Gails Blog

I received an email the other day from a young woman named Annie who was inquiring about companies that say they’ll improve a consumer’s credit rating. Was it true? Was it worth the money?

Annie had been in to apply for a car loan at her bank and the lender had declined her loan. She was told only that she should check her credit bureau report. Something there was gumming up the works

If you don’t already know, when you sign a loan application form, you give your consent to the lender, be it a bank, credit card company and retail store, to access your credit bureau information to decide whether or not you’re a good credit risk.

Your credit file contains a listing of debit and credit payments and it includes public record information about how promptly you’ve paid bills, along with all the yucky stuff like collections, judgements and bankruptcies.

You don’t have to be a late payer to be declined. A lender may refuse a loan application simply because the credit bureau’s records indicate that you have other loans outstanding. Yes, everything you owe shows up — including all those credit cards you have even if there are no balances outstanding. When credit is refused, you’re usually advised to have a look at your credit bureau report to see what’s amiss.

In Annie’s case, someone else’s information was being recorded on her credit report. The other woman had a similar name, and it was an honest mistake. All Annie has to do provide the credit bureau with proof of the error and her credit report will be cleaned up.

So back to Annie’s original questions: Can a credit-repair company clean up a mess and is it worth the money? When a company offers to fix your sloppy credit history, it’s often just a ploy to get your money. And wouldn’t you rather spend that fee — anywhere from $250, to $1,000 — paying down your debt, especially when it’s virtually impossible to cover up your past mistakes. While ads for credit repair companies may seem like the cure for a credit life lived less than perfectly, in reality, no credit repairer has the power to change or erase accurate information in a consumer’s file.

If the reason you’re in trouble with a potential lender is because of wrong information on your credit file, you could pay someone to take care of the problem for you, but it’s often just as easy to take care of that problem yourself.

If you’ve damaged your credit rating by missing payments, carrying high balances or over extending yourself financially, you can improve your credit rating. Start by locking away your credit cards. Don’t cancel them because if your credit rating is low, you could have trouble getting new ones. But don’t use them until you are debt free. You must pay at least the MINIMUM to stay on the positive side with your credit history. But paying the MINIMUM isn’t going to get you out of debt. So figure out what it’ll take to get out of debt and then DO IT!

Creditors like to see a solid credit payment history. If you have a credit card, use it every month. Make small purchases and pay them off IN FULL. If you can’t get a credit card — maybe you’ve just come through a bankruptcy —  use a secured card. You deposit money with the lender and they give you a credit card with a limit of between 50% and 100% of the amount you deposited.

Can’t cope with all the bills you’ve got? You have two choices. Declare bankruptcy or find a way to put more money toward you bills: cut expenses or make more money.

You should check your credit files at least once a year to ensure the information is correct. Send a written request to one of the two major credit bureaus in Canada: Equifax Canada Inc. or Trans Union of Canada Inc. More information can be found online at www.equifax.ca and www.tuc.ca. There is no charge for this service. If you’re into instant gratification, you’ll have to pay a fee.

If you question an item on the file, the credit bureau will investigate on your behalf to verify the status of the entry. If an error is found, the credit bureau will fix it and send copies of the updated file to credit grantors upon request.

The longer you exhibit good credit behavior by paying your bills on time and managing your credit wisely, the more your credit rating will improve, until you once again achieve a favorable credit rating. And if you’ve got a good rating that’s been marred by inaccurate reporting, it’s your job to fix it. It’s your credit, after all.

I recently worked with a new couple that made go, “hmmm”. She’s only 26 and already owes over $40,000 in consumer debt, even though she doesn’t pay a cent in rent and has virtually no real expenses. Sure she has a cell phone and a nice car, but they’re toys, not tools of her trade.

He went nuts with his credit cards when he first got them – yes, he join three separate gyms – and then froze his cards. He’s been working to pay them off ever since. He’s paying in the high teens and mid-twenties when it comes to interest, but has never considered negotiating his rate down.

So what happens to us to make us think that when we’re using our credit cards we aren’t really spending real money? How do we come to delude ourselves? What lets us rack up thousands of dollars in debt without batting an eye? And what lets us carry around balances on our credit cards, at huge interest rates, without losing our minds?

Hey, I know there are people out there who use their credit to make ends meet. Lose a job, have a child get sick, or watch your car die in the middle of a highway, and the idea of putting it on a card and carrying a balance becomes a secondary issue to taking care of the BIG problem.

I’m not really thinking of those people. I’m thinking of the people who bemoan their debt while booking their next cruise. I’m thinking of the people who can’t drive a regular car, they have to drive a car they really can’t afford. I’m thinking of the people who can’t seem to find the money to repay their old bad spending habits because they’re too busy traveling (on credit), eating out with friends (on credit) or shopping (on credit.) What makes those people immune to the gut-wrenching stress that other people feel when they owe money?

Is there such a thing as a debtor personality? Or is it simply a case of being clueless?

Psychologists have done some research on the issue of debt personality. Some believe that people who accumulate debt also:

 

• Lack the ability to plan
• Are not reflective in their thinking
• Have an urge to be active
• Are impulsive
• Can be anxious or apprehensive about making the wrong choices
• Need excitement and novelty
• Tend to disregard possible negative consequences.

When I ask my fams what they spent their money on when they were going into debt, they can’t tell me. When I look around their homes I may see some evidence of their debt, but very often they don’t have a lot to show for the amount of debt they’re carrying. And when I show them how much money they’re spending, they’re stunned. Some accuse me of making the numbers up. Ha! I don’t have to; they’re great all on their own.

So how do we get so far away from the idea that what we’re doing is SPENDING MONEY and that at some point in the future that money will HAVE TO BE REPAID?

Part of the problem stems from the “Minimum Payment” … the idea that you can have what you want now, for as little as $10 a month. Hey, but that’s $10 a month FOREVER. Do that a couple of dozen times and now you’re up to $240 a month. Do that four years and now you’re up to $960 a month… and you’re no closer to ever being paid off. Ouch!

It’s easy to use credit. It’s hard to pay it off. And if your circumstances change and you find yourself with less money in the family pot, you can really strap your ability to roll with the punches if you’re carrying around a bag of debt.

It’s time to become a little more reflective in your thinking. It’s time to learn to plan. And it’s time to stop disregarding the possible negative consequences of your rampant spending.

Want some real excitement? Try living on half your income so you can put the rest to debt repayment. Have the urge to be active? Get another job and use all the income to pay off your debt. Impulsive? Eliminate the temptation: don’t carry your cards and stay out of the malls.

There’s always a solution. If you really want one. So, do you?

 

Whenever I tell my daughter, Alex, that I have some good news and I have some bad news, she always wants the bad news first. Like mother, like daughter. We figure if we know the worst first, we can put everything else in perspective.

So here’s the worst: Bankruptcies in Canada (and no doubt in the U.S.) are on the rise.

Are you surprised?

According to the Office of the Superintendent of Bankruptcy, in the 12 month period ending in April 2007 almost 85,000 Canadians ranging in age from 18 to 90-something filed for personal bankruptcy. They owed, on average, $69,619 each.

A year later, the number of people who filed for bankruptcy jumped to almost 88,000. Add in the over 23,000 people who filed consumer proposals, and you have over 110,000 people who are so far up to their eyeballs in debt they can’t see daylight. Sad.

Often debt starts accumulating when kids head off to university. They’re offered a credit card with what appears to be a reasonable limit so they can “learn to manage credit.” Soon, however, that $1,000 mushrooms to two cards, student loans, a consolidation loan, a line of credit and a car loan. Suddenly – really? suddenly? – a young adult has way more debt than they can ever hope to repay on a starter-income.

So, how does a student get a credit card? Beats me. At no other time in your life can you walk up to a lender and say, “Hey, buddy, I don’t have a job and I don’t have any way to repay debt, but how about a credit card?” If you don’t believe me, try it!

