Metro's Money Makeover: When in debt, pay your friends and family first

Metro’s finance guru Lesley-Anne Scorgie has only two months left to tackle the women’s largest financial burdens and teach them to allocate resources.

 Annick is allocating over $1,000 per month to debt repayment.THE CHALLENGE: We’ve been following two young women as they get serious about making progress on their money. They have 12 weeks to crush their debt, start saving for the future and break bad spending habits. Can financial guru Lesley-Anne Scorgie turn the financial tides for these ladies?THIS WEEK: Where do you turn when you’re in a financial pinch? For so many it’s friends and family first, then traditional forms of credit such as consolidation loans or credit cards. Annick has laid herfinancial cards on the table and must choose which loans get paid off first.NEXT WEEK: Yolanda wants to be a homeowner, which means she must save at least $25,000 for a down payment plus closing costs. The big question is whether she should move back home or not. Every financial decision has a financial and emotional trade-off — both good and bad.Join the conversation #MetroMoneyMakeover @LesleyScorgieThe SituationAnnick owes money to friends and family not because of overspending, but rather she borrowed for the damage deposit on her Calgary apartment and to furnish it with the basics.Like so many young Albertans, she’d hoped for a higher salary post-graduation, but landed in a rotten economy and was earning half what the recruitment officers in her energy management program said was the going rate for new graduates.Within three months of full-time work, Annick confronted her finances and determined a second job would be necessary to afford the payments on her credit cards and other loans. She also started taking advantage of free city programs such as the theatre and discounts on transit for those with lower income.Today she’s putting $1,125 per month towards her debt and is on track to eliminate her loans to friends and family by March 1. At this pace, Annick will be consumer-debt free (not including student loans) by July.The LessonIn my experience, borrowing money from friends and family causes anxiety and can cost you your relationship.Imagine showing up at your mother’s home in new kicks when you still owe her $1,000. She’ll be angry and dinner will taste awful.Balances and interest aside, I recommend you prioritize repayments to friends and family first, then move on to the next highest interest debt followed by the next. For example, pay your brother first, then Visa (18 per cent), then the line of credit (8 per cent), then your personal loan (6 per cent), and on you go.What’s important for Annick is a reward at the end of this tunnel of debt. So she’s decided that once July hits and she has better cash flow, she’ll save up to take an affordable trip to visit a friend in Miami later in the fall. We’ll tackle the Canadian/U.S. exchange rate when the time comes.Annick’s monthly budget    The Budget: Annick uses a budget to manage her monthly cash flow. It’s straightforward. She tallies up her income and subtracts her expenses to get to her bottom line. Because she’s on a mission to become debt free, any extra cash Annick has should go directly toward her debts.Income (take home) -- $2,450Expenses:    Rent -- $750Groceries -- $250Utilities, Internet & cellphone -- $125Entertainment & gifts -- $125Personal care -- $75Visa -- $125MasterCard -- $50Student loans -- $150Other loans -- $800Total Expenses  -- $2,450Bottom Line -- $0Lesley-Anne Scorgie is a bestselling author and Founder of MeVest, a money coaching service for Canadians. Follow her @LesleyScorgie. Published by Metro February 22, 2016.