Gails Blog

No topic has as much confusion attached to it than the issue of going to, and paying for, post-secondary education. I scratch my head because it seems like such a straightforward thing. You want to go to college or university, you save the money, pay your way and go. Failing that, you get a job and pay as you go. Failing that, you get scholarships. Failing that you get student loans.

What I see happening as young adults head off to the halls of higher learning is a default to the “student loan” option right off the bat. Student loans, it seems, are the only way to get through school. You can live on them. You can drink beer on them. You can parTAY on them. And it doesn’t matter how much you borrow, because you’re getting an education and that’s all that matters.

So how come I see so many people with an “education” and the debt to go with it earning $10 an hour in call centres, retail stores, and wherever else these educated debtors end up. And how could you ever imagine that if you have $20k, $30k or $40k in debt, that you’ll ever get out of the hole earning $10 an hour?

Ya know what? This is, once again, a case of NO PLANNING. We’ve come to believe higher education is our right, and we can have it, damn the cost. We don’t even have to know what we want to be when we grow up. We can just graduate from high school and then head off to get an undergrad degree. We’ll figure it out as we go. The degree is the thing. That’ll mean a good paying job, and we’ll pay off the loan then. Maybe.

Maybe not.

If you want to be one of the dopes who graduates from university or college with a heap of debt and no clear direction, hey, who am I to try and stop you. It’s your right to be as big a dope as you want.

If you’ve decided that option sucks and you’re committed to doing it differently, then I have a series of articles for you to read.

So You Want to Go to College/University is first up, followed by How Much Debt CAN You Afford? Let’s face it. For some degrees - anything with the title Dr. in it, for example — you will graduate from school with the equivalent of a mortgage in student loan debt. That’s the reality. But there are plenty of people taking on more student loan debt than they will ever be able to afford to repay because they think it’s okay. Well, it’s not. The debt you leave school with affects your ability to have a life. 

What’s the alternative to debt? comes next. Yes, there are options. There are people who graduate from school without a ton of debt by working part time (hey, let’s hear from some of you guys), taking a year off to work, or living like the poor students they are while at school and until their debt has been repaid.

Managing Your Money for School includes two downloadable worksheets that you’ll find useful for dealing with your lump-sum money (loans, scholarships, savings from summer work) and expenses, as well as dealing with your monthly living expenses and how to keep them within reason. Download the suckers and USE THEM! If it looks like too much work, you’re probably wasting your money going to university or college since my dumb worksheets aren’t a patch on what some professors and teachers are going to ask you to do. 

But I’m in Debt. What now? offers suggestions for what to do if you’ve graduated from school with debt. 

I found an excellent article, Freshmen Survival Advice for Life that EVERY STUDENT going off to college or university should read. I could not have said it any better than Ruth Ann Raycroft, so take her advice.

TO MY AVID FANS: I want to get this out to as many people as I can. Send an email to all your friends and family who have kids in university or heading off within the next year, so they have some tools available. I was originally going to only do a blog and link to useful material… but it was sadly lacking. Hmmm. So now HERE are tools and information and we just have to tell two people, who will tell two people, and so on and so on and so on. Ready… set… GO!

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A lot of the people who watch my show are not in debt. They watch because they find the stories so compelling. But over and over I’m asked, “How can people get themselves into such a mess?” I’m less aghast. I know falling into the debt hole isn’t as hard as it looks.

First there are the people who’ve had a significant change in their life, but haven’t come to terms with the financial implications. Whether it’s through divorce, the loss of a job, sickness or death, changes in our lives don’t necessarily translate into changes in how we manage our money. So later, when we suddenly realize what we’re doing isn’t working, we’re stunned at the mess we’ve made and at a total loss as to what to do about it.

There are also some psychological factors that play into our Dance with Debt. At a website called The Frontal Cortex there’s an interesting article on how the subprime crisis happened. It boils down to the fact that we’re wired to be more responsive to short-term gains than long-term risks. It’s the old, “bird in the hand” principal. Johan Lehrer says, “Our feelings are thrilled by the prospect of a new home, but can’t really grapple with the long-term fiscal consequences of the decision. Our impulsivity encounters little resistance, and so we sign on the bottom line. We want the house. We’ll figure out how to pay for it later.” Whether we’re talking about subprime mortgage or zero-down home-ownership or whipping out our credit cards so we can go on holiday, the same principals apply. The reward now is more powerful than the potential cost in the future.