Yet kids who have no experience managing money – never mind credit – are given student loans, credit cards and other forms of credit without a minute of education. Is it any wonder so many trip and fall?

Sometimes people file for bankruptcy because of a relationship breakdown or a loss of employment with a side-dish of with poor money management. It seems that the Eternal Optimists among us believe that they can count on a steady dual income for years to come, and so rack up enormous amounts of debt for the things they just HAVE TO HAVE RIGHT NOW. We’re talking shoes, big screen TVs, digital cameras, hardwood floors. Nothing you can boil for soup should hard times hit and you have to feed your hungry children.

Then there are the people in their 50s and 60s who are finding themselves strapped. Caught between elderly parents who need care and kids in university, parents are borrowing themselves into very deep holes and then going bankrupt when they can’t meet their payment obligations. Here again, bad money management is at the root of this issue. After all, it doesn’t take a genius to see that if your kid is half-way academically inclined you’re going to want him or her to go off to university. And the idea that your parents could grow old without you noticing is ridiculous.

As if life isn’t hard enough, there are also temptations that rear their ugly heads and end up biting us in the butt. Can you believe that when bankrupt consumers were asked what had contributed to their dilemma, 31% reported that home shopping channel, casino visits, lottery tickets or on-line poker influenced their financial situation? Are you kidding me? People, no one is making you go into the casino. If you have a problem, don’t go in the door!

I bet you’re wondering what the good news is.

It’s this: Bankruptcy isn’t the worst thing in the world. Living in the hell you’ve created is. And if you’ve been given a whack of credit that’s way above what you can manage, maybe it’s time to rub the slate clean and start again.

I’m not for absolving people of their personal responsibility. Nope. I’m all about personal responsibility. But when I see couples earning $100,000 in family income being given $136,000 in credit, I scratch my head and wonder whatever happened to “responsible lending practices.” And I feel for the people who have debt they can’t manage because of significant changes in their lives like disability, divorce, widowhood, illness, unemployment, and the like. I even feel for the silly buggers who went out and charged up a storm, never understanding the implications and the impact the payments were going to have on their rest of their lives.

It isn’t an easy decision, deciding to go bankrupt. Nope. It’s a thorny path. But if that’s what it’ll take to get you out of hell, then do it. It won’t be easy to live through. And the black mark will stay with you for a long time. But there is an end. And you can have a life – a good life – after bankruptcy.

If you’re feeling pretty desperate about your situation and wondering if bankruptcy could be an option for you, start by reading the FAQs on bankruptcy at http://strategis.ic.gc.ca/epic/site/bsf-osb.nsf/en/br01407e.html. Then have a look at Deal With Debt, a Consumer’s Guide at http://strategis.ic.gc.ca/epic/site/bsf-osb.nsf/en/br01035e.html.

Oh, one more thing. While bankruptcy is considered a last resort, with a Consumer Proposal being the much offered alternative, it behooves you to know that regardless of which you choose, your credit history will be crap for the same amount of time since, as for as creditors are concered, a proposal is as bad as a bankruptcy.

Now, go make a decision.

BTW, The Canadian Capitalist (http://www.canadiancapitalist.com/2008/06/16/smith-manoeuvre-who-profits#comments) — this is a truly terrific blog — has a great piece on the Smith Manoeuvre. Not only should you read his post, you should also read all the comments that go with it.

I’ve been swamped with questions recently, and many of them are far more sophisticated than I’ve been seeing up until now. Before I get to some answers, let me reiterate: If I’ve answered a question similar to the one you’re asking before, I won’t answer it again. You’ll have to search my site for the answer. See the How to Use This Site on the home page.  

Here we go:

Hi Gail, our mortgage will soon be up for renewal and we would really appreciate your advice: would you go for a plain simple mortgage (we’re considering President’s Choice PC points plus for a 5 or 10yr fixed term) or would you consider a ‘home equity diversification plan’ (through Investor’s Group) that replaces a mortgage with a home equity line of credit that consists of 2 sub-accounts, one for the mortgage and the other for investment lending to make regular investments into a non-registered portfolio of mutual funds that ’should be’ tax deductible according to the brochure we have. I do our own taxes and this one sounds kind of confusing to me but I would appreciate your advice. Also my 2nd question is do you recommend registered or non-registered investments? Thank you so much for your time in reading my email and we will wait for your response.

Okay, J, here’s the long answer. The product you’re being offered is one that allows you to use the equity in your home to secure a loan for investment purposes. Each time you build up some equity, the loan would eliminate the equity and the money would be used to buy investments. The upside is the interest on the loan for investing is tax deductible. The downside is if there’s a reversal in the value of your investments – if the value goes down – you’ll still be on the hook for the loan. And since you’re not building any equity in your  home, you have to “safety net” there. If it were me, I would go with the vanilla-flavoured plain old mortgage.

Now here’s the short answer: If you don’t understand an investment, or you’re not sure you should do something, THEN DON’T DO IT!

As for your second question: registered or non-registered. That depends on how close you are to retirement (the further away you are the more the RRSP works for you), and what type of investments you’re buying (interest-bearing investments are tax sheltered in an RRSP).

My husband and I are in a tricky financial situation–my husband is in a position where he has to change careers, which would necessitate us buying a house in a location where prices are EXTREMELY high. We are looking at having to spend approximately $350,000 for a moderately priced home that will suit our family. Our problem is this: we have extremely high credit card and line of credit debt, dating back to my being laid off from my job and going back to school. We foolishly kept living the same lifestyle on credit, thinking that my earning power once I graduated was going to be much better than it actually was, at least initially. Poor choice, I know!! Anyway, we are concerned because every mortgage calculation site we have visited has indicated that despite the fact that we have a combined monthly income of approx. $6500, our debt load is too high. We are working toward paying down our debt and have scaled back considerably in all areas (We watch your show, so w e knew just how to do it!). However, we may need to purchase a home in the very near future (renting here can be more costly than a mortgage, so it seems the better choice). Would we be able to get a consolidation loan, or put some of our debt on our mortgage even though it is unsecured debt? Please help!

S: The big problem with living life like tomorrow will be better is that life has a way of biting you on the ass! Carrying debt is one of the best ways to LIMIT YOUR OPTIONS. I’m sorry that you’re feeling squeezed and that your options are limited by your current debt load. Unfortunately, a consolidation loan doesn’t reduce your debt load, it just moves it – hopefully to a lower interest rate option. If you do consolidate, and end up paying less in interest, more of your payment will go toward paying down your principal. That’s a good thing. However, unless you find stuff to sell or find a way to make more money so you can get that debt paid down, in all likelihood, you won’t qualify for the size mortgage you’re looking act. Sorry to be a bummer.

Thank you so much for your show. I have learned so much. I find it hard to apply many of the ideas you present. I am a full-time law student. I work part-time during school and am working full-time right now. I get the maximum amount of student loans. Tuition is so expensive, as is my rent, that I still need to make up the shortfall with a personal line of credit. Before going to school I had no debt and fairly decent savings. I still have the savings, which I intend to use for a downpayment on a house in a couple years. But this living with debt over my head is a very unpleasant feeling. I know I am going to get a decent job once I graduate. I have some rather large expenses for things I would really like to have now. For example, I would love to get orthodontic work done while I’m in school. I could live without a car but really really don’t want to…and my current car is falling apart on me. Is it an absolutely horrible idea to bank on future income? The line of credit is at a decent interest rate. The student loan will take some time paying off, but once I start working it really won’t be a problem. Should I wait?

A: See my previous response and the mess S got herself into thinking that it’s okay to spend money you haven’t yet earned.

