Getting a Secured Credit Card to Restore Your Credit Rating
If you’ve recently filed bankruptcy or a consumer proposal, a secured credit card is a way to help you rebuild your credit rating and develop a stronger financial future. It’s not a fast track way to build credit or improve your score, but it’s a clear and simple step that can get you there over time.
A consumer proposal and bankruptcy are effective debt relief solutions that offer immediate relief from overwhelming debt as well as legal protection from creditors. However, they do have a negative impact on your credit score. In general, once you file a consumer proposal, you will have an R7 rating whereas declaring bankruptcy will give you an R9 rating – both very low scores as measured on a scale of R1 to R9 by the credit bureaus. Moreover, these low ratings will remain on your credit profile for three years from the date of a consumer proposal is fulfilled and for six years from the date of discharge from a bankruptcy.
How to rebuild after a Bankruptcy or Consumer Proposal
Although a low rating will stay on your profile for a few years, you don’t have to wait that long to rehabilitate your credit. You can begin immediately and start credit after a bankruptcy or consumer proposal by getting a new mortgage, car loan, credit card, bank loan, etc. In other words apply for some credit. It doesn’t have to be much. The point is to show you can handle the credit you get. In as little as two to three years you can re-establish credit and may even have a better credit rating than before you started!
Among the most crucial factors in rebuilding credit is developing a positive payment history and managing finances responsibly. You need to be able to demonstrate to lenders that you can pay back the money you borrowed on time consistently and prove that you can responsibly manage debt.
Credit behaviour matters as it reflects your track record of making timely payments on your loans and credit cards. Discipline is key as consistently paying on time demonstrates financial responsibility and can boost your score. Keeping a balanced credit utilisation ratio is also advisable for a positive impact. A good rule of thumb for credit usage is to never exceed 30% of your total available credit limit.
Working to rebuild your credit can feel nearly as daunting as getting out of debt, but with the right process and a clear sense of direction and commitment, you can get where you want to go. The most crucial factor is to carefully consider options and pick the right path. Not all paths to rebuilding your credit will suit your unique financial situation and goals.
How can I use a secured credit card to rebuild credit
A secured credit card is a great choice for someone looking to build or improve your credit history. If you use them responsibly, secured credit cards can help you increase your score over time. Many licensed insolvency trustees, debt counsellors and other financial professionals often suggest using a secured credit card to rebuild credit.
Secured credit cards are a special type of card typically designed for those who are looking to rebuild their credit. These cards are more accessible for people who have low credit scores.
A secured credit card requires a cash deposit from the cardholder. This deposit acts as collateral for transactions. In case you can’t make payments, the lender can use the deposit to pay the debt. The credit limit for the credit card is equal to the amount that you put down as deposit.
Use a secured debit card similar to how you would use a debit card, keeping in mind that you’re using your own money every time you make a purchase, rather than borrowing funds from a lender.
The key to building credit with a secured credit card is to practice three essential habits.
- Use your secured credit card wisely – Make sure to use the card each month for one or two small purchases without overspending or missing payments.
- Keep your balances low – Avoid maxing out your credit card and try to keep your balance low and aim to maintain your credit utilization below 30 percent ideally.
- Pay off your debts like clockwork – Show responsible credit habits by always paying your balance on time and in full every month.
Keep in mind that the goal is to demonstrate responsible credit use to increase your credit opportunities in the future.
Choosing the right secured credit card
One factor to help you build really strong credit is making sure you choose the right secured credit card that will meet your needs. These features are essential to ensure the card you use is a helpful tool for building and improving credit.
- Choose a card that reports to credit bureaus. Make sure you ask whether the issuer reports your repayment behaviour to Canada’s credit bureaus: TransUnion, Experian, or Equifax. Not all secured credit cards will do this, which defeats the purpose of opening an account. A prepaid credit card doesn’t usually report at all. If reporting is not available, look for a different secured credit card or another credit card option suitable for bad credit.
