‘I really need help.’ Can this teacher — who rents — ever dig his way out of $140,000 in debt?

“I really need help,” Daniel says. “I have looked into bankruptcy or consumer proposal but my mother co-signed on several of my student loans meaning she would be on the hook for them. She is semi-retired and that is not an option.” 

At the moment, Daniel makes $76,000 a year but his expenses exceed his monthly take home pay after tax.

He splits rent with his wife, paying $2,200 a month for a home in Toronto’s St. Clair neighbourhood. On weekends, the family enjoys hiking and outdoor activities.

While he and his wife make a significant effort to only cook and eat meals at home — they also bag lunches for work — his monthly expenses still amount to nearly $5,000, which is about $1,000 more than his monthly salary.

What is the best financial plan for Daniel moving forward and how can he pay down his debt?

We asked him to share his monthly and weekly expenses to see what he can do.

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

Daniel is a teacher who is struggling with cash flow.

His expenses are about $1,000 a month higher than his after-tax income. So, he is falling more and more into a hole.

Looking at his expenses, it is no wonder. His rent and daycare costs chew up two-thirds of his income. He is doing everything right with the rest of his expenses and trying to cut corners as best he can. But he has over $140,000 of debt he has been carrying for several years.

I appreciate Daniel is hesitant to consider a consumer proposal or bankruptcy given his mother co-signed for some of his student loans. But if he is going to have any hope of paying off the debt he has with his mother, he may need to consider extraordinary measures to get rid of his other debts.

I think he should seek advice from a licenced insolvency trustee to understand his options.

One good thing for Daniel is that his teacher’s pension is protected in the event of bankruptcy. And despite his crushing debt, his retirement income is growing with each pension contribution.

If Daniel does not pursue a formal debt relief path like a consumer proposal or bankruptcy, he is going to need to consider extreme measures.

Toronto is an expensive city, but maybe there is a way to reduce the $4,400 monthly rent by moving to a less expensive area of the city.

He mentions the dream of buying land in Nova Scotia. Perhaps he and his family should consider a move to a cheaper city or another province? It will get harder to consider once daycare is done and his child starts to settle in with school, friends, and activities.

And it will get harder to get on track the longer Daniel continues to accrue this debt.

Spending in week one: $980. Spending in week two: $529.

Takeaways: Daniel says he’s not surprised by Heath’s advice. He feels as though he doesn’t have many options. 

“Leaving the city is not an option for me,” he says. “I don’t know yet what I’ll do.”

“I know I am not the only one in a situation like this and find it extremely sad that we live in a society where getting an education, if you are born with less means, means financial hardship or ruin.”