Have I taken on too much debt for my age?

[Nathan3737]

Hey everyone,

Three years ago, I was 18, single, no debt. Now I am 21, married, 2 kids, with a LOT of debt. I live in the Greater Victoria Area (where home prices are quite high). My wife and I make about $6000 per month net (for now - which includes an $1100/month income suite), but I am worried that if our income drops, i.e. our tenants move out and we have a vacancy, or if my wife loses her job ($1500), we won't be able to sustain the debt. My debt consists of:

-$412,000 mortgage
-$14,000 variable rate loans

I have about $17,000 in RRSPs, and about $1000 in TFSAs. Our house is probably worth about $445,000.

Our monthly expenses are pretty high:
-$2350 mortgage/loans
-$600 bills/utilities/insurance
-$250 property tax
-$1000 groceries (food costs a lot more on the island)
-$300 gas (I live 40km from work)
-$520 investments (TFSA, RRSPs, RESPs)
-$500 other variable expenses

That leaves a little under $500 per month for a cushion, which isn't very much in my situation where a lot of money is at stake. I'm wondering, should I sell off my investments to pay off my variable loans and throw all the extra money at my mortgage? Or should I continue doing what I'm doing and hope that it all works out? I would like to feel some sort of control in my financial life.

Thanks for your suggestions!

[marina628]

Since you are worried about how tight your budget is ,I would consider dropping the RESP ,TFSA and RRSP for now.Don't sell the RSP ,the taxes will be too much and you are a father to two children so I would be building up an emergency fund with the $520 you normally invest.

[Soils4Peace]

Use the tfsa to build your emergency fund. It is a superb flexible investment vehicle. Stop contributing to your rrsp.

[Spudd]

I agree with the others. Stop contributing to the RSP/RESP for now.

What interest rate are you paying on the 14k loan? If it's high, put the extra money each month (that you would have saved in RSP/etc) towards the loan to get that squared away as quickly as possible. Once the 14k loan is gone, build up an emergency fund in the TFSA in case your tenants leave or one of you loses your job. Once you have that in place, then you can start recontributing to your future savings again.

I do think you got a bit over your head here, but it seems doable to me. Don't panic.

[the-royal-mail]

In response to the question, I say yes. But spudd is right. You are over your head but if you have the will to fix it, I believe you can.

The most obvious things to me are your regular contributions to RRSP and RESP. Your obligation is to your family's needs right NOW and that means keeping the lights on and food on the table. The monthly recurring expenses seem too high to me. Can you provide a breakdown of the $600 for bills, insurance etc? As well, the $1000 in groceries does seem a bit high. Perhaps this could be reduced through more clever cooking and choosing meals based on what's on sale etc? As well, the $500 in variable expenses seems too high. Reduce this.

Only through a reduction in your monthly expenses can you ever have a fighting chance of paying back your $14K debt.

Your goal should be to move yourself from worrying about debt servicing (where you are now) in case of adversity, to being prepared for that adversity through paid off debt, low monthly expenses and cash saved in the bank.

Oh and no, you should not sell your RRSP. Unless you sky falls in the short term, I think you should be able to fix this without touching what's already been saved in that fund. Just stop contributing to it.

The question is, are you willing/able to make all these changes and sacrifices to your lifestyle to reach the goal?

[Jon_Snow]

You didn't mention what kind of mortgage rate you are getting, but I would assume you are taking advantage of the lowest interest rate environment. Considering your income, you have taken on a sizable mortgage.... when rates rise, your payments will rise considerably. I would be very concerned about this.

[Financial Cents]

Agree with others.

Until you have no other debt, than your mortgage, stop your RRSP, RESP and TFSA contributions. Get your debt load lower.

When you've got no other debt than mortgage, depending on that mortgage rate (variable, fixed, length of term), then you can consider contributing again.

You've got lots of time to invest. Even if you started at 25, tons of time, better than most You'll be fine.

[jet powder]

If you can move to a smaller cheaper house I would sell the house & move to a less expensive starter home or consider renting an apartment. The 2 biggest expenses most people pay over thier life time is taxes & interest. The more owed on the home the larger the interest payment.

Write down all your expenses & if any are not adding value to your life get rid of them & if you think getting a secound job would relief more stress then it would add consider taking it.

[gtprince]

You didn't mention what kind of mortgage rate you are getting, but I would assume you are taking advantage of the lowest interest rate environment. Considering your income, you have taken on a sizable mortgage.... when rates rise, your payments will rise considerably. I would be very concerned about this.

You may acutally end up paying a significant portion of the house in intrest, when the rates do rise.

[sharbit]

If you can move to a smaller cheaper house I would sell the house & move to a less expensive starter home or consider renting an apartment. The 2 biggest expenses most people pay over thier life time is taxes & interest. The more owed on the home the larger the interest payment.

They have 7% equity which they would loose entirely if they move (plus 1100 revenue stream). I dont see the benifit to this unless they can move closer or don't like their place.