There are also a fair number of people who feel entitled. “I work hard, I deserve a vacation.” If I had a dollar for every time someone has said this to me, I could cruise around the world…twice. People believe that just because they want something they have a right to it, regardless of whether they can afford it. That’s how Buy Now Pay Later became such a hit. “I want it. I have to have it. If I can’t pay for it, I’ll just find a way to get it without paying for it.” Then when the bill comes due at a whopping thirty-something percent, people whine about how rapacious the rates are.

And then there are the people who are Delusionally Wealthy. They have a big screen TV, a late model car, computers, the latest cell phone (which, like dopes, they lined up for when they could have been working)… the list goes on. Instead of measuring ourselves by the amount of money we have accumulated (which is what wealth is), we use stuff, things, crap to create the delusion of wealth.

The brother-in-law to Delusionally Wealthy is Capriciously Credit-worthy. These are the people who measure their success in life by how much credit they’ve been granted. I’ve met people who brag about how much borrowing power they have. I remember when we used to braq about how much we had saved. Not anymore. Now it’s all about how deep in the hole we can go. Wow!

And then there’s Hubris, or the belief that god-like we will always be able to magically escape whatever mess we’ve made. There’s nothing magic about money or economics or the process of debt repayment. The belief that we’ll never have to pay the piper, that we’re above the rules, is what gets us into a mess and then keeps us there.

Sadly, even in today’s very difficult economic times (will it get worse?), there are people who cannot smell the coffee burning. For them, and those who love them, the caca is still to hit the fan, and there will be hell to pay and pay and pay. 

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?

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.

Okay, the news on the recession front is that we’re in one and we better start doing things a little differently. And while the lenders of the world would like us to keep borrowing - more in a minute - the University of Toronto’s Institute for Policy Analysis says that Ontario’s economy contracted .4% in the first quarter of 2008, and is in the midst of shrinking again. Since Ontario makes up almost 40% of Canada’s economy, an Ontario downturn, no matter how mild, is going to be felt everywhere. So maybe it’s time to step cautiously.

The new head of domestic banking at the Royal Bank, Dave McKay, doesn’t agree. He says that the Canadian consumer is very healthy right now, and being in such good shape could probably afford to borrow even more. Really? Course, Mr. McKay is praying that Canadians keep borrowing because the investment banking business - the other big money-maker - sucks. So lenders have to pick up the slack so the banks’ profits don’t drop off.

Bankruptcy professionals have already begun to sound the alarm. All that go-go spending on credit has put many people precariously close to the edge. Hopefully, we’re waking up to the reality that we’ve spent money we won’t earn for the next two, three or even four years - if we’re lucky enough to have a job!

There are pundits who believe this “waking up” doesn’t bode well for the economy as a whole, since when people stop spending money that just makes the whole thing come crashing down. But I’d argue that we haven’t been spending money in our last mad dash to the mall, we’ve been spending credit - money we haven’t made yet - and so all we’ve really done by shopping ourselves silly using our credit cards is delay the inevitable in the cycle of the economy.

Like the seasons, the economy has a cycle. We can’t change that. As much as we try to wish it away with dumb terms like, (said in a deep voice with a very serious face) “the fundamentals have changed,” that’s a load of rot. Fundamentals don’t change. That’s why they’re called “fundamentals.” What changes is our willingness to follow the basic common-sense rules.

Rules like: You don’t spend money you don’t have. Why is that rocket science? If we don’t have the money to pay for the furniture, the new dress, the vacation now, why do we thing this money is going to magically appear in 30 days, 6 months or a year. And why - if we’re having trouble making ends meet now - would we add the extra cost of interest to our outlay? Are we dopes?

I started working with a new couple yesterday - lovely people. I have high hopes. But when I took her credit cards away, she looked like she was going to toss her cookies. “Suppose I need something?” she said, a look of utter panic on her face.
“Need something like what?” I asked.
“Well, suppose I see something that’s a really good deal that I need?” she queried sincerely.
“Need or want?” I asked.
She paused. He laughed. She was stuck.