My husband & I have never used credit cards much, and we have raised our sons to be frugal, or at least thoughtful in their money habits. Now our oldest is 19 and has run his finances well for several years. He is eligible for a credit card and we are eager to see him begin to build a strong credit rating. Does a credit card have to be used to develop this rating, or is it enough to hold one unused — either in a safe deposit box or perhaps frozen in a block of ice as I have seen on a terrific TV show we all enjoy?

Kerry: the only way a credit card works to build a credit rating is if you use it and pay it off religiously. So, yes, he has to use it. And it is THAT experience – using it and paying it off on time and in full every month – that is the real lesson.

Love your show! My fiance and I are engaged and have been together for 6 years (living together for 5 of them). We have always had separate accounts/money except for our mortgage. We split the bills. We both have student loans and car loans. I feel it would be easier to have our finances become one (and maybe just reassuring to me to know exactly whats going on). I have goals to buy a home and have a family soon, but want to be sure we are financially ready. Am I being to controlling? What is the norm out there? It seems my friends who have joint accounts communicate better about finances.

T, there is no norm. But being able to communicate about money is a key part of being able to stay married for a long time. Go read the stuff under Getting Married on my blog. Then TALK!

I have been working on a plan in place to pay off all of my consumer debt (2 years remaining). All of my hard work is about to be thrown into chaos: my work has given me more responsibility on a lower pay scale, which has also changed my union. I am now making less gross ($3k/annum), paying double the union fees and this new union of mine is planning on striking in two months. I already had the financial struggle that my daughter is about to lose her job (in a month) and may be unable to continue to contribute temporarily.  How do you prepare for a financial disaster on such short notice? My emergency fund isn’t large enough to accommodate this many disasters at once.  

Karen: there’s no way to prepare on such short notice for so many changes at one time if you don’t already have an emergency fund in place. You’re going to have to buckle down and find a way to cut your expenses. Can you take in a renter? Can you (and your daughter) find part-time jobs? Can you sell something that will bring in some income?

I’m sorry I can’t be of more help. There are no magic strategies for this situation. You just have to get creative and find ways of cutting back or back-filling your budget. Good luck.

Hi Gail, I have been using your interactive budget since February and love it!!!  All but 2 categories make perfect sense to me: I understand the fixed expense category ‘Maintenance/improv/condo’ to cover expenses for the building/property you live in, such as paint, repairs, upgrades etc.  However, what category covers things like necessary home furnishings?  We recently needed to replace lamps and I’m not sure what category these fall under.  Also, would you elaborate on what the ‘Family/gifts’ category would include beyond gifts?  Thank-you so much for sharing your wisdom.  

S: furniture and other big-ticket stuff you want to buy comes under Capital Expenditures. As for Family/Gifts, that would cover presents for b/days and other holidays, and if you’re helping to support a family member, that’d go in here too.

My question is this, what are your thoughts on shopping at Costco? I like to shop at Costco because they have such good prices on food and I have tried making a budget for groceries, but it is hard to come out of Costco without spending under a $100 dollars. Do you recommend to people on Til’ debt us do part that stay away from Costco?  

M: I don’t tell people to stay away from Costco. I like the store. A lot. Their prices can be fabulous. I always go in with a list. I only buy what’s on the list. I never spend more than I plan to. That’s my advice.

When should you consider consolidation? I’ve been thinking it’s the best option for us but I often see you have folks try to reduce interest rates on credit cards instead. Is there a preferred method or does it vary? What questions should we be asking to help us understand what the next steps are? By the way, your show is very helpful and I try to watch it often. Our debt ratio is .2998, but we don’t’= have the best credit out there. No bankruptcy, or past dues (although we have occasionally been late on payments), but we have a lot of credit and are cosigners on both of our son’s student loans. I have not checked our credit score in over a year but it was not great then.

M: I recommend people consolidate to a) reduce their interest cost, b) get one single monthly payment and c) limit the amount of time it takes to repay their debt. If you don’t have a good credit history, in all likelihood you won’t get a good (low) interest rate, since your history is part of what goes into setting your interest rate. So you should be working at negotiating with creditors to reduce your interest rates on the individual cards.

Hi Gail, I love your show and would love to be on it unfortunately it is for couples only. My question is: At present I have approximately $8ooo of student debt remaining. I am interested in buying a condo or a townhouse and am wondering if it is the right time seeing as I have only recently begun saving more. Should I wait until I have at least 10000- 15ooo$ before I consider buying or it is feasible to do so at this point? Any input is very much appreciated.

Monique: I can’t tell you if it’s the right time to buy. That depends on whether you qualify for a mortgage, and how much, and whether you can manage the responsibility of home ownership. I have a number of articles on the site about this, so go read them.

I’ve read your articles about kids and money, and think they are great, but we are having trouble with the idea of $1 per year of life with our 9 year old. Currently, all he uses his $3 pocket money for is candy, we make his lunches (there’s no cafeteria at school). Could you expand a bit on what things you think a 9 year-old could and should be paying for?

Hi Andrea. I define an allowance as, “The money you would normally spend on your child, put in your child’s hands so he/she can learn to manage it.” If you son likes to watch rented movies, he could use his allowance for that. Or for buying software for his computer/gaming device. Or to buy books. Whatever you find yourself laying out money for, he should be buying (not the necessities of life). Over time, as he needs more money to meet his needs, you can increase his allowance, or give him the opportunity to work for more money.

My other half is very reluctant to take any financial risks as a result of seeing his parents make some very costly errors for which we are now picking up the pieces. This becomes most noticeable when we discuss buying a home. He has a number of reasons against this: 1/ it’s too expensive compared to rent, 2/ if something ever happens (such when his father got cancer or if one of us were to lose our job) we could move according to our new requirements much more easily. On the other side I’m afraid of still having to pay a mortgage when we retire. I understand that there may be an argument for renting over buying a home but I think it requires a very disciplined saving strategy. How can we get on the same page on this? Should I accept that buying isn’t for everyone? It seems it may come down to emotions rather than finance as no matter how much we talk his fears remain the same. Thanks so much for taking the time,

L: you and your husband are going to have to sit down and hash this out. There’s no right or wrong answer on the own versus rent question, it’s a matter of what suits you. But your differing objectives could be a point of resentment later if one or the other is forced to do something that goes against the grain. So you’re going to have to work it out. Maybe if you went to see an advisor who could show you the black and white of it (or use some of the tools on line), that would help you come to a consensus.

My husband came to Canada in 1998, the first 7 months we lived with my parents. We saved up money towards a downpayment on a condo. I got pregnant and that’s when our debt started building up. Now, I happy to say that we moved house and debt free (excluding fixed mortgage). Several years have passed and managed to save some money. My question is that the money saved is just sitting in the bank. How can I convince my husband to start thinking about our family’s future and make the money work for us? I believe that he still feels scared that we will go from black to red. Please reply back with some suggestions. Thank you

A: Same as above. There’s no right or wrong way to invest. But you have to come to some kind of agreement.

My husband will be living on his own in another province for a new job. My son and I will be joining him in a couple of months. How do I set up a budget to keep track of both households?

Deena, the same way as you would if you were living in the same place… you’ll just have much higher expenses

I have a department store card, which I rarely use. I always maintain a zero balance as well. Recently when I went to use the card I was informed that the department store cancelled the old card and replaced it with a new card (new number) since it had not been used in over a year. How will this affect my credit report? If this does negatively impact my credit history what steps must I take to rectify the situation? Thank you for your kind assistance.

C: you need to check with the credit bureau to see if it had an impact. Perhaps not. I’d be more concerned about the company issuing me credit I hadn’t signed up for.

I am carrying a balance of $18,000 on my line of credit with an interest rate of prime plus 1.75%. I currently earn $58,000 a year and have not savings. I am 40 years old. Between paying mortgage, condo fee, living expenses (food, gas, etc), and paying towards debt repayment. I find that I don’t have any extra cash for savings or needed extras (like clothes for work). These expenses go onto my credit again. Since I’ve bought my condo, the value has increased about $30,000. I’ve been thinking about adding my credit line balance into my mortgage, — re-financing my mortgage, to add in my line of credit balance. This will leave me without “consumer” debt and I would have cash flow every month for savings and buying things with cash. Is this a good idea?

