a mortgage. Home ownership is a dream they both share for their future together, along with children.

She is 33 and works in the local film production industry; he is 36 and works as floor staff in a retail store.

After taxes, they bring home around $5,800 a month. But it’s not enough to pay down a multipronged debt consisting of a $27,500 student loan, a $13,000 car loan, a jointly held $15,000 line of credit and $6,000 spread across various credit cards.

“Last year we used our line of credit for a four-and-a-half month vacation to Southeast Asia that also had us dipping into our credit cards,” says Ms. Arias, explaining how their debt load has almost tripled since they became a couple.

“We try to pay off big chunks at a time,” she continues. “But then we find that we have to dip into what we’ve just paid because things keep coming up, like vet bills, car repairs and a slow season at work, so we never seem to get a move on. Still, we always make sure to make the minimum monthly payments.”

To pay down debt, Canadian couples in their 30s need a strategic long-range plan. They also need to be realistic, says Mike Braga, vice-president at the BDO Canada Ltd. accounting and advisory firm in Kitchener, Ont.

“The first thing a couple in debt needs to do is take stock and see how much debt they have. Most Canadian couples don’t have a clear understanding of the total debt they have. And in order to be able to tackle debt couples need a very precise monthly budget which they must follow,” he says.

“A budget will ensure that couples cover all the necessities. It will also allow them to do some of the fun stuff they enjoy. It will also include an amount each month to be used for paying down the debt. Once the plan is set it is important that the couple does not add to its unsecured debt. Putting the plastic on ice does help.”

Here are more of his tips.

Don’t get in over your head

“You might think you are financially sound if you are making your minimum monthly payments. However, your debt may be increasing year over year so any payments you are making you simply have to withdraw again the following month to cover your expenses. If this is the case then it is important to have a financial adviser sit down with you to look at your budget and to advise you of any debt relief options.”

Pay the student loans off first

“Student loans can be a dangerous debt because they are not easily included in bankruptcy. There are certain timelines required for this to happen. Having a plan to tackle this debt before engaging in any other major life event, like buying a house or having a child, is essential to having a solid financial foundation. Whether your student loan is provincial or national there are many interest relief and payment options available to you. Make sure to call your student loan provider to know all your available options. Take advantage of any interest-relief provisions they offer. And make this debt a priority.”

Go automated

“Make debt repayments automatic for all debt payments, including student loans. Once you have a solid plan in place you will know how much money you have to contribute to each of these expenses. Setting it up as an automatic payment that matches your pay days will let you know quickly, as soon as you look at your bank statements, how much money you have left over for your other discretionary purchases.”

Putting the brakes on a car loan

“Getting out of a car loan can be difficult. Even if you were to return your vehicle, the finance company would attempt to sell it and the amount received is often less than market value. The remaining balance is still the customer’s responsibility. Having a conversation with the finance company or a bank manager might allow you to renegotiate the loan for a longer period of time which would reduce your monthly payments.”

Save for expensive trips

“Vacations are excellent and important for maintaining sanity. But not recommended is using credit to pay for them. Instead, setting aside a monthly amount and putting it in a separate savings account will help achieve vacation goals without the added burden of interest. Small amounts do add up quickly.”

Budget also for a wedding

“Weddings are one of the most expensive events in a couple’s life; budgets are often underestimated and people over rely on the gifts they will receive – $7,000, by the way, is well below the national average. Have you considered all the costs involved when planning a wedding? It’s important to have a realistic and accurate budget for any wedding event. Much research is needed to know the true costs. Consider things like invitations, linens, flowers, the dress and other miscellaneous expenses which can add up and bust the budget. Also, couples should have a frank discussion about who is going to pay for the wedding and if family members are going to contribute. With this information in hand and a plan in place a couple can feel comfortable in making wedding purchases knowing they won’t break the bank.”

Beware the real cost of home ownership

“Owning a home is every Canadian couple’s dream. But this dream can quickly turn into a nightmare when the mortgage payments come due and the extra costs of home ownership are realized. Just because you qualify for a mortgage doesn’t mean you can afford it. When considering a mortgage think of what that monthly mortgage payment will be. When adding it to your other expenses consider if the money left over will be enough to allow you to live the lifestyle you want. For some couples renting is a good option because it allows them the flexibility to prioritize other financial goals until the time when a couple feels ready to enter the real estate market. Rushing into the housing market when interest rates are low might seem like a good idea. But interest rates are due to climb, and when they do your mortgage may become unmanageable.”

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