4.6.9 Case study: Fixing debt problems

From: Financial Consumer Agency of Canada

Jocelyn calls a not-for-profit credit counselling agency for advice.


Jocelyn had just started her first job after graduating from university, earning $25,000 a year. She owed $8,500 on a student loan and had a $250 monthly car payment.

Jocelyn and her boyfriend moved into a rented house together. Jocelyn's share of the rent, $375 a month, was affordable, and she was counting on getting a pay raise within six months. She applied for a credit card, which she used to buy new clothes for work and furnish the house.

Unfortunately, Jocelyn's relationship broke up, and her boyfriend moved out. She was saddled with the entire rent, plus her student debt, car loan and credit card bills. She took out a small loan to cover her expenses, while she made the minimum payments on her credit card.

Soon, though, she was missing loan repayments, and the car financing company began to send letters warning her that the car could be repossessed if she didn't catch up with her payments.

For a few months, Jocelyn avoided opening envelopes and was unable to sleep at night. One day, a co-worker asked her if she was feeling all right. Jocelyn burst into tears and blurted out her debt problems. The co-worker recommended a not-for-profit credit counselling agency that had helped her brother. Reluctantly, and with great embarrassment, Jocelyn made an appointment.

Robert, the credit counsellor, assured Jocelyn that although her debt was a problem, the important thing was to address it immediately—with confidence rather than shame.

Robert and Jocelyn did a detailed analysis of her income and debts. They determined that she owed $1,150 a month on her debts, on a monthly take-home pay of about $1,625.

Robert listed several options available to Jocelyn:

  • move out of the rented house and find more reasonable accommodations
  • sell her car and use public transit to get to work
  • stop using her credit card until it was completely paid off
  • enter a debt management plan.

Jocelyn decided to follow through with all four suggestions. She managed to find an apartment closer to work for $635 a month—more than her share of the rented house, but much less than the full cost of the house rental. With the $2,000 she got for her car, she paid off the car loan and part of her credit card bill. Robert contacted Jocelyn's creditors, and they agreed to reduce the interest charges on Jocelyn's debts, to the point where her total monthly payment came to a more affordable $950.

It will take Jocelyn two years to clear her debts, and her credit score will be low until she can re-establish a better credit history. But she will pay off all her creditors, and she will be free of debt.

Lessons Jocelyn learned:

  • Ignoring debt problems only lets them get worse. That's why it's important to seek help right away if you need it.
  • There is help and there are solutions for dealing with debt problems.
  • Borrowing more to try to pay off debts is not a good strategy.
  • If you can't make your debt payments, it is better to notify your creditors to discuss the problem rather than simply missing payments.
  • You have rights in relation to debt collection.
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