Emily, 28, lives in Toronto and has a good job with the provincial government in the health care field. She earns $71,000 a year, has a full benefits package and her defined benefit pension plan with matching money from her employee is giving her a good head start on retirement.

Emily’s problem is that she finds herself living from paycheque to paycheque and she wants to start saving for a down payment on a home.

She has debts of $34,000, most of which are student loans and money borrowed to buy a car. She also has a high credit card balance.

She finds she’s spending all her free cash keeping up with the payments and day-to-day expenses and wonders if there’s a better way to do it.

“I feel stuck,” Emily said. “I don’t know where to start and what to do first.”

The Toronto Star asked Tina Tehranchian, a certified financial planner with Assante Capital Management in Toronto, to work with Emily.

Step one for Emily, she said, is paying off the loan with the highest interest. Not surprisingly, that’s her credit card, which has a 12.9 per cent interest rate. (Emily had negotiated that particular rate after failing to qualify for an unsecured personal line of credit, which would have brought the rate down to around 6 or 7 per cent.) She currently owes $5,700 on her card and hasn’t made a dent toward decreasing the balance. She’ll put $400 on her card each month but since she continues to use the card for other purchases, her payments are counterproductive. Tehranchian emphasizes that Emily needs to stop using her card until the debt is paid off.

Next, Emily can concentrate more on eliminating her student loans. She pays $355 per month toward that $16,000 liability. More than half of Emily’s student loans give her a tax credit on her federal and provincial tax returns. Tehranchian says this portion of the loan should be the last debt priority.

Related: A graduate’s $52,000 loan repayment dilemma

Tehranchian didn’t find Emily’s budget outlandish. For example, she lives with a roommate, allowing her to split utility costs. One exception is her car. Emily bought a used car for $17,000 and has paid off $5,000 so far. Her monthly payment is $337 with three years left on the 1.9 per cent financing. Emily also spends an additional $363 per month for parking, gas and insurance. That’s nearly as much as her rent.

Ideally, she would get rid of the car and rely on public transit and then use the savings toward her debt, Tehranchian said. But as part of her job, Emily must visit several patients at their home — all located in diverse areas of the city — and then travel back and forth to her office. She could get a cheaper car but Tehranchian notes that breaking the car financing agreement would be costly and she wouldn’t come out any further ahead.

So, where will the money come from to pay down this debt? As Tehranchian says, tackling cash flow problems comes down to decreasing her spending or increasing her income, plus using savings to pay down debt.

While Emily’s savings are minimal — a few hundred dollars in a cash account — she’s been contributing $100 per month to both an RRSP and a tax-free savings account. She’s currently accumulated $1,000 in her TFSA held in cash. Tehranchian suggests Emily redirect these $200 contributions toward paying off her credit card. Frankly, she can use all the funds in her TFSA for the same purpose.

“Monthly savings is better going toward the debt right now,” she said. “The TFSA is costing her money because it’s not going on the debt and the debt she is paying is not tax-deductible.”

Besides, Emily already has some forced savings for retirement from her job, she adds.

Emily says she can shave $300 per month off her budget by reducing expenses related to hobbies, vacation and eating out.

If she wants to pay off the debt fast, Emily should find ways to increase her income. “She’s young so she should be able to get a part-time job on the weekends to bring in a few hundred dollars extra,” Tehranchian says.

Emily is also a trained psychotherapist. She plans to offer counselling services a few evenings a week. She will inherit two clients from a friend’s private practice and plans to prospect for more business. Assuming two clients a week, she’ll earn $220 per month after expenses and taxes. Tehranchian notes that this fledging business will also “give her a chance to write off some of her expenses, including her car and cellphone up to a percentage.”

If Emily allocates those savings and part-time earnings — a total of $720 per month — to the credit card, it will be paid off in eight months. She can then add this monthly payment to what she currently pays on her student loans. Doing so means the loans will be eliminated in one year, 10 months, Tehranchian said. With those debts behind her, Emily can start saving for a home down payment.

Going forward, Tehranchian says Emily needs to scrutinize her cash flow plan on a regular basis. Rather than relying on her credit card, she suggests withdrawing a specific cash amount for the month for discretionary items like clothes, entertainment and dining out. That helps to ensure she won’t overspend what she can actually afford. “The key is once the cash is gone, don’t spend anymore,” Tehranchian cautions.

Also read: More Monday Makeover stories

Deanne Gage is a financial writer and editor. If you would like to be considered for a free Monday Makeover, email deannegage@gmail.com

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The client: Emily, 28

The problem: Emily is unsure of the best course of action to pay off her diverse $34,000 worth of debt. She also wants to stop living paycheque to paycheque and save for the future, such a down payment on a home.

The advice: Tackle high interest debt first. Postpone contributing to an RRSP or TFSA until debt is paid off. Redirect those funds to the debt, and take on a second job to expedite the repayment process.