This millennial's travel addiction was put on hold, but she still has $20k in debt and no desire to stop the vacations

Finding a new apartment in Toronto’s financial district is what a 34-year-old executive assistant we’ll call Kim describes as her top priority.
Last May, she found a job in that area as an executive assistant earning $50,000 per year but has remained confined to her midtown basement apartment. Sure, her current home comes with privacy and an affordable $1,100 per month price tag but living in a unit where her only window to the outside world gives her a scenic view of her neighbor’s driveway depresses her.
Her plan sounds simple enough: She’ll be able to afford the inevitable rent increase that comes with an apartment in that area by splitting costs with a roommate and diverting the entirety of her transport budget ($247) to cover her share. A move would cost her $1,400 a month in rent, she thinks.
Unfortunately for Kim, there’s one issue complicating that idea. It isn’t that she’s underestimating how much rent she’d have to pay in downtown Toronto or that she hasn’t considered the additional monthly costs that would come with a move, it’s the $18,869 she’s amassed in debt over the past five years.
Kim’s debt ballooned when she initially moved to Toronto and struggled to cope with the high costs of living in the city and only escalated as she attempted to fund a life of travel beyond her means. Without any savings, Kim lives paycheque-to-paycheque.
Before she was paid at the end of a recent month, she had $2.52 left in her chequing account. More than half ($1,699) her after-tax pay went to paying down her line of credit, new charges to her credit card, and interest. Even then, she only lowered her debt load by $183.
“None of my money is mine anymore. It comes and it goes,” said Kim. “I moved to Toronto with zero debt.”
Kim could only find two part-time minimum wage jobs and her combined income just covered her share of the rent on a $1,600-per-month apartment she split with her boyfriend at the time. Wanting to eat required a credit card. This was her routine for three years.
She knew it was unsustainable but didn’t care about any long-term repercussions. After maxing out two credit cards, her bank eventually combined them into a line of credit that now totals $16,035 so that she could pay less interest. Her bank gave her a third credit card with a tight monthly limit — $1,000 — for “emergencies,” she said. “But emergencies became life.” The bank gradually increased the limit over the past few years and she’s now incurred an additional $2,934 in debt on that card.
When she got a stable full-time job and her pay improved — albeit only slightly — Kim didn’t focus on paying off her debt. Instead, she added to it by taking multiple vacations per year. In 2018, she traveled to Red Deer, Alta., for Christmas, New Orleans, Chicago, and Las Vegas. She also took four trips to Cancun, Mexico, where a friend covered her flight and stay.
She didn’t need a financial advisor to tell her she couldn’t afford that lifestyle and so she “slowed down majorly” with three vacations to Nashville and Miami, New York City, and a paid visit to Cancun in 2019. And just before COVID-19 hit North America, she squeezed in one final trip to Cancun in February. In case you’re counting, that’s six vacations to Cancun alone since the beginning of 2018. “I’m going right back in the hole,” Kim said before the last trip.
“I’m trying to get better at it,” she said. “Obviously I’m not going to cut everything out. That’s not who I am.”
To help Kim figure out how she can afford a new apartment while paying off her debt, Spent enlisted TD Wealth vice president and investment advisor Michael Currie.
Thanks to her new job, Kim is now earning more than the average household income of $48,000 in Toronto. That’s where the positives end, as far as Currie is concerned.
“She has the money, it’s just not being allocated where it should,” Currie said. “She’s massively overspending in some areas that are discretionary and she’s lowering the priority on some pretty important ones.”
Currie doesn’t enforce the 30 per cent rule with his clients but is putting a cap on Kim’s monthly rent at $1,300, which amounts to 40 per cent of her net salary.
While Currie supports Kim’s plan to move, it shouldn’t be her top priority over tackling her debt problem, he said.
Completely eliminating close to $20,000 in debt is possible in less than two years, but it’ll require some radical changes to Kim’s balance sheet.
The first change is all but inevitable: Kim cannot take a single vacation, Currie said until she can pay for one upfront. COVID-19 may have been a blessing in disguise for her in that sense. The ability to go on vacation was taken completely out of her hands.
Next, he targeted her shopping bill and recommended cutting it down to $200 per month, a number she more than tripled in one pre-COVID month.
“I don’t shop, I never shop,” said Kim, explaining that the month was an outlier. “I wear the same clothes I’ve been wearing for 10 years. People are like, ‘Nice shirt,’ and I’m like, ‘Thanks, I bought it in 2009.’”
As for Kim’s plan to completely eliminate her transport costs, Currie doesn’t think it’s feasible. Even if she walks to work every day, she’ll still inevitably end up spending about $50 per month, he suspects. Kim can, however, free up another $150 per month by trimming the payments ($300) she makes to her mom in order to pay her back for Invisalign treatments.
With her other monthly expenses remaining the same, that leaves about $800 for her to use on paying off her existing debt each month.
When she’s accomplished that, she can move on to part two of Currie’s plan and begin planning for the future. Without needing to make credit payments, Currie would like to see Kim divert the $800 she’d have been paying per month for two years into contributions for a tax-free savings account until she builds up at least $3,000 for an emergency fund.
Currie’s plan is doable, Kim said. Nothing that he recommended was that drastic of a change, she said, except for travel. As soon as she’s able, she’ll be booking her next flight.
But for now, at least, that temptation is off the table.