- Choose a card that requires a reasonable security deposit. In Canada, secured credit cards typically require deposits of $200 to $500 and can be as high as $10,000. There are also many secured cards that allow you to put down even less collateral, as low as $49 to start. Keep in mind that the cash deposit will not be accessible unless you close your account, so choose what you can afford to pay. A card with a low minimum required amount will work if you’re short on cash. A secured card with a higher deposit can help improve your credit utilization ratio and potentially boost your credit score faster, but it can also increase the temptation to overspend.
- Choose a secured card that doesn’t have outrageous fees. Watch out for large monthly or annual fees that can deplete your deposit. It’s also important to consider other helpful benefits, such as an opportunity to increase your credit line, an offer to upgrade to an unsecured credit card or refund your deposit if you can show that you manage your line of credit responsibly and make a series of payments on time.
If used strategically, a secured credit card can be a helpful tool for building and improving credit after bankruptcy or a consumer proposal. The right secured credit card can help you obtain new credit and re-establish a good payment history.
Talk to a Licensed Insolvency Trustee such as Richard Killen & Associates Ltd. about getting a secured credit card after bankruptcy or consumer proposal and get helpful strategies that can effectively repair your credit rating and help you avoid racking up new debt.
How to Deal with Creditors during the Coronavirus Financial Crisis
If you are one of the hundreds of thousands of Canadians who only have CERB support payments to get you through this unprecedented time, and you have monthly debt payments to keep up with, the fundamental question is: How do you deal with creditors in this coronavirus crisis if you are no longer able to pay meet your debt payments?
Here are several things you need to know when making payments becomes hard or impossible:
- If you miss a monthly debt payment one of the first things you need to know is that your creditors have the right to take action to collect payment from you. This means they can call you, take you to court, sue you, and eventually garnishee your wages.
- Creditors will try to collect from you directly as soon as you miss a payment. They will begin with a simple overdue reminder notice. If you miss a monthly payment on your credit card, for example, your bank or credit card company will give you an overdue notice on your monthly statement. If it remains unpaid, this will escalate to phone calls, emails, and other forms of direct contact as long as the creditor is dissatisfied with the situation as it stands.
- You can expect to receive automated late payment notifications as these are system generated messages. It’s important to be aware that creditors will likely continue to send out written notifications of late payments so they can take legal action against you as soon as the courts open.
- If you have generally been current with your payments the good news is that other than the notice on your next statement, you will not likely see collection activities starting immediately after your first missed payment.
- If you have not responded to late payment notices or made a payment on your debt, and your debt is 90 days past due or more, lenders may decide to refer you to a collection agency. Because of COVID-19, this is not likely to happen in the immediate future as many collection offices are shut down or working with limited staff.
- If delinquency remains unresolved too long, the creditor may take you to court (sue you). This will involve filing a statement of claim with the court and serving this document on you..You will have 20 days to dispute the claim, which gives you time to deal with the situation. This too is not an issue right now as the courts are closed, which means creditors cannot start filing any legal action until the courts open again. But they can start the ball rolling in that direction now, so when the court opens for business again, things will move quickly.
- If you receive collection calls and you can’t pay due to a job loss from COVID-19, you should always simply tell the truth. Tell the collector that you’ve been laid off work, and are not able to make payments right now. Though you may run into someone where the compassion gene skipped his or her generation, most collection agents will be prepared to work with you rather than confrontationally against you.
- If a creditor has a garnishee order filed against your wages and your only income comes from CERB support payments from the government, don’t worry, these support payments cannot be garnisheed or applied to debt repayments. Creditors cannot obtain a court order to apply a wage garnishment on social assistance payments, government pensions or support payments. Garnishees apply only to employment income.
- However, if you have a bank account and owe money to that bank, on a credit card or a loan for example – then that bank can take payment out of your account without a formal garnishee and without your permission to apply to any overdue payment. To avoid this situation it would be a good idea never to do your banking where you owe any money. If you feel vulnerable right now due to the Coronavirus and want to change your deposit bank you may consider opening an account at an online bank.
- Finally, if you are in need of protection from your creditors’ efforts to force payment through garnishment or other collection activity, you do have the right to use the Bankruptcy and Insolvency Act and do a bankruptcy or a consumer proposal. In order to explore that option to see if it’s the right one for you, a meeting with a Licensed Insolvency Trustee like Richard Killen & Associates Ltd. will be the next step. During coronavirus time this is now possible by telephone or teleconference.