We can’t even tell the differences between things we NEED and things we WANT. We’ve been so busy satisfying our every whim RIGHT NOW, that we’ve totally lost perspective. Hell, we’ve totally lost our senses.

What did people do before there was a Starbucks on every corner? Do you NEED to have a cup of coffee that costs three bucks? Really?

How often did your parents eat out when they were raising you? Every second day as many of us do? Really?

And they took you on exotic vacations every year too, right? Hmmm.

So when did we begin to think that nice-to-haves are have-to-haves?

I’ll tell you when. We began to spend indiscriminately when we were introduced to the idea that we could have whatever we wanted right now and would only have to pay a fraction of what it would cost - somewhere between 2-3% — in monthly payments. That 2-3% minimum payment feels painless, and so we got in the habit of spending without thinking. We want it, we buy it. No money in the bank, no problem. We can whip out our credit card, or take a cash advance, and we’ve got it. No harm, no foul. Really?

We’ve swapped poker night with friends for a trip to Vegas. We exchanged fixing the car for buying a new car. We’ve substituted borrowing for saving. And with all these changes we have been doing ourselves harm, and we’re about to find out how much.

It’s time to prioritize where our money goes. Video games aren’t a necessity. Nor are new clothes, furniture or eating out. And as much as you think you could never survive without that coffee in the morning or that glass of wine in the evening, I’m here to tell you those aren’t priorities either. They are nice-to-haves. If you’ve got so much as a dollar of debt, you’ve got to put the brakes on the nice-to-haves until you’re out of the hole.

It’s also time to go back to bargain shopping. I don’t want to hear the yada yada on quality versus price. Bargain shopping doesn’t mean buying crap. It means buying quality at the best price going. And it means only buying what you NEED.

And it’s a time to lower our expectations about what life should be like. Since when does a trip to the amusement park beat a day playing baseball, volleyball or soccer at the local (free) park with friends?

While you’re at it, consider what skills you have to offer in exchange for things you need done so you can help someone else save some money too. Consider swapping what you have for what you need. There are people out there who are car mechanics, contractors, home-care providers, sewers, bakers, cabinet-makers. Figure out what you have to swap and do the deal to save some money.

Of course, you can’t say you’ve SAVED anything if you immediately turn around and spend the money. Nope. You’re just deluding yourself. Instead, every time you SAVE a dollar, immediately apply it to your debt. You can keep a simple chart on the wall to keep track of how you’re doing. Get some momentum and you’ll be shocked to see how quickly you can get out of debt.

Hey, you can believe me or you can believe The Banker. You decide.

Whether you did it as an act of desperation, or you were just dumber than a sack of hammers, your decision to go to a pay advance loan store is costing you big-time and you’re ready to do whatever it takes to get out.

The pay advance loan biz has been growing by leaps and bounds. In the past ten years, over 1,300 have opened in Canada. According to a story in the Toronto Star, more than 2 million Canadians are using pay advance loans, and they borrow more than $2 BILLION annually. Whazzup with that?

The pay advance loan people say they’re providing a service: helping people who can’t find help anywhere else. Really? Well, if they’re so interested in “helping” people, then what’s with the fees, the outrageous interest rates, and the never-ending cycle?

Since pay advance loans are offered by privately owned loan companies and cheque-cashing outlets, up until recently they haven’t been regulated by the government. Hey, there’s even an outlet located in the federal Department of Finance building in Ottawa.

Interest is charged from the day you take the loan until the loan, and all the fees, are repaid in full. Payday lenders are supposedly not allowed to charge more than 60% interest on a loan, and according to the government, that’s supposed to include everything from administration fees, to convenience and/or verification fees, broker’s fees, collection fees, early repayment fees, set-up fees, loan repayment fees, rollover or renewal fees, and extension fees. OMG!

Of course, while they’ve been taken to court for charging more than the allowable 60%, they’re still doing it. I’ve seen people paying anywhere from 700-1,000% when all the fees are accounted for. Really! This became so much of a thorny issue that the Federal government didn’t want to have to deal with, so they made it a provincial issue, and provinces are still trying to figure out what to do.

