# Bad start in my mid 20s... bad money management help needed



## vigmoney (Feb 23, 2012)

I'm currently in mid 20s and I did a really poor money management for the past 3 years(bad spending habits too) and need some advice on how to really get back out of this situation. My details are 

*I earn around 65k per year, I owe 40K on credit line which has about 7% interest.
*I have a car whose expense totals to 400 a month.
*Rrsp Face value 14K and sits about 12K.(gold funds caused it to loose)
*TFSA about 800.

What I want to do now is to pay back the 40K. I really spend too much on my credit card and thus leaving me negative every month. Can I request the bank to change my credit line to loan and have a bi weekly payment plan? will that lower my interest? I'm stressed and need people's advice on whether I need to take out the rrsp now?


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## Sampson (Apr 3, 2009)

What is your monthly cash flow statement look like?

Is it still bleeding (e.g. is your debt accumulating every month)?
Are you capable of having a positive balance sheet? (curb spending and use extra cash to pay down debt).

Given you salary, I would expect that you should be able to tackle your debt somewhat 'easily' as long as you control your spending. I don't think you have to touch your RRSP at all. 

It would really help if you could reveal a little more about your net income and spending habits.


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## the-royal-mail (Dec 11, 2009)

Sounds pretty bad but this can be repaired and turned around if you are willing to make sacrifices. Are you actually willing to start saying 'no' to things? Before you mop up the floor (pay the debt) you need to stop the source of the leaking water! Focus on that, before focusing on debt repayment. 

Once you find and plug the leak then yes, debt repayment is the very next thing. I wouldn't worry about shell games and shifting the loan around. You have lots of principal to pay off and that will take a while. The sooner you get started on paying the principal in chunks, the sooner you can put the debt behind you.

No, don't give up your RRSP. You need that for retirement!

And please do not expect instant gratification. The type of turnaround you seem to want takes a long time.


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## Spudd (Oct 11, 2011)

Do you need the car? Would selling it be an option and taking transit/riding bike instead? We sold our car 1.5 years ago and haven't looked back. If you live in a city (i.e. near transit and amenities) you should seriously consider this as an option, since it would greatly increase the amount of money you have each month to put towards your debt.


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## vigmoney (Feb 23, 2012)

Sampson said:


> What is your monthly cash flow statement look like?
> 
> Is it still bleeding (e.g. is your debt accumulating every month)?
> Are you capable of having a positive balance sheet? (curb spending and use extra cash to pay down debt).
> ...





the-royal-mail said:


> Sounds pretty bad but this can be repaired and turned around if you are willing to make sacrifices. Are you actually willing to start saying 'no' to things? Before you mop up the floor (pay the debt) you need to stop the source of the leaking water! Focus on that, before focusing on debt repayment.


I'm focusing on repaying my debt. Based on my cash flow I have an excess of $1750 every month after my rent, food habits, car, utils and etc. But for the past 24 months I have been spending on things I don't want or shouldn't have and always resulted in a negative cash flow which caused me to use my credit line. I think its high time I realize my faults and say "NO" to things I don't need. That's why I need your help guys(I know its a personal thing but I didn't realize it early so I guess need an external advisor for a while). 

My bad spending habits started as a result of my parents giving me huge allowance every month. I never saved them. I graduated with zero debt and immediately got a job at 20. My money management has brought me here.



Spudd said:


> Do you need the car? Would selling it be an option and taking transit/riding bike instead? We sold our car 1.5 years ago and haven't looked back. If you live in a city (i.e. near transit and amenities) you should seriously consider this as an option, since it would greatly increase the amount of money you have each month to put towards your debt.


I used to live close to work thus paying high rent. Now I moved and from my place ever day commute by bus takes me 2 hours due to bad bus transfers. Car takes 30 minutes. I need to walk a lot to get to work which in winter is really bad. I can try biking in the summer though. The main problem for me is my additional spending. Based on previous quotes I can repay it quicker but want to know which is the best way to pay it back.


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## Tom Dl (Feb 15, 2011)

Personally if it were me I would take the money from the RRSP and use it to pay down the debt. First off, right now the interest free account looks better to me, but in any case ads to the capacity you have to shelter money over your lifetime when you actually have the money to spare. There is a lot of discussion about retirements savings for the same reason there is a lot of discussion about prostate cancer, at any given time there are many people who are in that boat. No doubt the earlier you get around to retirement savings the better off you will will be. But equally true is that there are many things a young person needs that come first. Like housing. Most of the personal finance chatter out there is not really slanted towards young people, you have to discount some of the panicked tones about savings as being marketing for people in their upper earning years. Your plan needs to be tailored for you. Most important thing is that your attitude is changing and you are getting a little more serious. 