Communicate with your Creditors
The best way to deal with creditors during this coronavirus financial crisis is to talk to them. It’s crucial that you take action quickly and make the first move to contact them and find out what your lenders can do to help you. The key is to act quickly, as soon as you realize you may miss a payment.
The worst thing you can do is ignore your creditors. Lenders won’t know that you need help if you don’t tell them. Payment deferrals, loan extensions, revised terms or even reduced interest rates are all things your lenders can offer as a temporary solution. But they’ll need to assess your financial situation first. They will take into account your payment history, how soon you seek help and your recent credit behaviour and a number of other factors. If you’ve waited too long and have slipped too far behind with your payments they may not be able to help at all.
It’s important to keep your creditors updated with your circumstances, especially if your finances have been impacted by the COVID-19 crisis and you’re not able to keep up to date with your debt payments. As soon as you let your creditors know you need help, they will try to find ways to help you. So, don’t be afraid to reach out to them.
If you need help to communicate with your creditors about your debt, particularly in knowing what you can and cannot say, talk to us here at Richard Killen & Associates and we can guide you on how to go about dealing with them. We can also advise if you need to contact a creditor in writing. We can also contact your creditors on your behalf and negotiate a new arrangement to make debt repayments affordable for you.
Call us at 1-888-545-5365, or email us at lawrence@killen.ca or brampton@killen.ca and we can set up a free initial consultation on the phone or by email or video conference with you online. We are committed to providing full services in the midst of the coronavirus emergency.
Is Your Canada Emergency Response Benefit (CERB) Safe from Wage Garnishment
The Canadian government has created the COVID-19 Emergency Response Act in response to the COVID-19 global crisis. Under this Act, workers all across Canada who have lost their income from the COVID-19 pandemic will receive financial support payments in the form of the Canada Emergency Response Benefit (CERB). In fact, as of this writing, CERB payments are now being released and many of our fellow Canadians are starting to see this in their bank accounts. The CERB payments will provide $2,000 a month for up to four months.
The CERB covers millions of suddenly unemployed workers, which includes those who have lost their jobs, are not being paid due to COVID-19, those who have become sick or are quarantined and cannot work because of the coronavirus outbreak, as well as people who are taking care of someone who is sick with COVID-19 and working parents who must stay at home to care for their kids because of school closures due to the COVID-19 lockdown. The CERB financial support is also available to self-employed and contract workers not eligible for E.I.
Under the Act, families with children will also be provided financial assistance of $300 increase per child only for the year 2019-2020 through the Canada Child Benefit (CCB), which will be given in the scheduled CCB payment in May.
Can CERB Payments Be Garnished (seized by a creditor)?
For those who’ve had a wage garnishment on their salary before losing their job, and are qualified to receive these support payments, you might be wondering whether the garnishments will continue and if these benefits are subject to a garnishment too. Additionally, can CCB be garnished too?
The general answer is no, but there is a specific exception to be careful about.
The COVID-19 Emergency Response Act, under which the Canadian Emergency Response Benefit (CERB) and the temporary increase of the Canada Child Benefit was created, states the following:
- These support payments are not considered income or property in bankruptcy.
- These support payments cannot be assigned or given as collateral for a loan.
- These support payments cannot be garnished.
- These support payments cannot be kept by the right of set-off by the government for government debts.
To sum it up, under the COVID-19 Emergency Response Act, CERB payments as well as the temporary additional amount from the CCB cannot be garnished as they are considered financial assistance provided by the government and are meant to help you through this difficult financial time. These support payments do not fall under income payments, which are regular payments made by an employer to an employee. These support payments should solely benefit the recipient, not anyone else, which in the case of a wage garnishment, would benefit the lenders. Therefore, even though you have a wage garnishment in effect, you are allowed to keep the full amount you receive from your Canada Emergency Response Benefit and CCB one-time increase.
If a lender or a debt collector threatens you with a wage garnishment and attempts to collect money from your benefit payments they will be unable to do so. Thus, garnishment of wages in Canada can only be deducted from the money you make with your job, and thus requires the your employer’s cooperation.