Several provinces have stepped up to the plate including the Ontario government, which introduced legislation to cap how much companies could charge and ban practices like issuing concurrent and back-to-back loans. But, hey, since we’ve had a usury rule that’s been widely ignored by the pay advance industry for quite some time now, I think it’s going to take more than new legislation to make these people stop sucking the blood of the most desperate borrowers.

So what do YOU do if you’re in the cycle and are desperate to get out? You’re going to have to suck it up and either:

• be short for a couple of weeks, while you repay the loan and DON’T borrow again, or
• find a way to make more money so you can get the life-sucking debt off your back

There ain’t no other way kids. You’ve just got to get serious about getting out of debt and do WHATEVER IT TAKES to break the desperate cycle of borrowing and then borrowing again to make up for the cash flow shortage caused by the outrageous interest and fees charged.

It’ll be hard. It’ll hurt. But, hopefully, you’ll have learned an important lesson, and you won’t do that again.

I started shooting Season 6 yesterday. We’re working with a lovely couple… Amy and Paul… and I have high hopes for success.

I’ve got ANOTHER wicked cold and spent most of the day in a snoot-filled haze. I managed to:

a) misplace my Visa card,
b) try to walk out of the drugstore without signing my chit
c) leave set with PJ’s shoes instead of mine.

I called and put a hold on my Visa card, and found it this morning in my car. I was recognized trying to steal from the drugstore by a show fan who promised not to tell. And PJ texted me last night to say I owe her $20 because she couldn’t go on her date wearing rain boots. Hmmm. It’s her own fault, really. She liked my shoes so much, she went out an bought an almost identical pair, and that’s why, in my haze, I picked up her shoes. I take her copying me as a huge complement, actually, since she’s very cool and the fact that she wanted my shoes, well, that says it all, eh?

Lives are funny things. Everyone has a different set of priorities, a different set of needs. And we all have a way of muddling through to get what we want. We also have a tendency to make the same mistakes over and over and over.

PJ’s thing is shoes. She’s got a HUGE shoe fettish. I love books. I spend gobs of money on books, both recorded and the printed versions. For other people it’s technology, clothes, home furnishings, pets. As many things as you can name, people can purchase to excess.

I don’t have a problem with people blowing a whack of cash on whatever their whim is, providing they can afford it. It’s the people who just can’t make ends meet, who refuse to adjust their spending that I scratch my head at.

One of the most interesting things about doing the show is being able to take a look into people’s lives, behaviour and justifications. Each couple has their own story, but over dozens and dozens of shows, I’m seeing some common mistakes. Are you making any of these?

1. Carrying a balance on credit cards. Sadly, many people don’t even know how much they owe. And they don’t know what their interest rate is. John Wayne said, “Life is hard. Life is harder for stupid people.” Hmmm.

2. Letting their expenses get out of control. I routinely cut my couples’ variable expenses by 60%, 70%, 80% and they do it. The live on 20% of what they were spending before. How is that even possible? When I ask, they tell me, “We’re paying attention.” What a concept!

3. Taking payday loans. What the hell are ya thinking? If you can’t afford to live on what you’re making now, how are you going to make it through next week when you have to repay the loan, plus the interest (upwards of 700%, when you include the fees). If you need money that badly, sell something or get another job.

4. Having no emergency fund. You know where this leads. The first time something breaks, it’s back to the credit card or line of credit. If you don’t have a financial safety net, you will fall and break your neck. It’s only a matter of time.

5. Buying a house that’s too expensive. No money down, amortize forever has led people to believe they can afford houses that are more expensive than they can actually manage. If you had to save 20% of a $400,000 house - that $80,000 - you might think twice about buying such an expensive house. I know houses have gone through the roof, but that’s no excuse for strapping your cash flow to the point where you’re living on the edge all the time. That’s a sure way to destroy your relationship.

6. Paying only the minimum amount on debt. So you really don’t want to be out of debt then, right? And you don’t much care how much it costs you. So quit your whining.

7. Using debt to repay debt. That’s balance transfers, cash advances on credit cards to make minimum payments, or using your line of credit to pay your minimum on your credit card. This used to be illegal, but in the name of marketing and selling more credit, the balance transfer (using credit to pay credit) was created and now the line is so blurred that people think it’s fine. It’s not. And it’s going to catch up with you eventually.

