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Mission possible: tackling debt of any size

A Burnaby bus driver says a destructive relationship took him from being a "saver" to having more than $50,000 of consumer debt, but he crawled back from financial ruin with help from the Credit Counselling Society of British Columbia.

A Burnaby bus driver says a destructive relationship took him from being a "saver" to having more than $50,000 of consumer debt, but he crawled back from financial ruin with help from the Credit Counselling Society of British Columbia.

Wayne Mitchell, now 68, got involved with a woman he met through a dating service and claims she went on a spending spree that left him buried in debt.

Mitchell had always been good with his money, he says, but when he met this woman, who herself didn't have access to credit because she had gone bankrupt, the credit cards came out and the spending spree began.

They bought a new home in Hope - miles from his work in Burnaby - and started renovating, buying new furniture and appliances. Mitchell describes their life together: "I'd never been to so many restaurants in my life, and I'd never been to so many shopping stores in my life. Every weekend was a shopping thing. . She'd buy three pairs of shoes and the next week when she was back working, she'd come back with another three pairs."

As for the move from their condo in Burnaby to a new home in Hope, Mitchell said it was one he didn't want to make.

"I didn't want to go there, and she insisted that we go there, and so I said, 'Well no.' I phoned the real estate guy back and said, 'No, it's going to cost me $8,000 in gas,'" Mitchell says, but the move east went ahead despite his protests.

At the time, Mitchell was only making $1,500 a month, while his girlfriend was making about $80,000 to $90,000 a year.

Though she earned more than Mitchell, all of the credit - including a Macy's card that she jacked up to $10K - was in his name because he had a pristine credit rating.

"I guess you would say I went brain dead, and I went along," Mitchell says.

The destructive relationship ended three months after they moved to Hope. By surprise, one day, she changed the locks on him without warning. Eventually she left the home - taking all of the not-yet-paid-for furniture with her.

"There was no furniture in the house. I was sleeping on the floor," Mitchell says.

But by that point he was used to roughing it.

"I used to sleep on the floor in the washroom (at work) because I couldn't afford to stay anywhere because I didn't make enough money to pay all of my bills," he says, describing how he got through his time working in Burnaby and living in Hope. "I was paying $2,000 a month just to creditors (because) the interest was so high."

Eventually, he reached out to the Credit Counselling Society, a New Westminster-based not-for-profit agency that helps people get their financial house in order.

Through the help of the society, Mitchell was able to start paying off his debt, and this year he is on track to completely erase his debt. Mitchell says he never contemplated filing for bankruptcy.

The society helped Mitchell devise a manageable monthly debt payment. He used his Canada pension to make the debt payments.

"They helped me because they brought my payment down to $963 a month," Mitchell says. "They saved me because I'd have never been able to pay this off, never. I'd have never done it."

Scott Hannah, president of the Credit Counselling Society, says they have helped thousands of people tackle their debt and get their finances in order. Everyone, from those like Mitchell who owed a seemingly insurmountable amount of money to those who have little to no debt but want to understand why there's nothing left in the bank at the end of the month.

"Last year, we helped our clients repay over $27 million," Hannah says. "It doesn't happen overnight; you've got to have a plan, discipline and stick with it because there is always going to be bumps along the path."

Hannah shares tips to get on firm financial footing this year. First, he suggests being realistic about what's achievable in the short term. "It may take a person three or four years to get into a fair amount of debt. It's going to take three or four (years) to get out of debt, but you can do that," he says. "The first step is to say 'How are we going to accomplish this?'"

Next, you need to look at every single expense that goes in and out of your bank account from the moment you get paid.

"Far too often we see clients come to us for help, they have a lot of leakage. As much as 25 per cent of their salary going to the miscellaneous pile, and they can't really account for it specifically," he says. "We encourage consumers to track every dollar they spend for the next 30 to 60 days."

Another suggestion is for clients to cut their spending by 10 per cent.

"That may sound like a lot, but, for example, I found a $15 savings on my telephone by changing my plan because my bill is only $50, savings of $15 dollars is like 30 per cent. So if we take perspective with everything that we do," he says.

Hannah acknowledges that for some, 10 per cent might not be possible, but they can start focusing on getting more value for their money and comparison shopping, looking for ways to cut back on costs.

Hannah also encourages people to give themselves a weekly allowance.

"Maybe it's $40 for the week, maybe it's $25 . but recognize that once that's gone, it's gone until next week comes around."

He also says the trick to getting out of debt is to stop using credit.

"Put your credit cards on ice," Hannah says.

Having easy access to credit can be too tempting for some, so Hannah says deactivate a line of credit if you have one attached to your bank account.

Once you've tracked spending, cooled the credit cards and prepared a weekly allowance, the next step is to manage seasonal and annual expenditures.

Take the money you spend on annual costs like car insurance, home insurance and maintenance, clothing, Christmas, etc. and put those costs aside each month, so that you can pay for those expenses when they arise.

Building up the money for these costs can take several months and even years sometimes, but it's a good practice to start, he says. It means when those costs arise the money will be on hand and there won't be a reason to reach for the plastic.

If the cost for all of those expenses is $6,000 a year, then Hannah says put aside $500 a month.

"It has to come off the top. So if you get paid twice a month that means, I've got to put aside $250 each of those pay cheques into a savings account to cover those costs," he says. "And that savings account is only to be used for seasonal and annual expenditures."

The next step is to deal with debt. He says avoid consolidation if you aren't going to change spending habits, because you'll just find yourself back where you started.

"I don't want a line of credit. I want a term loan," Hannah says. "I want a loan that has a start date and a finish date, because with a line of credit there's a start date but there's never a finish."

Giving a finite time means there is an end in sight. Hannah also suggests paying off the debt with the highest interest rate first, while making minimum payments on the other debt, and tackling that one debt until it is paid off and then moving on to the next one.

"And pick one; don't say, 'Well, if I have three credit cards all with 20 per cent, I'll each give them a little extra.' No, tackle one," he says.

Doing this has a positive psychological impact and reinforces the behaviour, Hannah explains.

He also recommends starting a "small" emergency fund.

"I say small because if a person for the first time restructured their debt, cut their expenses, really addresses their debt situation and their annual expenditures, that's a lot," Hannah says. "I wouldn't get started on your emergency savings until you've got all of these others pieces in place. It's one step at a time. If a person has been in debt for five or six years, these are some big changes they are making.

"The point is you are working towards that," Hannah says, adding, "It's not a sprint, it's a marathon."

Mitchell is one of the society's clients who is coming to the end of his marathon.

He hopes to retire at age 70 - with the help he found at the Credit Counselling Society, it seems he will be able to do that.

For more information about the society, visit