Daniel is a computer technician. Because his daughter had special needs, he had to reduce his working hours to provide transportation to the hospital.
Even though he shares return trips with the child’s mother, from whom he lives separately, Daniel had no choice but to cut one day of work per week. “This reduced my take-home pay to $3,300, a decrease of $600, leaving a big hole in my budget,” he says.
He has joint custody of his eight-year-old daughter and pays $400 a month in child support. He also contributes to various expenses such as school fees, clothing, healthcare, etc.
Ultimately, his finances are very strained, especially since he has to make a minimum payment of $800 each month to pay off the balances on his two credit cards, for a total of $20,000. As a result, he struggles to make ends meet and runs a monthly budget deficit of $600.
think about it
Daniel desperately needs a car to get to work and transport his daughter to the hospital. He currently owns a 2020 SUV that still owes $11,000. The interest rate is 1.49% and the loan term is January 2025.
With monthly payments of $770, Daniel wonders if he should buy a new, cheaper, more fuel-efficient vehicle. He also fears that repairing his SUV will cost a lot of money over time and he would rather rely on a vehicle with a warranty.
He turned to the licensed insolvency practitioner Jean Fortin et Associés for advice on this issue and to find solutions to his financial problems.
Pierre Fortin, president of the trust office, explains that a simulation was carried out with a smaller automobile. “A 2023 Toyota Corolla currently costs $30,200 plus taxes. At a current interest rate of $6.39 over 60 months, that works out to payments of $590 per month,” he explains. This may seem advantageous at first glance, but think twice…
The game isn’t worth the effort
Because in a few months Daniel’s SUV will be completely paid off. “This will allow him to save $770 per month in his budget, a significant amount.” Of course, he will undoubtedly need to make repairs over time, but by setting aside a portion of the saved monthly payment, he will have the necessary money for future maintenance costs,” explains Pierre Fortin.
He adds that Daniel also benefits from a very good interest rate, but that this has increased significantly since 2020. “If he were to change the car, he would be tied to the contract again for five years, with no guarantee that the interest rate would be appropriate.” Given the current financial situation,” explains Pierre Fortin. In November 2023, interest rates for a car loan ranged from 4.49 to 9.24%. If you have bad credit, you may be charged a higher interest rate, even as high as 15 to 20%.
On the advice of the trustee, Daniel ultimately decided to keep his SUV. He also submitted a consumer proposal for $200 per month for 60 months, which would allow him to pay off all of his credit card debt. As soon as the application is submitted, interest will no longer be charged on the credit balance.
ADVICE
- To take stock of your financial situation and identify areas where you can save money, you should first examine your budget. To make your task easier, use free tools available online like Makeyourbudget.com.
- Would you like to know how much a loan really costs you? Online calculators like JeanFortin.com/calculator will help you determine the true cost and make an informed decision.
- You could consider paying off your loan faster by opting for biweekly payments. Synchronizing automatic withdrawals with your payroll deposits makes budget management easier.