M, this is only a good idea if you save the difference and BUY NOTHING until the $18,000 is paid off

We are now faced with a decision: we declare bankruptcy or go with a proposal offered by BDO Dunwoody Ltd. Are they promoting themselves or is this really in our best interest? Very desperately yours

AM & M: I doubt that the company is “promoting” itself, but if you’re in doubt, get a second (and third) opinion. I have worked with several people who have been given bad advice when it comes to declaring bankruptcy or using a consumer proposal. I don’t know your circumstances, so I can’t comment. You could read up on the bankruptcy rules to see if that would be better for you. (Go to bankruptcycanada.com).

HI Gail! I have a question that has been on my mind for quite some time: we are a one income family with young kids, our yearly income is about 55k. We’re still renting, but planning to buy a house very soon. We will have about $30.000 for the down payment (in-laws are giving a “pre-inheritance”). We have 2 credit cards with zero balance, and a LOC with about $4.000 on it. Our credit score is very good. My question is, should we call the banks and ask them to lower our limits (one is at $12.000 and the other $ 9.000)? I think those amounts are just ridiculous, but will lowering the limits affect our mortgage at all? If we should ask them to lower them, what amount do you suggest? Should we cancel the other card altogether, and just have one credit card? Thank you in advance, you’re my hero!!

M, great question. Yes, the amount of credit to which you have access does affect your ability to qualify for more credit. Go get those limits lowered!

Hi Gail, My girlfriend of 2.5 years recently told me that she has $40,000.00 worth of credit card/line of credit debt. This year I was planning to propose to her, but with this debt and the fact that I am just learning about it despite several attempts on my part to ask her about her money situation, everything is in doubt. I want to help her with this, but can’t help but feel angry that she lied to me (or withheld the truth…same thing in my books). Any advice on how to navigate this situation?

D: I think you both need to come clean on your finances. And you need to tell her how you feel about her “secret.” She may have simply been embarrassed. But people who love each other don’t need to worry about embarrassment, right. They just need to worry about honesty. So sit down over a nice dinner, with all your paperwork in hand, and tell each other the truth.

I loveeeee your show and practical saving methods. My husband and I just bought a vehicle and purchased it through our line of credit. The dealership wanted to charge us 9.5% interest because it wasn’t a new vehicle. I harassed them asking what happened to 0% financing, but they wouldn’t budge and told me good luck on getting a better rate. Anyhow, we purchased the vehicle and used our line of credit. Because we were able to increase what we could borrow from our line of credit, we lowered our interest rate from prime plus 3 to prime plus .5. I thought it was an ok deal, but obviously the bank is still making their 2 cents worth and then some. My question is, currently we’re paying 5.75% with 41,000.00 owing and 5.2% on our mortgage, which we’ve only had for 1.5 years now. When we have extra money, what makes more sense, to pay the mortgage because we owe more or the line of credit to get it out of the way? We pay on our line of credit every 2 weeks and will be increasing the payment close to 100.00+ extra due to my husbands promotion. I just want to pay where it will count!!

D, pay off the line first. It’s the debt with the highest interest rate.

Hi Gail, I got married about 6 months ago & the only debt my husband & I have is his car loan. We pay $482 a month & have about 37 months left. We are currently renting my mom’s basement apartment & would like to purchase a home in 3-5 years. Would it be beneficial to pay off the loan from our savings & start from scratch? Thanks for your help……

J, if paying off the car loan will save you a bag of interest, yes. Then you can put the money you were using to pay the car loan towards your home downpayment savings. Make sure you set up an automatic savings program so that you aren’t tempted to skip the savings.

My husband and I bought a timeshare in the states and we live in Canada. Its a loan. At the time we thought it was a good idea to get it but now really thinking about it, not really. Now we just added more debt to what we already had. We would like to sell it but not sure how to do it. What would you recommend?

K, sorry, I don’t know squat about timeshares. Anybody else know anything?

How do you get out of debt when students loans are out of control? My husbands student loans are extremely high, he can’t get a loan for anything and when we bought our house 6 mos ago it had to go in my name only because the interest rate would have been higher if his name was on the house?? Just so lost and financially whipped that there is nothing to save?? Don’t know how to pay of his loans and we have collection agency calling about him almost everyday now. Should I consult a financial advisor to help us out and put us on a budget?? Any advice would be appreciated watch you show when I can am a big fan of yours.

T, there’s no magic to getting out of debt. You have to find a way to get the money to pay down the debt.  You can cut expenses. You can make more money. You can sell something. Them’s your options.

 

If you think that debit and credit card fraud is something that happens to dumb people, let me assure you some of the smartest people I know have been hit. In the town where I buy my groceries, hundreds of customers of one of the supermarkets were hit when their debit card and pin numbers were stolen.

Closer to home, Chelsea, our production manager – and a very button-down chick and as smart as a whip – went shopping one day only to find her debit card had been skimmed and she was out thousands of dollars.

Here’s what Chelsea has to say about her experience:

My debit card was “skimmed” on the weekend - meaning someone illegally scanned my card and recorded my pin and went on a shopping spree.  It took them less than 24 hours to create a fake card and less than 36 hours to rack up 15 transactions, stealing about $3,000.  This is a real problem and not just something you read in the papers.

Here are some ways I’ve researched that you can prevent this from happening to you:

• Hide your pin.  Seriously hide it.  You may feel like a dork but just do it. 
• Watch your card.  If someone swipes it twice, ask why. Chances are they’re skimming it right in front of your eyes. 
• Check your bank statements online at least once a day.  Look for cash withdraws and purchases that look unfamiliar (duh). 
• Make sure you have minimum cash withdraw limits on your accounts.  Having a higher limit means that someone can’t go in there and clear out your account in one day.  I have a limit of $500 and sure enough, the bank told me, they attempted to take out more but were unsuccessful. 
• If you have overdraft protection, someone can take money that you don’t even have. 
• Take off access to accounts from your debit card that you don’t need.  Make all of your credit card payments online and then take the access to your credit card off of your debit card.  I had mine linked and they took a $500 cash advance from my credit card.  
• Use cash wherever you can (cue Gail cheering with glee).  Even some ATMs have been rigged with skimming devices so watch out.  I almost feel like I have to go back to the old fashion days of getting cash from a teller and using cash to pay for everything.

I’m pretty sure I know what store this happened at.  It wasn’t a shifty convenience store; it was a regular retail outlet store – nothing shady so it can happen anywhere.

I’m not trying to make you lose sleep every time you swipe your card but there are things you can put in place to protect yourself just that little bit more.  I don’t want this happening to anyone else.  This situation really stinks but I hope that by reading this you can be proactive and look into how your account is set up and be more aware of this issue.

These are all great ideas from Chelsea. Pass them on. And here are a few more to keep in mind:

• Watch out for “shoulder surfers .” Shield the keypad when using debit and ATMs.
• Keep your receipts. Ask copies of incorrect charge slips.
• Compare receipts with account statements. Watch for unauthorized transactions. Shred receipts after verifying the charge on your monthly statement.
• Carry only the cards you need. Extra cards increase your risk and your hassle if your wallet is stolen.
• Pay attention to your billing cycles. A missing bill could mean a thief has taken over your credit account.

 

Some people are of the opinion that if they have a dollar in their pocket they should spend it. In the old days, people talked about money “burning a hole in their pockets.” So this isn’t a new problem. But as we’ve become more financially sophisticated introducing new products and services, we’ve made it easier and easier to people to put a dollar in their pockets to burn a hole.

