2 jobs, 2 kids, 2 cars, RRSPs, RESPs, a house and a dog. The Millers (not their real name) sound like the average Canadian family. It sounds like they should have a pretty good life. The problem is their debt. They have a lot of it and it is not going down.
The husband, John, was previously married and pays $500 a month in support to his ex-wife in Calgary. He lives in Fergus, Ontario now with his new wife, Mary and her son. When John and Mary got married, he had $35,000 in credit card and other debt. Mary had around $20,000. Mary had $25,000 in RRSPs which they used as a down payment on their home. The new house needed a few things so they incurred another $20,000 worth of debts together in the first year they owned the house. That was 3 years ago.
Then they found out that Mary was pregnant again.
Living Paycheque to Paycheque
After the initial joy wore off, the fear set in. Mary has a very good job and brings home $2,500 a month. When she goes on maternity leave that will drop to around $1,300. They were just getting by; when her pay drops they will be in a lot of trouble.
They know that the minimum payments on their $75,000 in debts cost them $2,000 per month. Once Mary’s income drops by $1,200 per month they don’t know where that money is going to come from.
Do the Millers sound a lot like you? We see variations of their story every day. Instead of going on maternity leave, maybe there is a lay-off at work. Instead of spending the money on a new house, the family needed a new car because the old one kept breaking down. Instead of a family of 4, the parents are separating and suddenly we have a family of one and a family of 3 and even the house is in jeopardy.
So many Canadians are living like the Millers – pay cheque to pay cheque. When anything comes along that disrupts their normal routine it can throw them into a financial crisis.
The reality is, if you owe $75,000 in credit card and other debts then you are already in a financial crisis – you simply haven’t been forced to deal with it yet.
With the baby coming the Millers took stock of their situation and decided enough was enough. They went to speak to their bank about a loan and were rejected because they didn’t have enough equity in their home to secure the loan. Luckily, the loans officer at the bank suggested they look into “other options” including a consumer proposal. I say luckily because most lenders won’t refer their customers elsewhere. They leave it to the customer to find their own way out of trouble.
In case you are interested, the Millers did file a consumer proposal to repay $30,000 to settle the $75,000 that they owed. Their monthly payment was $500 and run for 60 months. Quickly doing the math, their consumer proposal payment is $1,500 less than the minimum payments they used to make. The payments fit in their budget even with Mary’s income drop while on maternity leave.