Looking for Help - 24 y/o w/ $28k unsecured debt with zero assets

[ratan]

Hey everyone,

I'm looking for some advice advice on my situation. Currently 24 y/o, living in Toronto and racked up a large amount on my credit cards. See below for an analysis of:

• Current Debt Position
• Annual Pre-tax Salary (CY + projections)
• Monthly Budgeting
• Life Timeline
• Current position at 8.28.2018

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1.Current Debt Position (Aug 4, 2018)

Assets
Liabilities
Available Credit:
$1K in chequing account
$12.9K RBC CC (1% interest rate until Feb 2019)
$15K Scotiabank CC (with available balance transfer @1% interest rate until March 2019 and 2% balance transfer fee)

$1K in personal goods
$9.4K AMEX CC (1% interest rate until Feb 2019)
$10K Scotiabank LoC unsecured (prime +3.45%)


$5.8K PC Mastercard CC (due September 2019 @19.99% interest rate)
$10k RBC LoC unsecured (prime + 5.49%)
Total = $2K Total = $28K Total = $35K

2.Annual Pre-tax Salary (CY + projections) - for some background, I work in professional services, with a planned exit in 2020 assuming $71K (if I settle on a lower Senior FA position, or $80K if I jump into Equity Research).

2018: $53K

2019: $62K

2020: $71K - $80K

3.Monthly Budgeting:

Takehome pay = $3,300

Expenses: $2,225 per below

Surplus income: ~$1,100

Amount to save for debt payments = $1,000

Amount to keep in chequing account = $100

• Rent = $1,000
• Insurance = $45
• Groceries = $200
• TTC = $130
• Internet = $35
• Phone = $65
• Eating out = $150
• Haircut = $40
• Entertainment = $40
• Household goods = $20
• 2% minimum CC Payments (2% x 22.3K) = $500

4.Life timeline:

- Move in with girlfriend in 2020 debt-free (27 y/o)

- Get married in 2022 - which will require me to save about $25K (29 y/o)

- First kid in 2023 (30 y/o)

5. Edit: Current Position - 8.28.2018

So after creating this post, I took two weeks to clear my head and re-evaluate my options. I opted out of going through with a consumer proposal (which was my initial plan), as I would not be able to carry unsecured debt for a while, which would hinder my opportunity to create wealth by investing into stocks (and eventually, trade options on the market).

I decided to put my money where my mouth is and jump into trading shares. I have a total gain of $5K, as of August 28, 2018, on a $20K investment (from my 2x LoC).

Here are some notes:

- Current debt level: $28K + 20K LoC = $48K

- Market value of portfolio = $25K

- Available cash = $3K

Thanks for everyone's advice. I will be keeping this post updated on a weekly basis to keep track of my progress.

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Options:

I am looking to start saving and sharing my savings details with my girlfriend in about two years, at which point I plan on being debt-free, but also have a sufficient amount of savings so that she doesn't believe that I am a total degenerate.

• Save, invest and pay off debts:

- Pay off PC Mastercard with LoC at Sep 1, 2018

- Draw down remaining LoC ($15k) to pay CC debt at Feb 1, 2019

Debt Payoff At Jan 2019:

Income CC Debt Surplus income: $1,000 x 5 months (up to Jan 31, 2018) = $5,000 Total outstanding CC debt at Jan 2019 = $22.3K x 1.01% = $22.6K (RBC + AMEX) less $500 x 5 months payments = ~$20K LoC = $15,000
~~~~Total income to be applied against expiring promotional 1% rate CC debt = ~~~~~ $20K

Overall Position at Jan 31, 2019:

Assets Liabilities $100 saved/month x 5 months = $500 Liabilities = $20K total LoC (average interest rate ~7.5%)

Payoff period = ~20K/$1.5K payment per month = 13.33 months before calculating interest payments = approximately March 2020

2. Go for a consolidation loan (are interest rates lower than my LoC)?

3. Consumer proposal

- Take a credit hit with zero chance of obtaining a [updated - lower than normal rate] for a large loan (i.e. for a home) for 10 years -> until I'm 34. I do not want this to affect chances of us buying a home around that time (32/yo). Is this even possible given my current situation with a payback period of 1.75 years (Sep 1 2018 - April/May 2020)?

4. File for bankruptcy

- Can I recover from this? Will my girlfriend/ future wife know about this when we apply for a loan together for a home?

Yup, shot myself in the foot. Please help.

 

[bodhiboy]

@ratan Your budget is a lie. Stop lying, at least to yourself. There's no way you racked up 28k in debt running a 1k per month surplus budget.

 

[ratan]

@bodhiboy Budget is updated for post-stupid purchases

 

[bodhiboy]

@ratan Well that's honest and a good thing to do.

Please retain at least the 1k in your chqing acct. and treat it as the new 0.00 balance. Think of it as an overdraft for NSF cheques and a month of rent, should you lose your position.

Now, as to your options/plans, you have 28 months of debt at 0% or 31 months of debt at 10%. So let's get that PC MC paid with the balance transfer card. Then, CLOSE THAT ACCOUNT. Now, you have a limited period within which to get this thing sorted out, so if the interest only lasts until March, you have 8 months to pay it off. If you can't pay off this card within the 8 months, then you're not sticking to your budget and you either need to rebudget, or be more strict with yourself.

Next, you have two other credit cards which will become huge problems in february. So you're gonna try and get the amex to under 7k which you'll pay out with your RBC loc on March 1. Leave that one open with a 0 balance and cut up the card. You're doing this to keep your overall credit utilisation lower. In the mean time, try to get scotia to up the limit on your loc and if you can get it to 20k, then you pay out the balance of your RBC card with your scotia loc on March 1 and start drawing down the interest. Then you pay off the RBC LoC until it's zero and put all your debt money towards the scotia loc.

As to the market plays, that's foolishness. You have money that you can guarantee a 10-20% return on by paying it down. If I told you that I had a GIC for you with a return of 11% you would withdraw all the money you could find to buy that gic, so do the same for yourself by paying off your high-interest debt.

As to the girl, it might be wise to inform her that you're trying to pay down some credit card debt, so that for the next little while you're going to be living frugally. Buy christmas presents for people from amazon now and do not spend another CENT on the holidays, either on booze or dining, unless it fits your budget.

It might be wise for you to also look at the terms of your loc, some times revolving lines of credit don't require you to make minimum payments or only require you to pay the interest, which would do you better than say paying a 2% payment across the board to 5 different credit cards. You want to put your money where you get the best return and often the snowball or avalanche method is a really good way to stay motivated and "ball up" your debt reduction.

The other thing you might consider is trying to get some OT at work. I know that when I feel like I have no money to spend anywyas, I feel like I might as well be at work, and that could help you get some of your debt paid down even faster. Also, it makes a good excuse for not spending.

 

[ratan]

@bodhiboy Thanks for replying, really appreciate it.

To summarize (so I understand your strategy, and can include in my notes):

• Keep $1,000 in chequing account.
• Request balance transfer $5.8K from PC MC to Scotiabank CC (6 month rate of 1% applies until Feb 1 2019). Make monthly payments to pay this card off by end of Feb 2019.
• Make monthly payments to AMEX to get balance down to $7K and pay off by drawing down RBC LoC.
• Request Scotia to increase LoC to $20K (at same interest rate).
• If step 3 is successful, pay off $12.9K RBC card in Feb 2019.

 

[bodhiboy]

@ratan Yes. If you can't get the increase of the LoC, then see if you can get a different balance transfer card for the RBC balance or if scotia will extend the balance transfer benefit to you for the RBC balance again.

Now bear in mind that at 2%, you're going to be paying an additional 120-375 in balance transfer fees. The other thing that I was conscientious of is not getting your utilization overly high on any one acct. If you start blowing up your usage and shutting down open accounts, the bank might shut down one or more of your credit products.

 

[weakmadestrong]

@bodhiboy This is some really solid advise, if you want to avoid filing a consumer proposal this is how you would do it.

 

[weakmadestrong]

@ratan In a bankruptcy you'd have to pay approximately $12,000 (assuming your income doesn't change). So a proposal is probably your best option. You could probably offer $12(ish)k to your creditors. RBC is a difficult creditor to deal with but the other two can out vote them so I'd be comfortable doing like $400 per month for 30 months.