I’m just finishing up the paperwork for a fam who have, at the ripe old age of 20-something, run up $100,000 in consumer debt. Yup. You read right. They’ve spent and spent and spent. And their various suppliers of credit have helped them by giving them access to over $130,000 in credit on a income that doesn’t come close to that. Whazzup with that?

They have no idea where their money is going. And I can only tell them a part of the story since they’re withdrawing gobs of cash and keeping no records. Bank machines may be convenient, but they’re also deadly.

Once upon a time there were a few, then we demanded more. Banks discovered that bank machines were way cheaper than bodies, and that they could eliminate the bodies completely in some places. Branches closed and were replaced by machines. According to the Canadian Bankers Association, we did over 667,000,000 cash withdrawals from banking machines in 2007. Wow!

Did you know that the world’s first banking machine was installed in a branch of Barclays in Enfield, north London, in 1967? In a little over 40 years, they’ve become synonymous with “convenience.” In fact, the CBA says, “ABMs are the primary means of banking for 34 per cent of Canadians.”

The USA was the country with the most cash machines — 405,000 — in use at the end of 2006. By comparison, Canada had 16,190 machines spitting out cash in 2006.

Since we don’t have to wait for the branch to open to get our money, and since we don’t even have to go to our own bank machine - we can get at our money everywhere from our local corner store to the gas station to the casino — we’re putting more money into our pockets to burn that proverbial hole.

As if that’s not bad enough, the money in our accounts isn’t the only money we’re spending. Nope. We’re also spending money on our credit cards (and other forms of credit), sometimes even taking cash advances - more cash in our pockets - so we can do whatever we want whenever we want. And when one card fills up, we just sign up for another, and run that card to the limit.

We’re committing financial suicide and we don’t even realize it.

As if it isn’t bad enough that we’re spending money we haven’t yet earned - yes, when you use credit, you’re spending money you’re going to earn in the future… if you’re lucky - we’re also ruining our credit scores, making it more difficult and expensive to borrow for something important like, let’s say, a home.

Whenever you use all the credit you’ve been given on a credit card, the credit scoring agencies shake their heads and say, “tut tut”, and then adjust your credit score DOWN. And the closer you get to your limit, the more they shake and tut and subtract from your score. In fact, you’d do well to type up the following and stick it to the back of your card: Danger: Your credit limit is $___________ (half of what your statement says it is) and you have $_________ (how much) ROOM LEFT!

Of course, as far as I’m concerned, you shouldn’t be carrying any balance on your credit card. If you do have a balance, put your card away so you can’t use it until the balance is completely paid off. Once you get back to zero, here’s how you manage your credit use so you don’t run into trouble again.

First, get yourself a notebook or a chequebook register (available at your bank).

• Write the current balance in your bank account at the top of the page.
• Each time you use your credit or debit card, write a cheque, or take a cash withdrawal, enter the amount you have spent and minus it from your balance.
• Every time you make a deposit, add it to your balance.

There now, you have a real-time balance that shows how much money you really have to spend, and you can’t spend money you’ve already used elsewhere (like on a cheque that hasn’t cleared, or on a credit card that hasn’t come due).

Don’t forget to debit the automatic withdrawals that come out of your account: your mortgage or rent payments, car loan, pay-yourself-first-savings, retirement account deposit, utilities, car insurance, and the like.

Finally, when your credit card bill comes in, check the transactions against your list in your notebook. If there’s something on your statement that’s not your doing, call the credit card company right away and identify the wayward transaction.

There now. You have the means to stay in the black.

The question is this: Do you have the will?

 

If there’s one thing we’re no damn good at it’s handling credit. Fully fifty per cent of us carry a balance, racking up scads of interest and making life painful for ourselves and our partners. And the bad habits start early. Kids walking the halls of higher learning are often inundated with credit card offers at the time when they are least capable - financially or experientially - of handling credit.

Can you imagine walking into a bank and saying, “Scuse me, but I don’t have a job, and I’ve never had credit, may I have a credit card please.” Now imagine the bank manager busting a gut, tears steaming down his face as he laughed you all the out of the bank. Yet every year credit card companies issue thousands of cards to unsuspecting students who have no visible means of repayment and don’t understand the impact of failing Credit Management 101.

“If Only I’d Known” is the mantra of dozens of people who’ve gotten themselves into the deep end only to realize that it could have been avoided if they’d had a little experience with credit. But since as a culture we’re divided into the “credit is baaad” camp and the “give me more” camp, the likelihood of kids learning a balanced lesson on credit is limited. Want to change that for your children?

As early as ten, you’re kids can start learning about how credit works, when it use it, and how to spend only what you can afford. You start by issuing your child a credit card on the Bank of Mom. Have her design the card, draw up a cardholder’s agreement that you both sign, and you’re away to the races.

What goes into the cardholder’s agreement? Well, that’s where you lay down the rules: how much credit she can use (the “credit limit”), when her statement will arrive, how much time she has to pay (that’s called the “grace period”), and the minimum payment required. Most importantly, it sets out how much interest your child will have to pay on her balance.

Now before you come shrieking at me, “User, Bad Evil Mother,” remember the point of the exercise. You want your kids to learn the reality of credit use. That mean they have to learn that when you use someone else’s money to buy stuff, that stuff costs more.

Which brings us to the next point: You’ve got to charge your kids 28% a year or more - like a store card — to get the message through, otherwise the interest is not painful at all, and they end up learning the wrong lesson.

Now that your child has his own credit card, he can use it when he sees something he wants to buy but doesn’t have any money in his pocket (the same way we all use a credit card). He gives you his card. You make the purchase on his behalf (using cash or your card). You give him a charge slip to sign (a receipt book will do nicely for this). And you return his card and charge slip.

At billing time, you total his charges and present him with a bill that shows the minimum payment and the total outstanding balance. In a perfect world he pays you back in full. More likely, he makes a partial payment and carries a balance and you’re in the business of calculating interest (Now no one said parent-hood was easy! But you might learn a lesson or two here yourself.)

If your child charges more than she can repay, or if she does not make her payments on time, you can decline to accept future charges, repossess the items purchased until they are paid for, and garnishee her allowance to repay the credit. (You could also raid her savings account and take back your money - which a bank can also do - but I wouldn’t advise it since that sends the wrong message about what savings should be used for.) Also suggest she keep a notebook where she records how much she’s spent so she can anticipate her bill and know when to stop shopping.

It’s way better for your kids to experiment with credit in the safety of your arms. As adults, the embarrassment (or worse, the entitlement) they feel when it comes to credit is way overblown. Start early with the credit lessons, give them lots of opportunity to learn, and let them fail where they can learn the lessons without too much pain. By the time they head of to life on their own, they’ll have mastered their own possibilities.

I got this letter over the weekend. I just LOVE it. Read it and laugh:

I called my bank to ask for a consolidation of my credit card debt and my line of credit. The did a credit check and said than although I had never defaulted on any payments, all my cards were at or near their limit and I was only paying down the interest so I didn’t qualify. I said that was precisely why I needed a consolidation loan; to reduce the interest so more of my payment was going towards repayment of capital. She said she had gotten into debt recently because she and her husband had to pay her father in laws expenses while he was terminally ill and expected to get the money back in the will but didn’t. She suggested I do what she did- go to Wells Fargo Financial- she got her $30,000 dollars in debt consolidated at 33% interest. I said why would I do that since it is higher interest than I am paying. She said it is one easy payment and if you pay on time for one year, they reduce it to 19% for the rest of the term of the loan. What is wrong with this picture?

Okay, so here we have a banker suggesting that we take a consolidation loan at 33%. Really? And that we use a Lender of Last Resort. Really? And that we settle for getting our rate all the way down to 19% when the going rate on an unsecured loan is 12% less. Really? Is it any wonder that we’re confused about what our options are and what we should do when we find ourselves in a hole and want to make it better? Borrowing At Any Cost isn’t smart, regardless of why you’re trying to borrow.