Since you are already down on your RRSP, the tax consequences of bailing may be less painful than they otherwise would be. In general, if you had the ability to generate extra income, you would use it to pay down your debt at this point. That is all dumping the RRSP is doing, generating more income for you. You need to know what the numbers are going to be, but unless you are making more on gold, possible with recent news, you may as well bring down the debt.


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## Young&Ambitious (Aug 11, 2010)

Welcome to the forum, there's tons of advice here that will be perfect for you!

I personally would not touch the retirement funds, but that being said, I wouldn't contribute further until the debt is gone. Talk to your bank and talk to competing banks, you can likely transfer that to a different LOC or a loan with a better rate. Definitely tell your bank you are shopping around. 

Withdraw the $800 from your TFSA and apply to the debt.

Cut back on expenses is a definite. Can you find cheaper rent? Do without your car for a while? Eat Mr.noodles once a week etc? It all adds up. Sell excess stuff on Craigslist. 

Goodluck


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## sharbit (Apr 26, 2012)

> Can I request the bank to change my credit line to loan and have a bi weekly payment plan? will that lower my interest?

Yes they likely will. Its usually 2% better then PLC. After school I was basically in your situation (50k debt) and it took about 2 years to resolve.


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## cldellow (Feb 16, 2012)

If I were you, I'd leave the RRSPs alone for three reasons:

1) you won't get the contribution room back once you withdraw it
2) you have 40 years to retirement, the longer it can sit there and grow tax-free, the better
3) it's the easy out. You need to learn the discipline to handle your finances.

You're in a bad spot, but not a terrible one. Based on your cash flow of $1,700/mo after expenses, you should be able to pay off the debt in 4 years without too much belt tightening. If you pay $958/mo, you'll be clear in 4 years. If you pay $1235/mo, you'll be clear in 3 years (and pay about $1,500 less interest).

Good luck!


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## Homerhomer (Oct 18, 2010)

Welcome to the forum.

Speaking from my previous personal experiences I can tell you that coming out of the debts can be done (my numbers were actually pretty similar to yours) , you just need to put your mind to it, have a plan and stick to it.

1) You can move on to step two since step one is realizing you have a problem, it's your fault and you want to deal with it.

2) Organize your liabilities, you should cancel all your credit cards except one, that one credit card should be used only for emergencies (ei your car breaks down and you need to rent a car), you should reduce your limit on your credit card to a thousand and actually hide it somewhere in the attic so it's not a temptation, don't carry it with you. You should have small overdraft protection for your account incase you really made a mistake and went over ($500 limit), and you should have only one loan preferably with set payments and something you can't withdraw money from easily.

3) Cut your expenses, coffee you will have at home or at work, not at timmies, you will bring your lunch to work, switch to bank that is not charging you any fees, contact your tv/cell/internet to cut down your fees and reduce the services, you will look at any expenses you currently have and see if you need them, or if you can somehow reduce the services or find a better deal.

4) Increase your income, this is probably the most difficult but necessary, any extra money made should go to repayment of your debts, analize your skills and see what you can do part time and on the weekends, sometimes all it takes is turning hobby into profits, other times the skills your have a employee can be expanded into a part time business, perhaps you are handy and can build decks for your family and neighbours. Just go out there and make more money.

Good luck.


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## caricole (Mar 12, 2012)

> vigmoney....I'm focusing on repaying my debt. Based on my cash flow I have an excess of $1750 every month


If you know the roots of the desease, you are 50% healed

The roots are easy....the banks pushing you in the back to borrowing easy money you dont need, and before you know it...you have trouble keeping your head above water

1st mesure, stop listening to banks, only their personel is promoting their INDISPENSIBLE service to clients (what a joke)

2nd mesure, dont let the bank dictate you level of reimbursement, you have to decide for yourself

3th mesure, pay your dept yourself, by going to the teller....and you will SEE the dept melt away, which in itself is the best encouragement.....at 21k/year after a couple of weeks or months you find yourself on the right track

4th after a couple of years, you will find the usefulness of banks for exactly what they are, grabbing the maximum FROM YOU, to KEEP THE MAXIMUM FOR THEM, once it is understood, the road to financial independance is open to you

5th if you learn it the hard way when young.....you will never forget....:encouragement:


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## Young&Ambitious (Aug 11, 2010)

Pick up a copy of the Wealthy Barber. 

And I wouldn't follow HomerHomer's advice of cancelling your credit cards... cut up the ones that are the least useful (eg. high interest rates, annual charge, no good point systems etc) and cancel newer ones; the oldest one gives you the most credit history so you don't necessarily want to wipe out this history by getting rid of it.


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## Homerhomer (Oct 18, 2010)

Young&Ambitious said:


> Pick up a copy of the Wealthy Barber.
> 
> And I wouldn't follow HomerHomer's advice of cancelling your credit cards... cut up the ones that are the least useful (eg. high interest rates, annual charge, no good point systems etc) and cancel newer ones; the oldest one gives you the most credit history so you don't necessarily want to wipe out this history by getting rid of it.


