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Laura, 38, and Jim, 30, Calgary

As the John Lennon lyric goes, life is what happens to you when you're busy making other plans - and for this couple, life racked up $70,000 in consumer debt. She says they should pay off the credit card, but he thinks the student loans are the priority. Debt deliverance or dire straits?


Our credit card is maxed out at $10,000, on top of a bank student loan of $20,000 and government student loans of $40,000. We've got $6,000 to put away, and I'm aiming for the credit card - at 19 per cent, it's the highest interest. We ran up the credit card on random purchases: clothing, passport renewals, a chair. It's even harder now that Jim is out of steady work, but on the bright side, we're moving to cheaper housing that will save us $200 in rent, though it'll cost $400 to move. We also have an international high school student who pays us $650 a month for room and board, though I'm not sure there will be room for her in the new place. I'd love to help my daughter, who's in Grade 10, buy a car to get her to her part-time job. We'd contribute about $1,500 toward the purchase.


I know the conventional wisdom is to pay the highest-interest loan off first, but I'd like to put the $6,000 toward the $20,000 bank student loan. The rate is prime plus 1 per cent, and Laura is paying $230 a month toward the bank loan and $250 toward the government loans. If we reduce the principal on the bank loan to $14,000, we can make lower monthly payments, which frees up more cash for higher-interest debt. Since we're mainly living on one income, it's important to maximize every dollar. I do pick up some jobs in security at $14 per hour, but I'm focused on trying to complete my pilot training, which I hope will happen within two years. In the meantime, I'm not sure we should be spending money on a car for my stepdaughter.

Vital Stats

Occupations: She's a social worker, he's a part-time security guard and pilot-in-training

Annual household income: $52,000 (hers) plus $650 per month from the international student

Kids: One daughter, 16

Assets: $6,000 in savings

Debts: $10,000 in credit card debt at 19 per cent; $20,000 bank student loan at prime plus 1 per cent; $40,000 in Canada and Alberta student loans

Current monthly rent: $1,200

The advice

Financial expert Kelley Keehn:

Laura and Jim, you need to get a solid budget drafted so this situation doesn't creep up again. And it would help if you met with a non-profit credit counsellor. Track your expenses for the next 30 days and see where you can trim. Vow not to make any extraneous purchases at least until you're out of credit card debt.

As for paying down debt, it always makes sense to tackle the high-interest debt first. Jim, you mentioned having more cash flow by reducing the student loans, but the same goes with paying the credit card first. At prime plus 1 per cent, the student loans are cheap debt compared to the card.

And why are you thinking of moving to save $200 a month when you'll lose your $650-a-month boarder? Unless she wants to move out, stay put!

I think you need to hold off on the car. Perhaps your daughter can find a job on a bus route and save up for a car. You need to focus on conserving cash flow until you're on a more solid footing or have more income coming in.

Kelley Keehn is the author of The Money Book for Everyone Else. (

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