Here’s what you should do:

First, call and negotiate with your existing creditors for a reduction on your interest rates. Tell the card companies that you’re close to the edge and are considering bankruptcy, but that you really want to pay back the principal owed. Ask for a break. You want them to waive the interest in return for post-dated regular payment.

While that works a lot of the time, sometimes it doesn’t. Or sometimes the rates don’t come down enough, in which case you need a consolidation loan. If your bank won’t help you consolidate, go and ask another lender. Sometimes our own bank takes us for granted, but another bank that would like the biz will cut us some slack. Ask for an installment loan with a maximum three-year term. Offer any other business you may have: your retirement plan, your mortgage, your accounts, whatever you have to show the new lender good faith.

Or you could do a balance transfer. Get a low interest credit card (yes, I know, but this is in the name of repayment, not more charging) and transfer part of each expensive credit balance to the new card. You want to do two things:

• reduce the cost on your borrowing, and
• get the balances on those cards below the 60% mark so you’re not seen as being too close to your limits.

Get another job. That’s right. If you’re ever going to get out of debt you need a source of money you can devote to debt repayment. If you’re already working 70 hours a week, then find a way to cut back on your spending - YES IT CAN BE DONE - to find the extra money to get out of debt. Stop buying everything but food, and that in smaller quantities.

Many of the Lenders of Last Resort, or the credit card companies that have the must outrageous rates and fees are U.S. companies. I don’t understand why Canadians have embraced these companies, making them fatter on our backs. They don’t have to follow Canadian rules because they’re U.S. companies. They don’t have to follow U.S. rules because they’re selling products outside their own jurisdiction. The result: through our own ignorance or stupidity we are being suckered into paying through our noses.

If you have a U.S. credit card - that’s any credit card issued by a U.S. company - take it out of your wallet and cut it up. I don’t care how great a “deal” you think you’re getting, it’s going to bite you in the butt. And if you’ve been dealing with a U.S. lender, give your head a shake. If you can’t get financing here in Canada, you have to ask yourself if - perhaps - you shouldn’t be borrowing. Using a Last Resort Lender is dumb, dumb, dumb. Are you?

Okay, I’ve done it. A Woman of Independent Means has been updated, edited, uploaded…

and now it’s ready to be purchased. You asked for it, so BUY IT!

 

When I started this website a half-year ago, I promised I’d answer one of your questions every week. I’ve been inundated with questions, and have been responding to two a week. But there are times when I’ve got so many great questions that need to be answered, that I just take a couple of hours and fire-through them. Here’s what I have for you today.

rinkrat_hockeymom wrote:

One of my employers is not taking enough tax from my paycheck. I have been having an extra $50 a pay taken out to cover this since the beginning of the year. I was telling a friend about this, and he suggested it would be more beneficial to take that $50 and put it into an RRSP and I would get thed same result, plus be able to save my own money instead of lending it to the government for a year. Is he correct?

Not quite. While every dollar you put in your RRSP is not taxable, you’d have to put the entire income you’re earning from your second employer into an RRSP to achieve the result your friend is suggesting. I’m all for that… but I don’t think that’s what you’re trying to achieve. So you’re doing the right thing.

If you want to calculate your tax exactly, you can go to Taxtips for a really thorough calculator. If that one makes your head spin, here’s a simpler one that will give you a basic of idea of how much tax you should pay.

 

L from B.C. wrote:

I have just come into to some money — $35,000.00 — and I am wondering what I should do with this money. I currently don’t own my place (renting) and just finished paying off my line of credit ($25,000.00) at the bank as well as my credit card ($25,000.00). I have been working as a cashier for six months at $10.00 an hour. I am looking for a better paying job right now. Can you give me any advice for this $35,000.00. Should I invest this money or maybe put the money into an ING Direct account at 4.5%? I don’t think I am eligible for a mortgage just yet…?

I get a lot of notes like this with people asking for advice on what they should do with a lump of money that’s just fallen into their laps. I like to tell people to:

1. Take care of past mistakes,

2. Have some fun in the present, and

3. Plan for the future.

So, L, on the Take Care of Past Mistakes front, congrats on getting all that debt paid off! Wow! You’re one determined young woman. You’re in a much better place now and you should be very proud of your accomplishment.

On the Plan for the Future front, you’re right when you say you aren’t ready for a mortgage yet, particularly in your neck of the woods.  But you are ready to set up an emergency fund, start an RRSP, even with just a couple of thousand bucks, and begin building your downpayment. As for where to invest the money for your downpayment to grow, you’ll need a financial guide for that. Ask friends/family for a referral to their GREAT financial advisor. Don’t settle for anything less than GREAT!

Using a high-interest account is smart. Making sure you know what you want to accomplish with the money is smart too. So ask yourself what’s important to you and by when you’d like to achieve that goal. Plan from there.

As for my number 2 point: have some fun in the present, don’t go nuts, but take some of your money and treat yourself and someone you love to a Nicey: Dinner out, a fun weekend of movies, a new piece of furniture you’ve been wanting, or a lovely new dress. Or you could decide to set up a Mad Money Account, putting $500 or $600 aside that you can spend on anything you want whenever you want, just for the hell of it.  Have a ball.

 

On a similar theme, K wrote:

I have an inheritance if 60,000 and wondered if I should double up on my mortgage payments each week (that is the maximum allowed) or wait put the money in a high interest account until the mortgage is up for renewal this December 2008 to bay off a chunk of the 120,000 principle?

The faster you put the money to work against the mortgage, the more you’ll save in interest. And any interest you earn is taxable, but the interest you save is not. So double-up and then use whatever is left to make the principal pre-payment at the end.

 

Carman wrote:

What is your opinion for a person to use RRSP savings to pay down debt? We have enough RRSP savings to pay off our debt (excluding Mortgage). Thanks for all you teach on your show, I think everyone could learn something.

I’ve answered this one before, but I’m going to answer it one last time since I get this question every week. Really.

The answer is: DON’T DO IT! I know there are some people who say this is a good idea, but it’s a terrible idea. A really terrible idea. First, there’s the tax you’ll end up paying on the withdrawal from the RRSP, and then there’s the tax you’ll owe because the amount withheld won’t have been enough.

If you’re determined to get rid of your debt, then you’re going to have to bite the bullet, tighten your belt and put your shoulder to the grindstone. If that’s not enough metaphors for you, I have plenty more!

 

T wrote:

hi gail i watch your show all the time and i was just wondering i am 17 and still going to school and planning to go to university soon i am extremely good with money and saving and i have about 7000.00 in my bank account right now. would u recommand when i turn 18 to get a credit card and always pay it off in order to get my credit rating started. i would never spend more than what i have or even come close to spending all i got so i dont think it wud be a problem but just asking for ur advice.

T, if you swear on your Mom’s head that you’ll never spend more money than you have, then I say getting a credit card to build a credit history is a good idea. I’ve seen a lot of kids (and elders) start out with the best intentions and then fall into the carrying-a-balance trap. But if you promise not to be one of the dopes, then I’d say go for the card, Bud, and build yourself a fabulous financial history.

 

Sarah wrote:

My husband and I love your show - yes I said both of us - you’ve got us talking about our finances - YAY! Our question is in regards to student loan debt. I’m in the process of finishing my PhD and my husband and I each have 3 degrees. Our combined students debt is $62,000 (not bad considering) and we have a new mortgage of $120,000. So many of our friends have just followed the plan offered by the bank/government - but 12 years to pay it off??  We gross $76K a year but we’re going to be starting a family soon and our plan right now was to add $200/month as a prepayment to our mortgage. What do you suggest - balance pre-payments and extra student loan payments? Should we make one a priority over the other (student loan interest is prime +1, mortgage 6.3 locked for 10 years)?  We would really appreciate your advice - the bank always says “follow the plan, then you have more disposable income” - yes and they make more money in interest! love your show and your kick-butt attitude.