IMO credit history is the least of his/her problems right now and it actually wouldn't suffer all that much since he/she would have a credit card and a loan, and it's actually very easy to rebuild once the finances are in order, at this moment not having a temptation to use cc for a person who doesn't have a good ability to control the spending habits is probably more important than any possible loss of credit rating, it's a bit like a smoker who wants to quit, it is easier to do when access to smokes is somewhat restricted, and as an ex-smoker and someone who dealt with debt issues and resolved them I speak from experience.

Either way whaterver op decides I hope the problems will be resolved because it's pretty amazing how much easier it is to live without debt problems and how much more one can afford without servicing the debts.


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## Causalien (Apr 4, 2009)

Use delay tactics. 

Have only 1 day of the month where you can buy needless items that are not necessary. i.e food. 
Make a list of all your urges and wait until that day to review to see if you still want it. Or better yet. Post on CMF to get our opinion. 

I would add most services to the essential spending. Like insurance, gas(only for work), bus pass, mortgage/rent, tooth paste, health care. It also sounds like you got an expensive sports car, try to see if you can buy on craigslist for a less expensive one and reduce the insurance and fuel cost. Use edmunds.com to find the cost of second hands.


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## 44545 (Feb 14, 2012)

Investments grow at what? 4%? 8%? -10%? It's variable.
Your $40k in debt will *always* grow at 7% per year. (or 17% if it's credit card debt)

Pay off the debt. View it as an "underperforming asset" and get rid of it. (by paying it off) Cash out the RRSP to do so.

Although...



cldellow said:


> If I were you, I'd leave the RRSPs alone for three reasons:
> 
> 1) you won't get the contribution room back once you withdraw it
> 2) you have 40 years to retirement, the longer it can sit there and grow tax-free, the better
> ...


...I hadn't though about the contribution room issue. Yeah, you might just stop paying into the RRSP and leave it alone for now. Point #3 above by cldellow is a huge one.

The big problem is cash flow management.

Part of it is discipline but another part is that you need hard data on where the money is going. 

May I suggest you download Microsoft Money (free) and use it? If MS Money isn't up your alley, buy YNAB and USE IT.


Cut up the credit card.
Pay for everything via Interac. (transactions post immediately, unlike credit, so you can track your spending instantly)
Have you cut up your credit card?
Download your Interac transactions DAILY to MS Money. Assign EVERYTHING to a category. (Money will "learn" that a purchase at Esso is fuel - or "snack food")
*CUT UP THE DAMN CREDIT CARD!!! NOW.*

YNAB has an interesting e-book available for free about budgeting. You can read it here: http://www.youneedabudget.com/img/pages/Method/ynabBook.pdf

http://www.microsoft.com/en-us/download/details.aspx?id=20738
http://www.youneedabudget.com/


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## rusty_shackleford (May 18, 2012)

good timing for this thread, i just came into the positive recently from a very similar situation. i started my career at 19 and was making more money than i could handle. unfortunately instead of just wasting money, i started getting loans. I'm now 23 and have learned my lesson the hard way. Kind of glad it happened to be honest. 

the hardest part was letting my car go but it turned out to be the best decision. i had a $350/m payment, $250/m insurance and $300/m in gas. i sold it and picked up a 1996 Acura Integra for $2500 and now all i'm paying is $140 for insurance and $125 for gas. that was also kind of 'symbolic' in my shift to more responsible spending and found that not wasting money on other useless crap was a lot easier from that point. 

as far as the CC thing goes i found it easier to, instead of getting rid of my CC, using ONLY my CC for everything. you can keep track of every penny spent and reap the rewards, assuming you pay off your balance each month of course. i pay off my balance each week so there isn't really any room to overspend. 

another reason i like the CC thing is that it is much lower risk than interac. if your CC gets hijacked, typically your company will resolve it very quickly AND it's credit they're stealing, not $$ from your bank account that you use to pay bills. 

Good luck, there's no more satisfying feeling than paying off your debts. make sure you remember the pain of being buried in debt too so you never do it again :encouragement:


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## riseofamillionaire (Feb 23, 2012)

Young&Ambitious said:


> Pick up a copy of the Wealthy Barber.


Do this.


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## jet powder (May 29, 2012)

You first have to understand money & debt. If you think money is evil or something like that you will never be rich.

You have to be honest with yourself & your friends & not try to impress people by stuff.

Might have to hang around differnt people if you think others are effecting your spending.

Carry around weights that represent debt i.e., 1 pound = a thousand dollars of debt so you understand that debt is a heavy burdon.

Write done all your expenses & get rid of those that add no value to your life.

Chart income & expenses monthly & if expenses are always more then income it will never work & you have to do what ever it takes to make it work.


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