The exception – when these support payments get deposited into your bank account they are fair game for seizure by your creditors. Once it’s in the bank it is no longer covered by the Act’s protection. It is just money in the bank.
Now a creditor (other than CRA) has to get a judgment against you first, from the court. But then they can execute the judgment by seizing money from your bank account. CRA can do the same thing without bothering to go through the courts by suing you.
One exception to what was said above is if you the money goes into your bank account with Bank A and you also owe Bank A on a line of credit or credit card or personal loan. They can seize your deposit by going to court first.
Talk to a Licensed Insolvency Trustee If You Are Worried About Creditors
As the coronavirus shutdown leads to layoffs across Canada, we see unemployment rising and unpaid debt accumulating. Fortunately, you can rely on your Canada Emergency Response Benefit (CERB) support payments to fully provide a safety net during the COVID-19 crisis, at least for a few months. So, be smart with your money during this challenging economic time.
But, if you are worried about a possible garnishment order from your creditors, especially if you start to fall behind on your payments during this period of health crisis, talk to us and we can provide you with the best information you can get on how you can best deal with wage garnishment in Brampton. All your options, including of course what they call your non-statutory options: bankruptcy and proposals.
We at Richard Killen & Associates are committed to serving you throughout this COVID-19 global emergency. We are still here to offer you all our services: free consultation, debt counselling, and, of course, going forward with a bankruptcy or proposal if you decide that’s what you need to do.
You can contact us by telephone at 1-888-545-5365 for a free consultation now. Or you can email us at lawrence@killen.ca or brampton@killen.ca , or simply check out our website at www.rkillen.ca.
Above all, stay safe.
The Big Secret of Financial Success with Robert Gignac
In this episode of The Glass Is Half Full, Richard Killen a Licensed Insolvency Trustee interviews Robert Gignac, a speaker, writer and author talk about The Big Secret Of Financial Success. He is featured in many publications, including The Globe & Mail, Money Magazine, Private Investor and has his own TV show called “We Talk Money:
| Richard | Hi, I’m Richard Killen. Welcome to a very interesting show we hope we have for you today on The Glass Is Half Full. We’re joined by Robert Gignac, am I getting it right, Robert? |
| Robert | Perfect, Richard. Thank you. |
| Richard | Good. Today we’re going to learn about the big secret of financial success, right Robert? |
| Robert | Yes. Absolutely. |
| Richard | Robert is a very, very highly sought after speaker who combines knowledge, passion and visuals to encourage people to take control of their personal finances and to live what you call a richly imagined future, right? |
| Robert | Absolutely. |
| Richard | Robert delivers keynote speeches and interactive workshop programs to International organizations, financial industry and private clients, right? He also featured in many publications, including the Globe & Mail, Money Magazine, Private Investor and you have your own TV show on, what is it? We TV? |
| Robert | We TV? |
| Richard | What’s it called? |
| Robert | It’s called We Talk Money, |
| Richard | And, one of the more interesting things, if you think anything is more interesting than TV, is that you’ve written a Canadian bestseller called Rich Is a State of Mind. |
| Robert | I did, accidentally by chance. I did. I’d never intended to write a best selling book on personal finance. I was trying to help a friend create a marketing brochure. |
| Richard | Some of the best things come from things like that? |
| Robert | Absolutely. |
| Richard | Well, I’m going to get back to your book in some depth little later on Robert. I personally found it very interesting, but I’d liked to ask you, you spend a great deal of time speaking to Canadians about concepts of personal finance and taking control of their financial future, and I’m sure you’re often asked, what is the big secret to financial success? So what is the big secret? |
| Robert | I get asked that a lot. And people are generally incredibly underwhelmed with the answer, which is that there’s no big secret. There’s no magic pill, there’s no silver bullet. There’s no one thing that if I only knew what that one thing is. What it is, is with many things in life, it’s a series of small, little, incremental things that we do over and over and over that allow us to get better with whatever it is, including managing our personal finances. If I were to pick one thing and I was asked this recently in an event because the person was adamant that there must just be the one thing it would be this, marry the right person and stay married. That would be the one thing, right? If anybody’s ever been through an asset-ectomy, i.e. divorce, and lost half their assets, it’s a huge impediment to being successful financially and the…. |