Statistics Canada has gobs of interesting information about how Canadians are doing financially. If you’re from the U.S., we’re doing marginally better in the north, but quickly heading into your kind of trouble.

Did you know that 25 years ago, 39 percent of us were spending MORE than our pre-tax income. Uh-huh. More than our pre-tax income. What were we thinking?

Things are better now though. NOT.

Nineteen years later, 47 percent of us were spending more than our pretax income. Wow! That’s almost half of Canadians spending more than their gross income. How is that even possible?

Credit.

Yup, you can spend more money than you make if you have access to credit. And most of us do.

Well, we’ve had a booming economy for the last six years, so things are probably better now, right?

• In 1999, Canadian families had over $29 billion in line of credit debt. By 2005, that had grown to almost $68 billion.
• In 1999, Canadian families had almost $16 billion in credit card and installment loan debt. By 2005 that had grown by over 58 percent to almost $26 billion.
• In 1999, Canadian families had over $33 billion in vehicle loan debt. By 2005 that had grown by over 41 percent to over $46 billion.
• In 1999, Canadian families had over $17 billion in student loan debt. By 2005 that had grown by almost 16 percent to almost $20 billion.

 Source: Stat Canada

Add it up… $68 billion + $26 billion + $46 billion + $33 billion + $17 billion = $190 billion in debt spread over approximately 7.5 million Canadian families. That doesn’t include mortgages! And since there are lots of us that don’t have huge debt loads, think what that means for the poor people who do.

So, are you a credit sap? Are you one of these statistics, spending more money than you make, living beyond your means, buying today’s goods and services with money you may or may not earn tomorrow? And are you happy about the amount of interest you’re paying? Do you even know how much interest you’re paying?

You don’t have to live in debt. You can change your life. But you have to really want to. And you have to accept that you’re going to find it hard to do.

It will be hard. But if you have the gumption, you can do it. I know you can.

The first thing you have to do is take all your credit cards but one and cut them up. Include your department store cards. And unless you’re getting a discount on gas, include your all your gas cards too.

Next, take the credit card you’ve kept and put it somewhere hard to reach - freeze it, bury it in the backyard, throw it behind the refrigerator.

Now you’re on your way.

What’s next? You’ll have to make a budget, create a debt repayment plan, and rebuild your credit history (if you’ve made it messy). And you should negotiate with your creditors to either consolidate your debt at a lower cost, or reduce the amount of interest you’re paying on your various forms of credit.

Most important, you have to stop shopping. Make a promise to yourself that you won’t buy another unessential thing (so nothing beyond what it takes to keep body and soul together) until you’re out of debt.

All the tools you need to achieve a debt-free life are here on this website. If there’s something you can’t find, let me know (through Questions) and I’ll try to help.

So, are you ready to be debt free? Is 2008 the year you’re going to do it? Great! Make me proud.

BTW: I know I still owe you an answer from yesterday’s blog, but you’ll have to be patient. I’m giving all the people who are figuring out what they’re spending some time to do their numbers. Stay tuned.

As if credit card companies aren’t making enough money on the interest they charge, they’ve initiated new rules that let them grab even more interest.

Once upon a time, if you paid your balance off in full every month, you were changed no interest. If you carried a balance for one month because you missed your payment date by even a few days, but then stayed clean from there on in, you weren’t charged interest beyond the first month.

But now there’s a new interest calculation method in town, at least for some credit card clients, and if you are one of them you should be hopping mad about it.

I’ve recently been hearing about credit cards that do not stop calculating interest on their credit card balances until the cardholder has been balance free for two months. So I went looking and found who the culprits were.

To see how these two methods differ, let’s look at an example:

Polly didn’t pay her December balance in full, so she carried a balance of $1,000 from December. On January 10, she put her $2500 vacation on her card. She then paid her new balance in full by her due date of February 9. Here’s how the two different methods would affect her. 

If Polly’s credit card issuer uses Method 1, she will have to pay interest only on the $1,000 carried over from December. She will get the interest-free period on her new purchase of $2,500, because she paid her current balance in full by the due date of February 9.   If Polly’s credit card issuer uses Method 2, she will have to pay interest on the $1,000 carried over from December and on the new purchase of $2,500, because she carried a balance over from December.