You make enough money to deal with the debt without the BIA, but it isn't going to be pretty for the next few years.

I'm not sure where you got the idea that it will be 10 years before you get a mortgage... A proposal will stay on your credit bureau for 3 years after the date of completion. Even so, I've had clients get a mortgage within a year of getting their certificate of full performance.

Definitely worth seeing a Trustee. Bankruptcys and proposals are not anywhere near as bad as most people think.

 

[ratan]

@weakmadestrong Thanks for your advice.

My income is expected to increase $9-10K per year, pre-tax - so I agree that proposal is a better option.

The 10 year idea is anecdotal from a Reddit post:

https://www.reddit.com/r/personalfinance/comments/zsf3m

I assumed that if it takes 3 years to pay off (unless which, if $12K divided over 30 months is the proposal, I can pay off within one year if accelerated payments are accepted), at the 6 year mark, my credit would be abysmal. Give another four years, at which my credit rating will be sufficient to obtain a lower-rate mortgage. Good to hear that your clients can get a mortgage within a year of full performance.

I will likely book an appointment with a Trustee. Any recommendations?

 

[weakmadestrong]

@ratan I obviously can't promise what your creditors would accept, but if your income is supposed to increase that much my advise would be to do a consumer proposal right away. Even getting it accepted for 15k would be good.

If you were my client, I'd recommend 250 for 50 months. RBC will come back with probably 600 for 60 months cause they're dicks but the other guys will probably be more reasonable and accept 300 for 50. Just a quick tip, when you report your expenses to the Trustee, use what your old budget was when you were a little more careless so as to not have a huge surplus. We don't want your creditors thinking you can afford to pay them 1,000 per month cause then they'd want to be paid in full. But I would never tell my actual client that because I could get in a lot of trouble with the OSB if they ever found out haha.

To be honest, I'd just do a proposal for anything less than 20k and just pay it off as fast as you can to just be done with it. You are still young with lots of time to have a perfect credit score by the time you're ready to buy a house.

As for a Trustee I would like to recommend the firm that I work for, but realistically you can go to any big accounting firm and they will be basically the same. Find a Trustee that you are comfortable with, they all have pretty much the same fees. No harm calling around.

Edit: You can technically write into the proposal anything you like. Every Trustee I know writes in the right of pre payment.

 

[ratan]

@weakmadestrong When my future wife and I apply to obtain a mortgage (say around age 32), is it common for the bank to ask about my consumer proposal? Will my wife then find out about that I had to go through a consumer proposal during the application/review process?

My girlfriend and I (of 6 months) share everything together, except finances, but I worry that telling her about this now will jeopardize our future together. Conversely, if she finds out when we apply for a mortgage, she may feel distrustful that I did not tell her in the beginning of our relationship.

Ideally, I do not want her to ever find out about this. Hoping you have some insight on the future repercussions of a consumer proposal.

 

[godschild0876]

@ratan I know you're not really asking for relationship advice, but this is not the right attitude to go into a marriage with. Hiding big things like a past consumer proposal from someone you plan to eventually merge finances with is so dishonest, immature, and selfish; shouldn't she have the right to know what she's getting into when she marries you? How will you feel if you go to apply for a mortgage together 10 years in the future and this comes up? How do you think she'll feel?

 

[ratan]

@godschild0876 Agreed, I was initially freaking out about this situation but it will eventually be brought up

 

[ratan]

@weakmadestrong When my future wife and I apply to obtain a mortgage (say around age 32), is it common for the bank to ask about my consumer proposal? Will my wife then find out about that I had to go through a consumer proposal during the application/review process?

My girlfriend and I (of 6 months) share everything together, except finances, but I worry that telling her about this now will jeopardize our future together. Conversely, if she finds out when we apply for a mortgage, she may feel distrustful that I did not tell her in the beginning of our relationship.

Ideally, I do not want her to ever find out about this. Hoping you have some insight on the future repercussions of a consumer proposal.

 

[helenix]

@ratan PLEASE PLEASE do not use your LOC to do short term trades in FAANG. You have no assets and equity to cover any downfall.

 

[ratan]

@helenix Agreed - removing that from my plan.

 

[airamnire]

@ratan You're a Financial Advisor and have $28k in credit card debt?

 

[ratan]

@airamnire Should've clarified: Financial Analyst. Yes, hoping I haven't fucked my future plans up too bad.

 

[rblaw]

@ratan Is 9-10K a year in your field reasonable?? That seems incredibly high

 

[ratan]

@rblaw Yeah, I'm definitely thankful for the annual salary increases. It is well known in the field I work in (professional services)