| Richard | Not to mention being a bit of an emotional letdown. |
| Robert | A huge emotional letdown and lots of other issues to deal with there, but If people are looking for that one thing, they’re going to be really disappointed to find out that there just isn’t that one thing. |
| Richard | So essentially you brought marriage counselling to the table? |
| Robert | No, absolutely not. But at the end of the day, |
| Richard | It’s important. |
| Robert | It’s important and it’s important that we do a number of things better than we’re doing today to have a better future tomorrow. There’s a line I’ve heard that I like that said, If you’re willing to do the things today that other people won’t, then tomorrow you can have the life that other people won’t be able to have. If you’re willing to do those things today. |
| Richard | But it has to be today. |
| Robert | But, if not today, certainly tomorrow or next week because we all believe we have huge, vast amounts of time at our disposal. |
| Richard | Especially when we’re young. |
| Robert | When we’re young, certainly. When you’re 25 the concept of being 50 seems ancient, right? |
| Richard | If you think about it at all. |
| Robert | If you think about it at all. But we think about it because we look at our parents and we look at our grandparents and we go, yeah, I’ll get there, but I’ve got lots of time. And the reality is that time disappears before we know it. |
| Richard | You wrote an article called, It’s Possible, and in that article you talk about giving a speech, I guess it is, to a group in Timmons, I think it is, on the subject of, you call, richly imagined future. I understand that an audience member commented, confronted you if you want, to go with his own thought on the matter, saying, basically that this was all well and good for you, but there’s no way that it’s going to be possible for him. Can you explain what happened next? |
| Robert | So it was during the Q and A portion, and the gentleman came up and he said, “he thoroughly enjoyed the presentation”, he said, “but this concept that you talked about won’t work for me”. And I said, “Okay and tell me more?”, because that’s always my favourite question to someone. Tell me more and he said “well, you don’t understand. I just have a high school education. I never went to university.” That’s great. He said, “why is that great”? I said because too many people confuse education with the ability to do better things with money. You don’t need a university degree to do great things with your personal finances. The fact you didn’t go to university is great If you had gone, sure, that’s nice. But don’t let the fact you didn’t go to university determine your financial future, and I drew his attention to a quote that I had put up during the presentation by a British entrepreneur named Brad Sugars. And the quote, I use it all the time, is the quality of your life is determined by the decisions you make, which is determined by the questions you ask, which is determined by the quality of your education. But don’t confuse that education has to come from a school system. It comes from the books we read, the things we watched, the people we associate with, and as long as we’re willing to learn something new and change your behaviour, then we get educated. When we’re educated, we ask better questions. Those better questions could be to financial professionals, the peers around us, and when we ask better questions, we make better decisions. And that’s what determines how successful we’re going to be. Not whether or not you went to University, college or even graduated high school. |
| Richard | In fact, some people will say that your education only really starts when you leave school. |
| Robert | Oh, absolutely, But, many leave the educational sphere, and I’ve actually heard people say this when they were done with school, it’s like, “Oh, thank God I’m done with that, now I don’t have to read any more books.” No, reading books is excellent. It’s a phenomenal way to gain the education to help you do better things. |
| Richard | You could be describing my father, who had a 7th-grade education, but it was possibly the, certainly the most everyday man I’ve ever known. |
| Robert | That’s great. |
| Richard | But he read a lot, quite a bit. |
| Robert | It’s important. |
| Richard | Can I ask you? People are always looking for, easy or shortcut answers to think about that. I’m gonna see if you can provide one here. What is the biggest single thing that somebody can do to improve their financial situation? |
| Robert | If I were to boil it to one thing, Richard, I’d probably boil it to one word. And the word is no. It’s a word that most people in today’s day and age or incredibly unfamiliar with because they’ve never said no. They’ve never had no said to them. Sometimes as parents we don’t say it enough to our kids. Right? Can I have the new Xbox, XYZ killing video game? No. Do I want to go out and buy a new Lexus GS450? Yes, but no. Because the more often we say no to ourselves, the more successful we will be in the long term. That doesn’t mean I’m against spending money. Spending money is a great thing, right? We work hard. We earn money. We should spend some and enjoy what we’re doing. But the reality is, the more often we say no and delay the gratification, the more successful we can be with our finances. |