Ah, yes, there are those Pesky Bankers again, telling you to keep more disposable income so they can rake in more interest. Hmmm. Is it any wonder Canadian’s don’t trust their advisors?

Sarah, leave your mortgage payments as they are, and use all your extra money to pay off your student loans, which is your more expensive debt. Once that is paid off, you can balance mortgage prepayment with long-term saving. As for starting a fam soon, have a great time with that. And while you’re preggers, live on the one income you’ll have during your mat leave so that you

a) get used to having a smaller income, and

b) have a nice pool of savings set aside for when baby gets here.

 

Kerry wrote:

I am a 21 year old full time worker. I graduated with a 2-year diploma in Bus Adm (major accounting) and have taking Intro to Financial Planning as well. After graduating from college with WAY MORE DEBT than I ever imagined from 2 years of school, I have got myself back on track by my own means and would like to offer a credit/debt counseling service outside of my full time job (which I love). I want to educate people before they make the same mistakes I did, and/or repair the mistakes already made. Only problem I have found in my plan is, how do you charge a fee when your clients are already living paycheque to paycheque? PS your show and outstanding way of making the obvious PAINFULLY obvious has changed my life and influenced my (hopefully!) future career path immensely!

Hey, Kerry, that’s a darned good question. Some people who work in debt management affiliate themselves with a company that will allow them to do debt-counseling. Credit counselors, for example, are often not-for-profit organizations that help clients consolidate their debt and set-up repayment plans. And I do know of at least one private company that builds their fee into the “consolidation” loan. You might want to look at that as an option.

So, all you debtors out there, what would you be willing to pay to have someone dig you out of a hole, and how would you come up with the moolah?

 

Mercedes wrote:

I am a 24 year old university student living on my own and paying all of my bills yet have still managed to save about 15000.00 in the past 2 years. I have no debts and am wondering what to do with this money to make it grow for the future. I feel as though it’s just sitting there. How much should I set aside for a rainy day/emergency fund? Thanks!

Okay, all you student debtors who tell me you can’t possibly save any money while going to school, heads up to this.

Mercedes, you are a shining light. Congrats!

As to what to do with the money, set side at least $5,000 in a high interest account for emergencies. Ultimately, you want to have 3-6 months’ worth of living expenses covered. As for the rest, it’s time to learn to invest. Read about investing. Choose a couple you think might work for you and watch them for a while to develop a comfort level. When you think you’re ready, take the plunge. Don’t be too aggressive too quickly. And never invest in anything you can pronounce or don’t understand.

 

Carrie wrote:

I am currently on mat leave with 2nd baby. We figured out if I return to work I will be contributing 2/3 of my take home pay to working expenses and only contributing 1/3 of my take home pay to the household. Does this make it worthwhile for me to return to work? Or is the smart thing to try to find a part time job to make up the money we are short? Or, with only about 6 years left on our mortgage, should we reduce our mortgage payments in order to live, until I can return full time in about 5 years?

You seem like a clear-thinking girl. You’ve certainly outlined your options well. Here are my answers

Does this make it worthwhile for me to return to work? Yes, if you need the 1/3 to make ends meet.

Or is the smart thing to try to find a part time job to make up the money we are short? Really? This is a question? Work less to make the same? Where’s the question?

Or, with only about 6 years left on our mortgage, should we reduce our mortgage payments in order to live, until I can return full time in about 5 years? This, too, is an option, if you’re prepared for the extra interest cost over the life of the mortgage. You don’t say how old you are, but how old could you be with a second baby just here? So you have lots of time to get this mortgage paid off.

Now, the question is, what do YOU think you should do?

 

S wrote:

I work part time as a nurse, so I actually bring home more money per hour with my liue of benefits. Is it better for me to work full time and “bring home” less money, but have job security, sick time and vacation? I am 41 married with two school age children. Thanks and I love your show-your sense of humour really makes it!

It’s hard to answer this question when I don’t know how much less you’d be bringing home, or how that would impact your cash flow. Assuming you don’t NEED the extra for essentials, then the security of full-time with benefits would be a huge blessing, particularly with young kids. However, if the extra money you’re bringing in is essential to your budget, then maybe not. What do you think?

 

Erin wrote

On your show, you give your clients an “office in a box” with all kinds of file folders and coloured tabs. I tried making my own and it doesn’t look as nearly detailed or full as yours. What categories do you have in your box?

Go read 12 Steps to Getting Financially Organized and the blog Paper Chase.

 

For Lynn who wrote:

How long should you keep your paperwork, such as bill statements, payments and income tax forms

Ditto

 

A wrote:

If I have a defined benefit pension plan with my employer, do I really need to contribute to an RRSP? Also, how do I figure out my “tax bracket” as I am planning to withdraw $10,000 from my RRSP to pay down debt - if the withholding tax is 30% then how do I estimate the additional tax I will pay next April - my gross income is about $60,000…

A, you likely don’t need an RRSP if you have a defined benefit plan. I’d be very surprised if you have much contribution room at all. If you do, then I would use it up, but not break your neck to do so. As for writhdrawing money from your RRSP to pay off debt: DON’T DO IT!

 

Tammy wrote:

I have 2 children: a son who is 20 and has finished 3 years of university and a daughter 19 who has finished 1 year of college. We have paid for the tuition and book for the 3 years for my son and paid the 1st year of college for my daughter and have enough to pay for her 2nd year, her course is 2 years long. I do not want my kids to finish school and owe money but my husband and I find that most of our money goes to the kids and there is none left over for us. We have been putting a lot of things for them on our line of credit and it just keeps going up, I know I need to stop but I don’t want to see them acquire any debt but I just feel that my husband and I are sinking further and further into debt and we have been arguing over the money spend on the kids. If you any suggestions on how we can work this out I would really appreciate it.

It’s nice that you don’t want your kids to graduate with debt, but you’re accumulating debt and that’s no good either. I hope your kids are contributing to their own education. If they are not, that’s the first place to start. There is no such thing as a free ride in life, and 19 and 20 are plenty old enough to start dealing with life’s realities. Help your kids. That’ great. Don’t do yourself damage in the process. That’s dumb!

 

Victoria wrote:

Hello. Congratulations with the show. I have been watching it daily for some time now. I have put my husband on a $200 a month budget. This money includes his gas and extra spending. We have been using the jars for three weeks now. So far so good. I am currently on maternity leave and working one day a week that I am allowed. I am making $430 every two weeks. I am trying to save this for our vacation at Christmas. Do you think it would be better to put this money onto the line of credit and then take it back out when we need it? Also, we just did a balance transfer on our one credit card. We have an interest rate of 1.9% until November. Should we penny pinch and put every last cent on it so it is paid off by then? Thanks so much and keep up the great work.

First the credit card question: Absolutely pinch every penny so the card is paid off before your great rate expires in November.

Now the line of credit question: Yes you should put it to the line first, and then take it back off when you need to, to minimize your interest costs. But I don’t think a fam on mat leave with a balance outstanding on their line of credit should be prioritizing a holiday over debt repayment. Once you return to work full time, I can see saving the money for a holiday. But while you’re living on a reduced income, and have debt, your focus should be on getting out of the red.

Are you sorry you asked?

 

M wrote:

My husband says that it’s not smart to start a RRSP because I owe $50,000 in student loans, which I am paying the minimum right now. I work part time as a RN and I have 2 kids. I’m 38 years old and I feel that I have to get started. What should I do?

You should get started, you’re right. But your husband is right too. Since you’re only working part time, your marginal tax rate isn’t high, and paying only the minimum on a $50K student loan is stupid. You’ll pay way too much in interest. So:

1. Up your student loan repayment amount to an amount that’ll have you debt free in five years or less, and

2. Start contributing $200 a month to an RRSP.

If you don’t have enough to do both, you’re going to have to find a way to make more money.

