Posted On: August 29, 2014

Canadians are driving into fast debt with slow repayment car loans. Taking advantage of low interest rates and small-to-zero down payments, they are buying cars in record numbers.

According to an August 2014 Financial Post article, rather than four to five years, many of us are taking car loans out for periods of five to eight years. While this may lower monthly payments, it leaves us in debt longer and puts off the time the vehicle’s worth is greater than the debt.

A Globe and Mail article points out that close to 30% of vehicles being traded in for the purchase of a new car or truck are worth less than the outstanding amount of the loans on them.

An eight-year loan also doesn’t make a  lot sense considering that Canadians tend to only own their cars on average for eight or nine years. What happens to that magic period of relief when you own your car outright, with no loan payments to make?

As a result of this bad practice, credit counselling agencies report they are meeting an increasing number of people who need advice because of car loans. Long-duration loans tend to encourage us to take on more debt than we can easily handle.

The problem also extends to auto leases. Often drivers go over their allotted mileage and, when facing large bills as their leases expire, they tend to convert the leases into loans with extended repayment terms.

So when buying a car, it’s a better strategy to stick to a maximum repayment term of five years, with a minimum 20% down payment. A long-term loan for a depreciating asset just doesn’t make sense.

If you do feel stuck in this kind of situation, on a never-ending treadmill of payments that you can’t get off, call us at Richard Killen & Associates Ltd. We will have some answers for you. It’s what we do. And the consultation is free.

Posted On: July 25, 2014

If you don’t live in Egypt, being in denial is a bad thing.

Most of us carry some form of debt, whether it’s a car loan or a credit card balance that we just can’t manage to pay off this month. But when does debt load become dangerous?

Well, one sign is when you don’t want to think about it and are kept up nights with stomach-twisting anxiety. The problem scares you so much you put your head in the sand and keep spending as usual.

If you think you have a problem, you probably do. But here are 10 more telling signs that you are sinking too far into a financial morass:

1. You frequently pay bills after their due date, incurring secondary notices and penalty charges.
2. Creditors are calling about unpaid bills.
3. You regularly bounce cheques and overdraw your bank accounts, causing you embarrassment and triggering bank penalties.
4. You use one credit card to pay the balance on the other, or use it to pay other bills or to buy necessities.
5. You pay only the minimum balance on credit card bills.
6. You’ve been denied credit because your debt ratio is too high, or need a co-signor for a loan because you are too much of a risk by yourself.
7. You hit up family and friends for loans to make ends meet.
8. You don’t know how much debt you’re really in, because you’re afraid to hear the number.
9. You hide purchases and debt problems from your family, or you fight a lot with your spouse over debt issues.
10. An unexpected expense, such as a car repair, sends you into panic mode.

Of course, just not thinking about money problems, or running way from them, doesn’t work. They always manage to find you. The best way to deal with them is head on, using the advice of a trusted expert. At Richard Killen & Associates, we can lead you through the appropriate responses to your particular situation, whether it is debt consolidation, a consumer proposal or bankruptcy.

Contact us for a free consultation – it will be the most stress-relieving call you will ever make.

Posted On: June 22, 2014

The Gail Vaz Oxlade budget calculator can be used to calculate the true cost of debt. Many people do not have a clear idea of what their debt really costs them, whether it is a credit card balance or a student loan.

Financial writer Gail Vaz-Oxlade points out in “How Much is Your Debt Costing You?” that if someone buys a $2,000 TV on credit, with an 18% interest rate, the minimum monthly payment would be about $40. Of that payment, only about $10 would go to the principle and rest would cover the interest. So if you just made minimum payments, the $2,000 TV would cost you $7,000 and would take 30 years to pay off.

To tally up the true costs of your debts, the sites for many financial institutions and credit-counselling agencies have calculators available for free use. All you need to do is to punch in your numbers and weep.

Credit Counselling Canada,  the national association of non-profit credit counselling and government agencies, offers links to a variety of calculators. They include ones designed to help you to get a clear picture of your debt situation,  change your spending patterns for your home budget,  determine repayment strategies for your loans and lines of credit, track your weekly expenses and show you how to reach your savings goal. Its SMART (Specific, Measurable, Attainable, Relevant, Time-Bound) Worksheet can aid you in setting financial goals and putting them in action.

