In July, Zandile Chiwanza popped a bottle of champagne and called her friends to celebrate a major milestone: she had just finished paying off approximately $50,000 in debt.
Chiwanza, a 30-year-old personal finance journalist and financial wellness educator in Toronto, had owed approximately $7,000 in payday loans, $5,000 in credit card debt, $12,500 on a line of credit, $5,500 in personal loans from friends and family, and $20,000 in leftover tuition that had been sent to a collection agency.
Most of this debt had been accumulated to pay for a bachelor鈥檚 degree in journalism from Carleton University in Ottawa, which she completed in 2016. As an international student, Chiwanza was ineligible for the Ontario Student Assistance Program and had to use high-interest debt to cover her tuition and cost of living.
鈥淭hroughout school, I always worked a minimum of two jobs to make ends meet,鈥� Chiwanza said. 鈥淎fter I graduated, in order to accelerate my debt payoff, I took a full-time job and two part-time jobs. This last year I was freelancing as well to make more money 鈥� it was exhausting.鈥�
For millennials and generation Z Canadians carrying four or five figures worth of debt, paying it down can be incredibly challenging due to a lack of cash flow, said Jessica Moorhouse, CEO of MoorMoney Media Inc.
For graduates lucky enough to get a decent job out of school, hefty monthly payments and the current cost of living don鈥檛 leave much money to put towards retirement, a down payment on a home, a trip or anything else.
鈥淵ou鈥檙e really constrained within this cycle of just paying your bills and debt and not really being able to see a shift in terms of your net worth,鈥� Moorhouse said.
鈥淚t can be very easy to lose focus and lose motivation, which is why a lot of people start with student debt and then get consumer debt,鈥� she added. 鈥淚t鈥檚 kind of like going on a diet for too long. It鈥檚 not sustainable so eventually you want to kind of break that diet and go wild.鈥�
Emergency expenses and necessities such as furniture and electronics can also lead to additional consumer debt since many people paying down educational debt don鈥檛 have extra cash lying around or an emergency fund. Moorhouse cautions young people to still prioritize an emergency fund, even if it only covers three months of expenses.
Chiwanza had previously held off on creating an emergency fund but realized during the pandemic she needed to readjust her budget to prioritize saving. 鈥淚 basically put my debt journey on pause and was just making minimum payments,鈥� she said. 鈥淎t the time I was [dreading extending my debt repayment plan] but it worked out that I now have an emergency fund and I鈥檓 debt-fee and that鈥檚 way more than I had initially planned to do.鈥�
Chiwanza鈥檚 strategy to paying down debt as quickly as possible was to treat it like a bill. 鈥淚t was not an afterthought after my fixed expenses, and, at one point, 40 per cent of my income was going toward debt,鈥� she said. Any extra income she earned through bonuses, tax returns or gifts, she put toward debt. 鈥淐ash is the greatest gift of all,鈥� she added.
Chiwanza also prioritized paying off her most emotionally taxing debt first, which was her tuition.Monthly calls from the collection agency were causing anxiety and Carleton University wouldn鈥檛 provide her degree or transcripts without that money paid off. The inability to access her degree also prevented her from applying for permanent residency at the time.
After paying off her tuition, she adopted the debt avalanche strategy. With this method, you target the debt with the highest interest rate first, while still paying minimum payments on other debts.
Another common strategy used is the debt snowball method, where you pay your smallest debt first, and keep up with minimum payments on the rest of your debts.
Financially speaking, the debt avalanche approach makes the best sense because you鈥檙e paying down your most expensive debts first, Moorhouse said, but many people choose the debt snowball approach because it helps build motivation and momentum.
One of Chiwanza鈥檚 remaining debt repayment tactics was to consolidate her debt and reduce her credit card interest rates. She wasn鈥檛 able to reduce her interest rates until she had received permanent residency, however.
鈥淚 would say that if you have high interest debt, contact your lender to either negotiate your interest or ask for help. You need to know your options. In my experience, a financial adviser at the bank helped me get a lower interest rate. I would have never known if I didn鈥檛 ask.鈥�
Chiwanza鈥檚 advice for other young people repaying debt is not to be too hard on yourself.
鈥淚 think there were parts of my journey where I was punishing myself for this debt because I was seeing a lot of shame being put on people in debt within the personal finance community. People were saying that if you have debt, you can鈥檛 eat at restaurants or enjoy life,鈥� she said.
鈥淪how yourself some compassion and build your own plan based on your goals.鈥�
This report by The Canadian Press was first published Aug. 24, 2021.
Leah Golob, The Canadian Press