| Richard | Yep. I’d like to talk to you a bit about your bestseller, Rich Is A State Of Mind, right? Just a comment I’d like to make about the book, is I found it very interesting that you wrote it is a novel instead of the usual how-to-book, which is almost a manual, right? You have very good writing skills, I’ll tell you that. |
| Robert | Thank you. |
| Richard | When I was reading it, I found that I was, it was a page-turner. |
| Robert | When it comes to books on personal finance, I’m flattered to hear that. |
| Richard | And that’s the thing that impressed me the most on it, is that it is very thorough, but because it had it was a novel, had a plot, storyline, characters, that you get involved in, personalities if you want. But using that as a vehicle, what you did is, you brought in everything that I could think of it as a factor in personal finances, personal finance management, everything from how to save to the effect of inflation on things and what not? And because you wrote it as a novel, it all started to kind of make sense. It was explained and explained in a very, very easy, to, understand way. I think anybody could read that, you don’t have to be an MBA to be able to understand. |
| Robert | Oh, and absolutely. And one of the things I tried to do with the book when I picked this format, is I knew if I created a personal finance book that read like a high school or university textbook, nobody would read it, right? But, if I could craft a story of a slightly dysfunctional Canadian family trying to come to grips with everything related to personal finance, if I was lucky, I could create characters that people would read the book and go, “That’s exactly how I feel.” Or that’s my kid sister. That’s my older brother. And if I could do that, then maybe I could keep them turning the pages in order to actually get from one point to the other. There is an email that I received from a reader of the book that I keep posted in my office, right on my filing cabinet. I can see it every day, and it was a reader, who said “Robert, there’s one thing I needed to tell you about your book. I own many books on personal finance. Yours is the first one I actually finished, and I was so grateful to see that, that it’s in a prime spot where I see it every day. |
| Richard | Well, I’ll send you an email that says the same thing. |
| Robert | Thank you. |
| Richard | I want to ask a few questions about the content of the book, the thing that you discussed, if you don’t mind? In it, you talk about the importance of saving. That should be obvious to anybody that if you want a plan for your financial future, it’s going to incorporate an element of savings, and it has to be released. But for somebody living paycheck to paycheck, it’s really hard to see how you can do this. And I know in the book, you do deal with that eventually and so on. But maybe you could talk a little bit about that now. |
| Robert | One of the things that is difficult for all of us to grasp, is that if we want a better or different tomorrow, then we have to do different things today. And as it relates to money that generally the first basic building block is saving money, spending less money than you earn. Now there are a number of different ways, we can attempt to do that, but at the end of the day, taking that first step saving dollar one or dollars one through five can be a significant challenge in today’s economy, and but at the same time there are some simple things we can do. I think that will help us along that path. So, for example, one of the examples I used in the book if any of us were to go through a salary reduction if our employer came along and said sorry times are tough, we could keep the business open. But we’ve got to reduce everybody’s salary by 5%. Our first reaction generally wouldn’t be, “Hey, I’m out of here, and I’m looking for a new job” it would be like, “Wow, this really sucks. But okay, what do I do now?” And one of the things I encourage people to do is if you’re having problems saving dollar one pretend you just got a 5% reduction in pay. You get to spend all the rest, but that 5% has to be set aside for things that you’re going to do in the future. And while you’re doing that, you may go look for a new job. You may create a side hustle that brings in a few extra dollars. There’s a number of things you can do on that front, but it’s taking that first step, that is the most critical piece, Richard. |
| Richard | And by essentially treating it as a fait accompli, where the thing is done, you just don’t have that 5% anymore, right? |
| Robert | And, put that 5% in a bank account that’s not linked to your debit card, because we all know what it’s like. You’re out on Saturday night, you’re out with some friends, it’s like, I need $50, wait a sec, I’ll take it out now and I’ll put it back in on Tuesday. No, it’s not going, it’s gone. So make sure that it’s in an account that is not easily accessible. |
