Nora, 28, earns $62,000 a year and has $3,500 in credit card debt. Can she pay off her balance and save at the same time?

“I knew I was spending in stupid places, but it obviously hurts much more to see your spending in writing or in a pie chart. Looking at my salary and knowing that a big chunk was going to Ubers was not a good feeling,” says Nora, 28.

As a 28-year-old marketing co-ordinator, Nora doesn’t earn a high salary quite yet. She makes $62,000 a year before tax and has a self-professed spending problem, which has put her $3,500 in credit card debt.

Nora says she’s having a hard time budgeting and inflation has made everything more expensive, from the food she eats to the transportation she takes. Nora’s landlord also recently increased her monthly rent by $200 — she pays $1,350 for a small, shared apartment in the Junction neighborhood.

“I’ve honestly completely lost control of my spending. I never really learned how to budget and things just seem to be so much more expensive and I’ve lost track of where everything goes,” Nora says.

Nora acknowledges she has been irresponsible. Last month she spent $250 taking Ubers and $350 eating out.

“I’m treating my credit card like it’s my own money and I say to myself that I’ll pay it back when I can,” Nora says. “I pay off the minimum every month but I’m not paying more beyond that and I know interest is racking up.”

How can Nora pay off her credit card and save at the same time? We asked her for two weeks of her spending to see where she can cut costs.

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

Nora is feeling overwhelmed with her spending these days. It seems to be a combination of high discretionary spending, high inflation, and just simply not knowing where her money is going.

On the high discretionary spending, it is something she acknowledges. She spends a lot going out with friends and it eats up all of her income. She gets takeout or goes to restaurants almost every night despite working from home. She figures she spends $250 per month on Ubers. In fairness, the Junction area of ​​Toronto where she lives may not be as transit-friendly as other more central neighborhoods along the subway line.

Food and transportation costs have seen year-over-year inflation of about 10 per cent as of August 2022, and are among the categories with the highest inflationary increases. Everyone is feeling the impact of higher prices, but Nora’s spending is relatively high in these areas.

She could consider a spending app through her bank or using a third-party app that aggregates bank account and credit card spending. This is a great way to get a handle on where your money is going and even set a budget or spending alerts to try to have parameters.

If I were Nora, I would come up with a reasonable timeline to pay off her $3,500 credit card balance. Say she wants to be debt-free in 12 months. She would have to repay $292 of credit card principal each month over and above the interest charges. She may want to set up a $300 monthly payment that goes automatically to her credit card and match the payments up with her pay period. So, if she gets paid twice per month, maybe it is $150 per pay period. Nora’s goal would then be to spend whatever is left over using her debit card only and if she draws down her bank account balance before her next paycheque, she has to say “no” to a night out with friends.

Over time, this may cause her to re-evaluate some of her other spending choices. Rather than ordering delivery every night, she could buy something at the grocery store and put it in the oven at the end of her workday. Prepared foods tend to be more expensive than buying the food and making it yourself, but it is still cheaper than delivery or eating out. Or rather than taking an Uber, maybe she takes advantage of the nice weather before the winter hits and tries a combination of walking and public transit to keep her costs down.

She asks about paying off debt and saving at the same time. Avoiding credit card interest of 18 per cent is like earning an 18 per cent return on your investments. To me, debt repayment is saving, and it is just a matter of figuring out whether a different saving option is better. I do not like her odds of earning an 18 per cent return on her investments, so would deal with the credit card debt first. From there, she may want to consider a TFSA account as her main saving vehicle with the potential of putting away a small amount to her RRSP for longer-term retirement saving. The reason for the more modest RRSP contribution is her income is modest, so RRSP tax-deduction savings are also modest. Her TFSA is a flexible saving option that can even be used to fund RRSP contributions in the future as her income rises.

Arguably, young people were getting priced out of Toronto even before the recent spike in inflation. If wages do not keep pace — and they do not seem to be right now — it is going to put even more pressure on low and moderate-income millennials.

Results: Nora made a goal to only dine out once in the second week and put the money she would have spent toward her credit card. She spent less than the week before and on one weekday she did not purchase anything.

Spending in week one: $486.88 Spending in week two: $341

How she thinks she did: Nora says she downloaded a spending app that helped her be more conscious of where her money was going.

Heath’s breakdown on how to pay off her credit card debt was very motivating, she says.

“Sometimes it helps to know there’s a solution or a light at the end of the tunnel,” Nora says. “I knew I was spending in stupid places, but it obviously hurts much more to see your spending in writing or in a pie chart. Looking at my salary and knowing that a big chunk was going to Ubers was not a good feeling.”

Take aways: While Nora says it’s difficult to decline invites for dinners out, she found ways to compromise and told friends she’d meet them for coffee or an ice cream instead.

“I still think Toronto is unreasonably expensive and my rent and low salary is a huge issue, but it’s good to know that there’s a way out of my credit card debt,” Nora says. “I’m sure there will be slip-ups, but having a plan helps.”

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