That’s ludicrous! What a lot of crapola. So credit card companies who can’t make money of people like me because we don’t usually carry a balance are stooping really low to grab some interest.

Who are the offenders? The Bank of Montreal, the Royal Bank and CIBC. Shame you them. Such a blatant grab. Things must be looking pretty bleak on the bottom line, eh boys?

This is a mind-set that is catching. It is in line with the way interest is calculated by a number of American credit card providers including Amex Bank, Citibank, MBNA Canada and Wells Fargo Financial Corp.

If you want to see if your credit card is an offender, check out the comparison chart at the Financial Consumer Agency of Canada. 

If your card uses Method 2 (boo! hiss!!) you can either:

• suck it up and don’t complain, because you’re choosing to use a card that is gravalicious (Jamacian for “greedy beyond comparison”) 
• call and tell them just what you think and then go shopping for a new card.

I’m about to implement Option 2.

I think it is outrageous that because a number of other credit card companies have dubious interest-rate calculation policies, this means our banks are going to follow suit.

I think it is shameful that financial institutions believe they can just pull stuff over consumers’ eyes. Sure, they’ll say it’s in the cardholder agreement, but they know that since it’s printed in gray and in mouse-print, it’s unlikely that anyone will read it. We get used to things being a certain way, and then they change it, hoping it will get by most of us, and is does.

And I think it’s shameful that our friends, brothers, sisters, mothers, fathers, cousins, and whomever else we may love are being duped.

You have my permission to copy this article and send it to everyone on your email list.  Do it! Let’s see how they like it when they start getting a b’zillion calls complaining about what stinkers they are.

Of course, if you can’t be bothered, don’t come whining to me later when the interest clock clicks on for your credit card because all the other lenders see how easy it is to take candy from you babies!

I was talking to a friend a few days ago about the pros and cons of overdraft protection and I thought about all the people I’ve worked with who have this feature on their accounts.

Overdraft protection is usually sold to people when their open their accounts as the way to ensure that bounced cheques don’t ruin their credit ratings. When you try to spend money you don’t have in your account, the bank covers the withdrawal - be it a cheque, debit or cash withdrawal.

Don’t confuse the kind of overdraft protection you “buy”, for which you sign an agreement, with what some banks call “bounce protection” or “courtesy overdraft protection” which they offer to save you from the embarrassment or hassle of a returned cheques (which, I admit, can be very expensive).

According to www.bankrate.com, the average courtesy overdraft fee is $29, but fees can be substantially higher. And since the fee is levied regardless of the amount you go into overdraft for, it can be astronomical when you calculate it as a percentage of the “loan.” One woman wrote me to say that she was appalled when her statement came in and she had over $160 in bounce fees.

I’m all for the traditional overdraft protection for which you sign an agreement so you know what you’ll pay in interest (it is much higher than you might think). It beats the pants of NSF fees and the bruise on your credit report.

What I’m not for is the idea that overdraft protection gives people a license to ignore their cash management. They can spend whatever they want, whenever they want, because overdraft protection is there to catch them like a safety net.

While some of you might think, as I do, that overdraft protection is a short-term affair - most overdrafts are said to last only about 5 days or less - I’ve met oodles of people who practically live in overdraft.

The banks don’t mind one little bit when you go into overdraft, since overdraft interest rates are well above regular lending rates - one bank I checked charges 21% interest on your outstanding overdraft — and going into overdraft automatically triggers a monthly fee. If, in fact, overdraft is just for the odd slip as the marketing material says, then why do some banks offer the option of going $5,000 or more into overdraft? That’s NOT a little slip.

The answer to running into overdraft is not overdraft protection, it is to better manage the cash in your account so you don’t try to spend money you don’t have. Hmmm. What a concept.

How do you do that?

Easy.

Get yourself a notebook. When you put money in your account, add it to your balance. When you spend money from your account (be it a cheques, bill payment, a debit card transaction, or a cash withdrawal) you debit that amount from your balance. Keep your eye on the balance.

If you think that sounds like too much work, you’re a dope. You’d work at least this hard to find where gas is selling for a penny less, or where tuna is two for $1.39, or where wings are all-you-can-eat for $3.99. Staying out of overdraft is one of the best deals going.