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About Kindred Beisinger penname K D Elizabeth Beisinger
Expertise
I can answer questions pertaining to budgeting, savings, debt reduction, and total freedom from debt. I can assist in prioritizing expenses and obligations. I am willing to share and offer guidance in realistic money management, modest investments, and financial freedom. I am not an investment counselor, broker or accountant, I am a missionary that does not do fund raisers or ask for donations.
Experience
I live comfortably and have been debt free since I was 40.
Publications
Simply Abundant, Covenant Chronicle, Sweet Memories & Happy Plates
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You are here: Experts > Shopping > Frugal Living > Living on a Budget, Saving Money > 3 Types of Debt ...What to pay first?
Expert: Kindred Beisinger penname K D Elizabeth Beisinger - 10/27/2009
Question
"Hello there, I am struggling with what to do with my financial situation pretty badly and could use some advice. I am 35yr old male from Canada. I will list my debt first below. Student Loan: owing $14K, min payment of $155/mo over 10 years (this is the lowest rate possible and about 3 years in) RRSP loan: owing about $7-8K, payment is $125/mo over 10 years and about 3 years in. Credit Card Debt: Mastercard, owing $11K @ 11.4% interest min payment $220/month ($110 is interest), Visa, owing $7K @ 11.4% interest, min payment $80/month ($60 is interest)both these cards I have been trying to pay off for years but minimal amounts. Total debt between these three: $42K This is the dilemma I have: I broke my neck and back 3 yrs ago on a work ski trip in the mountains. It was covered under Workmans Compensation Board (WCB)Employer Insurance in Canada. I was recently paid out $12K for the accident. I have another $2K roughly also, so about $14K in my bank account in cash. Now the WCB payout is tax-free dollars just to keep in mind. What I was going to do was put $10K of the $14K (accident money fund)into an rrsp now and get about $4K back from taxes. This is when I thought I could get a loan for a condo but now realize my debt to income ratio is probably too high to get a loan for that. The problem lies in where to best put the $14K that is sitting in my bank account to get me the furthest ahead or out of debt? If I put all of the $14K savings into an rrsp, yes I will get $4K back, but now the money is tied up in an rrsp. Because the WCB payout is tax-free I will now get dinged on something that was tax-free to begin with. It doesn't make much sense then to do that unless the money put into the rrsp is used towards a first time home purchase where is the $14K would then be tax free in canada as long as it has been in an rrsp for at least 90 days. I guess the ultimate goal is to stop renting and start owning (especially now that interest rates are so low and purchase price is also lower than previous). The problem is I cant get a loan with such a high debt to income ratio. So the the bottom line is : What should I do with that $14K that I have sitting in my bank account and how can it be best utilized to help me progress in the near future? Oh, I forgot to tell you that I have a solid job for the last year selling chemicals to Oil companies that always need them. I make about $52K per year and see a bright future. I hope this hasn't sounded too complicated, but any advice you could give would be very very appreciated! Thanks and talk to you soon hopefully. Darrell"
Answer
Dear Darrell,
With a good solid job at $52K per year, there is no need to be in credit card debt at all by the end of 2010, if all goes as foreseen. I don't know what your current rental expense is, but if you tighten your belt for the next 14 months, you can have all of the credit card debt behind you, I think.
First, pay off the higher amount credit card fully and don't use the card. That will still leave you $3K in the bank. Apply all you've been paying on both cards, to the other credit card. That means you'll be making $300.00 per month payments. I realize that is only $4200.00 of the $7K, but there's more . . .
I'm assuming your rent is reasonable with your income, as in around 25% of take home. I'm not familiar with the details of Canadian withholding, but $52K should have you bringing home enough to make extra payments if you curb spending. Since the other two loans are non-variable, I'd focus on eliminating the second credit card, first. It would only take an additional $200.00 per month from now until December of 2010 to eliminate the second credit card and you will still have $3K in the bank. You could go either way on this. I think it's easier to not touch savings than it is to begin savings. Once you change your lifestyle spending, it's just not as difficult to begin saving. So far, in eliminating debt, you've only had to reassign $200.00 from what you are already spending. Once the credit cards are gone, your income to debt ratio will be dramatically changed and you will have a substantial amount of money to apply toward the other loans. I'm sure there is some waste in your budget. There is in everyone's. If you would send me some withholding percentages and your rent, I'd be glad to help you further or with that information, maybe come up with another plan. Without that information, about all I can assist you with for now is eliminating high interest debt.
Kind Regards,
KD Liz
www.eingedi.us
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