 

S wrote:

I would like to know if there is a way to save money on a disability pension.

I’m surprised by how often I get this (or a similar) question. There are a lot of people out there trying to make do on disability income, which should be a heads-up for all the people who don’t yet have disability insurance. As for this question, the answer is quite simple: If you have extra money after all your basic needs are met, you can save some. If you don’t, you can’t.

I’m sorry that there seem to be so many people living a marginal life on less income than they need. It’s a tough haul and you have my admiration for making a go of it.

 

Another M wrote:

My wife and I are a one-income family and even with a very tight budget our expenses are always more than our costs every month. I have mentioned taking some of the equity from our home (either re-mortgaging or a straight loan) to ease some of the expenses until my wife gets back to work. So, I was wondering, is it ever a good idea to take a home equity loan?

You don’t say why your wife is off work, or how long it may be until she’s fully employed again, and that affects the answer. If this is a short-term thing, then I’d say do the refinance and un-strap your budget. If it’s a long-term thing, you may have to sell your home to make it through. Good luck.

 

Karen wrote:

My relationship with my boyfriend of 8 years is strained to say the least because of this debt and not knowing how to budget. We have thought of calling it quits. I think the icing on the cake was when I was offered a job but would have to take a 14k cut in pay for 2 years from what I am making now, but then would make over 100k a year after that. I had to turn it down because each month I am going further and further into debt AND with a 14k a year cut in that!??! How would I make ends meet? Help! Please point me in the right direction.

I don’t often say this, but are you sure you’re in the right relationship? After all, is this the way you want to spend the rest of your life: giving up your hopes and dreams because your partner can’t get outside himself long enough to stop going into debt for crap? If you’re determined to stay in the relationship, then I’d separate the money - yes, you heard me say “separate the money” - and make the Boy Man responsible for himself. If he can’t do it, then either reconcile yourself to a life of misery with him, or get the hell out!

 

RC wrote:

What is the best way to invest money that I am intending to use toward the purchase of a home/condo, in one years’ time. I would be a first time buyer.

Since your time horizon is very short, you need to stick with something that has no volatility at all. Go with a term deposit, GIC, high-interest savings account… wherever you can get the best rate for one year.

 

Carol wrote:

I am 55 years old and will retire at age 64 with a good Omers Hydro pension. I was a single mother raising 3 children for most of their lives, so savings and retirement planning were not a priority. However, as my children are now grown I have more disposable income. Is it too late to start RSP’s or should I concentrate on paying off my mortgage?

Since you’re over 50 and have a good pension, I’d focus on paying off that mortgage so you’re retiring mortgage free. If you still have money left over, you can take me out for dinner.

 

Cynthia wrote:

I watch your show all the time and I noticed that you always talk in terms of household income and don’t discuss the differences in the amount each person makes. My boyfriend and I recently purchased a home, but we still have totally seperate finances, we live like roommates, simply splitting the common expenses in half and then we each pay our own credit cards etc. I would like us to be a more equal partnership, but he still thinks in terms of “your money” and “my money.” Is there a proper way to start combining finances?

Girl, you and your honey need to get on the same page. Go and read To Consolidate or Not to Consolidate and So You’re Getting Married even if you’re not.

 

Brett wrote:

My wife and I have recently realized that our parents are in rough financial shape, planning on relying solely on a single pension in retirement (no RRSPS). How can we approach them to talk about it and get them doing something about it? We feel as if we will be burdened by our parents within the next 15 years, and need help to get this situation under control!

Sorry Brett, it might already be too late if they have not been planning and are pretty close to retirement, with not enough money. Do they have assets they can liquidate to provide an income? Can they move to a less expensive community to cut costs? In terms of just approaching them about the issue, read Aging Parents: Talking about the Money. 

 

Okay, that’s it. My brain is mush and my fingers are cold from the breeze created as they’re flying across the keyboard! Ha! 

 

BTW: I’m planning to put up a series of articles on home buying. Are there any special topics y’all want me to cover? Speak now.

I work with a lot of people who have credit cards on which they are making only the minimum payment each month. Sure, they’re staying on the right side of their credit scores, but what they’re doing is stupid.

Let’s say you’re using a MBNA Mastercard that charges 17.99%* interest on purchases for which the minimum payment is the lesser of your interest +$10 + fees, or 2.25%, whichever is less. Now, let’s say you’re carrying a balance of $3,600 and are making the minimum payment, which would be about $64 (the interest + $10). Since you’re only paying $10 a month off the amount you owe, it’s going to take a loooong, loooong time to get this card paid off. How long exactly? Well, 106 months, or 8.8 years! And do you have any idea how much interest you’ll end up paying on that $3,600 balance? $3,384. Yup. Almost double what you originally charged. Those shoes you bought at 30% off don’t look like such a good deal right now, do they?

MBNA also has a card on which it charges 19.99%. Let’s see how those two extra interest points affect how much you end up paying in interest. First off, you’re minimum payment would go up to about $70 a month. Your interest costs would jump to $3,997 - more than you originally charged. Can you see why it’s so important to get the lowest possible interest rate if you’re carrying a balance?

I scratch my head. Really I do. Why would anyone use a credit card from MBNA that charges 19.99% or even 17.99% when you can get a card from Citizen’s Bank that charges only 11.25%. Want to see how that same balance would play out on a Citizen’s credit card? First off Citizen’s Bank’s minimum payment is “$50 or 3%, whichever is greater.” Hey, it looks like they want you to get the balance paid off! That same balance would take 78 months or 6.5 years - still way too long people - and would cost $1220 in interest, which is a far cry from the $3,997 MBNA wants you to hork up.

Okay, so interest rate is a big deal. But only paying the minimum sets you behind the eight-ball in terms of how long you’ll be in debt regardless of the interest rate. So how do you get yourself out of the hole in a reasonable amount of time?

Well, why don’t we start with what a “reasonable amount of time” actually is. In my book - my best girlfriend, Cookie, used to say, “according to the Book of Gail” and I still laugh when I hear her voice in my head - you should spend any more than 3 years - or 36 months - getting your debt paid off.

Debt fatigue is what happens to you when you’ve been in a hole so long you can’t see up anymore. You’ve lost hope. You’ve started spending again after being overwhelmed by the amount of debt you have and the seemingly futility of your debt repayment process. You’ve given up and gone shopping.

To avoid debt fatigue, you have to be able to see the light at the end of the tunnel, and that’s absotively, posolutely no longer than 36 months.

So you want to be paid off in 36 months, do you? Well, the rest is easy. Take your total owed - let’s say it’s $2,500 - and divide it by 36. The answer: $69.44. That’s how much you have to pay off the principal every month to get out of debt in 36 months. Before you go jumping up and down and screaming, “I can do that, I can do that!” remember you also have to pay the interest cost. On that $2,500 at 11.25%, your interest cost will be (2,500 x 11.25 / 100 / 12) $23.44. So if you make a payment of ($69.44 + 23.44) $92.88 a month, you’ll be back in the black in just under 3 years. And it will have cost you $395 in interest.

You can afford to pay more than that, you say. Great! Let’s say you can afford to pay $100 a month. You’ll be out of the hole about five months sooner. Up your monthly payment to $125 and you’ll be debt free in less than 2 years. Get another job, earning an extra $100 net a month, and up your payment to $225, and you’ll be debt free in a year.

How long you’re prepared to live in misery is up to you. You can bite the bullet and do what it takes to reclaim your life, or you can keep whining about how hard it is to get to even. But while you’re whining, you’re paying a ton of interest too, money that could be better used doing something nice for someone you love: you.

*All rates quoted are from the Financial Consumer Agency of Canada on April 26, 2007.