FOREX Magazine

FINANCIAL
RATIO
Ditch the dog walker and sell the house:
Couple with too much debt must learn to
live within means
Situation:
Spending exceeds income,
debt service takes 44 per
cent of budget, savings
inadequate
Solution:
Sell house and rent, direct
discretionary income to
paying down debt, cut
spending
A couple we’ll call Sam and
Susie, both 50, live in Ontario
with their two children, who
are in university. The parents
work in high tech and bring
home $7,068 per month, but
they are in trouble. They owe
$550,630 including their
$496,591 home mortgage.
They are also spending all
their income and then some,
with their monthly allocations
topping $7,500, including
meager $100 contributions to
their RRSPs.
Debt management
The couple spends $33 per
month on a 12 per cent
credit card debt of $2,751,
$150 per month on an
$18,989 unsecured line of
credit at 8.2 per cent, and
$500 per month on a $32,319
secured line of credit at 5.2
per cent. That’s a total of
$683 per month. They need
more cash for payments and
a plan to slash interest
expense.
They can raise $150 per
month by finding a new
supplier of phone and
internet services for which
they now pay $356 per
month. That money can go
to debt reduction.
“The irony is that our couple
has invested in more life
insurance than they are likely
to need and invested less in
retirement savings that they
must have,” Anderson
explains. “If they sell a house
they cannot afford, rent what
they can afford, and pay all
debts, they will get to age 65
and have modest but
adequate retirement income
and security.”
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