How a young graphic designer can hatch plans to escape debt

Millennial Money is a weekly submission-based series that provides financial advice to millennials. Read the full series here.

How long will it take for Ashley to be debt free? At 24, the graphic designer worries about how to overcome the debt she has accumulated at university.

Ashley took out a $14,000 loan to cover most of her tuition. “I have about $10,000 floating around,” she says. On top of that, she has $6,000 sitting on a credit card.

“I know it’s bad,” Ashley says, but “I want to pay off my personal debt and hopefully save.”

Ashley lives alone in Toronto, where she pays $1,950 a month to rent her Parkdale apartment.

As she primarily works from home, Ashley typically cooks most of her meals, rarely opting for takeout or dining out. “I still buy myself small drinks,” she says, explaining that she likes to stop for coffees and iced teas when she’s not home.

Recently, however, she started buying cold brew in cartons at the grocery store in hopes of reducing her daily expenses.

On weekends, Ashley likes to go outside, for walks and on occasional dates, where her date often pays for the outing.

Can she be debt free? We asked him to share a week of his expenses.

The Expert: Jason Heath, managing director at Objective Financial Partners.

Ashley recently graduated and is $16,000 in debt at age 24. This is mainly related to tuition fees, but she also has credit card debt that she accumulated while studying. Credit card debt should be the first target she tackles because the interest rate is higher than her student debt. She may also be able to claim a tax credit for interest on her student loan if her loan was received under the Canada Student Loans Act, Canada Student Financial Assistance Act, Apprentice Loans Act or similar provincial or territorial legislation. So the credit card debt is probably costing him more in terms of interest and lack of tax savings.

The good news is that Ashley has a relatively high salary for a new grad at $72,000 per year. However, his monthly rent of $1,950 is also relatively high, absorbing about 44% of his after-tax income and 51% of his take home pay. On the basis of her net salary, she must pay benefits or contribute to some sort of collective savings plan. If she has a retirement savings plan with a matching contribution at work, it probably makes sense to continue enjoying her employer contributions and slowly paying down the rest of her debt.

Beyond rent, Ashley’s variable costs are well under control. His hobbies—walking and enjoying the outdoors—are inexpensive. She works from home and doesn’t eat out much at restaurants. She prepares her lunch when she enters the office. She started buying cartons of cold brew coffee at the grocery store. A quick comparison shows that a 500ml cold brew from the grocery store can cost $2.50 compared to $4 from a coffee shop. You can even make your own cold brew, by mixing ground coffee with water overnight to lower the cost per coffee even further.

If I were Ashley, I would stay focused on paying off her debt before saving and investing. If she doesn’t have disability insurance at work, that might be something to consider. Life insurance is less important for a young person with no dependents, but everyone depends on their income and disability insurance can replace your income if you have an accident or illness that prevents you from working and caring. from you.

Results: She spent about the same. Expenses the first week: $246. Second week expenses: $213.90.

How she thinks she did: “I actually think I did pretty well,” Ashley says. Living alone in Toronto is a huge cost, she adds.

“I really have no choice but to live within my means,” Ashley says. Although she feels she’s in pretty good control of her spending and budget — especially since she’s cut expenses like Ubers and takeout and replaced them with walking and cooking — she plans also to be more aware.

Ashley says she will prioritize her money for the things she considers most important in her life.

Take away food : Ashley says she felt reassured by Heath’s comments about her spending. “It made me feel good,” she said. And she is happy to have learned about the tax credit to which she is entitled.

“I will look into this and other ways to pay off my debt.”

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