Most banks offer calculators to help you figure the cost of loans before you sign on the dotted line. Typical is TD Canada Trust’s Debt Repayment Calculator. Select your type of debt, the amount of the loan and interest rate, and then you’ll get back the numbers for how much you’ll pay in total, over what period of time. If the numbers for your debts become oppressive, TD also offers a Debt Consolidation Loan Calculator, showing how you can ease your situation by consolidating all your debts into a single loan, with one monthly payment that is probably lower than what you are paying overall now.

Students about to enter university or college, and their parents, should point their browsers to the Government of Canada’s CanLearn Loan Repayment Estimator. Enter your settings and it will help you estimate the monthly payments you’ll need to make to repay your Canada Student Loan or other government student loans. Simply enter the total amount of your loan(s), select the interest rate and grace period options, and decide on the number of monthly payments that you would like to make.  You can also compare repayment options. The trick is to pay off the student loan before you hit retirement age.

Just dial 1-888-545-5365 and we can start talking about how you can improve your financial situation.

If you are in debt and have questions about the Gail Vaz Oxlade budget calculator, we would be happy to help you find a proper solution to your problem.

Posted On: June 16, 2014

Getting a student loan can be double-edged sword. Many kids can’t afford a higher education without one. But the downside is that a lot of students either they doctors, engineers or business students are graduating with huge debts that they many find hard and in some cases impossible to pay off.

The problem of student debt in Canada is on the rise. According to a September 2013 Globe and Mail article, accumulated student debt is now more than $15 billion nationally, and perhaps as high as $23 billion, if you take into account credit card debt, lines of credit and provincial loan programs.

The problem is worsening as government levels of funding for post-secondary education decrease and students are left with bearing more of the cost. The Globe article points out that the government share of funding has declined from 84 to 58 per cent, at the same time as tuition fees have jumped 12 to 15 per cent.

What if I simply can’t repay my student loans when the time comes?

Well, let’s hope this doesn’t happen, but if you have no other options bankruptcy may be necessary. The question then arises: “If I have a student loan, will bankruptcy take care of it for me?”

The answer is technical. When a person goes bankrupt, they are applying to the courts to simply “get rid” of their debts. It’s called getting discharged from the bankruptcy and therefore the debts. Whether your discharge would eliminate your student loans along with any other debts you had when you filed depends on time. When did you officially end your career as a full- or part-time student.

If you left school seven or more years before you filed your bankruptcy, then your student loans should be discharged. If you left school less then seven years before filing, they won’t be.

The definition of exactly when you “left school” has been the subject of at least three court cases with different results. The general and safest definition of when you left school is the last day of the month in which your class graduated. When you last physically attended classes doesn’t really matter. Finishing early or dropping out doesn’t change this date. At Richard Killen & Associates, we advise you to be as sure as you can about your school leaving date. You can usually get the correct info from the government by calling 1-888-815-4514, but some people may have to go back to their learning institution to find out.

How would all this apply to a consumer proposal?

Pretty much the same way, except you don’t actually get discharged from your debts when you do a consumer proposal. When you successfully complete your payments in a consumer proposal, you receive what’s called a Certificate of Full Performance to prove to the world that you succeeded in paying off your creditors. Since a consumer proposal captures all your unsecured creditors (and a student loan is an unsecured debt), the successful completion of the consumer proposal payments should get rid of the student loans, too, right? Yes, but only if you had been out of school seven years on the date you filed the proposal.

So what if I am in debt trouble but I haven’t yet been out of school for seven years?

Well, you still have the same legal option under the Bankruptcy and Insolvency Act: a bankruptcy or a proposal/consumer proposal. The difference is that when you get to the end of either one, your discharge or full-performance will not include the student loans. You will still need to pay them back.

But what if I’m still unable to pay the student loans?

If you were under the magic number seven when you filed, but still cannot handle the student loans after your discharge, there is another relief option. You have to wait until you have been out of school five years. Then you can apply to the bankruptcy court for an order to have your student loans covered by your bankruptcy discharge (or certificate of full-performance from the consumer proposal). You would need to hire a lawyer to get this done and it cannot be done before your bankruptcy or consumer proposal are successfully completed.

Pretty convoluted, eh? That’s why we simply say call us. At Richard Killen & Associates we can make it make sense to you in a way that will empower you to make the right decisions.

We also want to add that you can look for some student debt relief by going to the National Student Loans Service website and finding out about the Repayment Assistance Plan. Available on both Canada and Ontario portions of student loans, RAP offers both interest relief and debt reduction, which could include lowering monthly payments and extending you loan repayment period for up to 15 years.