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Darren Calabrese/The Globe and Mail

Colleen is 33, single and deep in debt after a course of study that did not result in a job.

Luckily, she's resilient – an important trait for a self-employed professional – so she was able to pick up where she left off, working in health care. She grosses about $75,000 a year, a number she hopes to boost to $100,000 by doing more private consulting.

"I am currently very focused on paying off my debt – last year I paid off $37,000 – but am worried that I'm too focused on debt and am limiting my career options and retirement savings in doing so," Colleen writes in an e-mail.

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She wants to take some professional development courses, do some marketing and buy some supplies, but she doesn't because she feels the money is not hers. "I'm worried that the sacrifices I'm making on business expenses will affect me negatively in both the short and long run."

She'd like to buy a house in the Ontario town where she lives, which would cost about $230,000, but that looks to be a long way off. Marriage and children may lie in her future as well, but for now, she is keeping her nose to the grindstone.

We asked Warren MacKenzie, a principal at HighView Financial Group in Toronto, to look at Colleen's situation.

What the expert says

Colleen needs to step back and consider what will make her life more enjoyable over the long term, Mr. MacKenzie says. "Financial security is important, but there are many miserable people who have sacrificed too much to obtain it."

Colleen is focused on paying off her $173,900 debt as quickly as possible (over six years rather than the 12 years required by her debt repayment schedule), and she is living like a hermit in order to achieve this goal, the planner says. "She is not even spending the small amount required to take courses which could help increase her income over the long term."

Colleen mentions other things that are important to her – having a social life, taking more courses to further her education, perhaps marriage and children, and owning her own home, he notes. But these other objectives are all on the back burner so she can focus entirely on debt reduction.

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Colleen is making the minimum payments of $18,420 a year plus additional payments of $16,140 a year – her entire cash flow surplus. Over the next six years, if she continues with this level of payment, and adds an additional $1,000 a month as her salary increases, she will reach her goal of being debt free within six years, Mr. MacKenzie says. She will have saved about $19,000 in interest.

"Whether it takes six years or 12 years to pay off her debt, she will still have at least 20 years to save for retirement," the planner says. If she saves the same amount as she is allocating to debt repayment, she will be financially secure by age 65 regardless. "She has to ask herself, is it worthwhile to sacrifice her social life in order to pay off her loan more quickly?" In other words, she could ease up a bit.

Until her debt is paid, Colleen should forget the idea of buying a home, Mr. MacKenzie says. To cover the minimum possible down payment and closing costs, she would need about $16,000 cash. Because of her debt load and the fact that 65 per cent of her income is from self-employment, it is unlikely that she could find a mortgage lender willing to give her the money, he adds.

As long as Colleen is able to work, she can expect to be financially secure. But if she became disabled, things would be very different and in a bad way, he says. To protect herself, Colleen should look into purchasing a disability insurance policy.

To minimize her interest cost, Colleen should first pay down the loan with the highest interest rate. Because the interest on the Ontario Student Assistance Program (OSAP) loan is tax deductible, she should accelerate the payments on it only after the other loans are fully repaid.

**

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Client situation

The person: Colleen, 33

The problem: Lightening the burden of her debt millstone.

The plan: Consider easing up on the payments for awhile and investing some of the new-found surplus in her business and social life. If she succeeds in increasing her income, use the extra money to step up the debt payments again.

The payoff: A better balance now and a road map to the future

Monthly net income: $5,730

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Assets: Tax-free savings account $1,450

Monthly expenditures: Rent $965; utilities $225; car lease $275; car insurance $115; fuel, maintenance $200; grocery store $200; clothes $40; LOC $935; OSAP $600; gifts, charity $270; personal discretionary $160; drugstore $115; telecom, TV, Internet $200; professional association $85. Total: $4,385. Surplus: $1,345

Liabilities: Student lines of credit $130,000; OSAP loan $43,905. Total: $173,900

Read more from Financial Facelift.

Want a free financial facelift? E-mail finfacelift@gmail.com. Some details may be changed to protect the privacy of the persons profiled.

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