| Richard | Didn’t Wimpy buy his hamburgers like that? |
| Robert | Sort of like that. So, yeah, I’d gladly pay you next week for a burger I can have today. |
| Richard | That’s right. Mind you, that showing my age, you’re not supposed to have heard of them. You say in the book that people, everybody’s interested in money, I find that fairly easy to believe. But you also say that people are afraid of it. |
| Robert | There’s a lot of emotion around money, and it’s not just a Canadian thing. I think it’s more of a global thing. That money tends to make us feel like we’re not successful. I tell people all the time. Money is a crappy way to keep score in life. But the reality is for many of us, it’s the only way we’ve got to keep score or we think we do because we’re always comparing ourselves to others. We compare ourselves to the people we live next door to. People were related to, the people we work with, and we’re always critical of people who look like they have more money because we wonder, what did they do to get this money? Was it illegal or immoral or some other thing? Or somehow, if I don’t have enough money, however much that is, then somehow I have failed and done something wrong. |
| Richard | Would that be because, like it or not, money is one of the very, very few objective things which we can measure things? |
| Robert | It is. |
| Richard | Hard to measure how much love you are receiving or giving? |
| Robert | Absolutely. When you know it’s numbers, it’s paper. We write it down, we add it up, we divide it and we can see it in black and white. But the emotion that goes along with that is where most of us get pretty messed up as it relates to the money. And it’s where the fear comes in because we always think we’re not good enough. And what if I don’t measure up? |
| Richard | If I can’t do it? |
| Robert | But the thing that I always tried to caution people is when you’re making that comparison, make sure that you’re comparing reality to your reality. So, you know, in the age of social media, I try to convince people all the time. Social media is not real, so when you’re seeing your neighbours or your cousin vacationing in…. |
| Richard | So what President Trump says all the time is not real? |
| Robert | Uh, no, I know. But the reality is when we see people we know vacationing in Mexico or they stand beside a new car or we go like, holy crap, they’ve got it all figured out. They never post the picture of them on social media at 2:45 in the morning, curled up in the fetal position in bed, can’t sleep because their visa bills due Friday and they don’t have the money? No. They post the picture of their meal dining out, or a sporting event or on vacation, and their life looks great. We then feel bad about ourselves going, “Why can’t I do all of that?” Well, we could. We just have a different plan. |
| Richard | So, Robert, you talk about the word rich. It’s in the title of your book, right? |
| Robert | It’s in the title. |
| Richard | But you have a very interesting definition of the meaning of that word. |
| Robert | Well, rich means different things to different people. And if you do look it up in the dictionary and I know the younger viewers watching go, what’s a dictionary? If you look it up, the very first Google, very first definition has to do with depth of colour, and hue has nothing to do with money until you get down to the fifth or sixth definition. I chose the title, Rich Is A State Of Mind, because nobody could tell me what rich is or was to them. They didn’t, they quote me a dollar figure. They didn’t say it’s 2,738 something. But they told me how they would feel, what their life would look like, who they’d spend their time with, if they ever answered the question, yes. Which made me think that it’s really a mental thing. It’s how we feel, not what the balance of a bank statement or mutual fund statement says. And the characters having the discussion in the book about the concept of the word rich, Richard, the mentor in the book, went to the whiteboard. |
| Richard | Very good name. |
| Robert | He wrote down one word. Freedom. Now, it was interesting that he chose that word because the other characters in the book in that discussion were freedom from what? And Richard just kind of smiled and said, “Not freedom from, freedom to. Freedom to create the life you want, spending time with who you want to spend it with, doing things that bring you enjoyment, not freedom from something.” And when we look at money is the ability to provide experiences in our life, then I think we get a much deeper appreciation for it. |
| Richard | In your book, you’re also, by definition, if we’re talking about building a better financial future for ourselves we’re going to be eventually talking about saving money. |
| Robert | Yes. |
| Richard | And in the process of that, discussing that in your book, your characters mentioned that, for most people, perhaps, saving is seen as a form of punishment, where you deprive yourself. |
| Robert | It’s denial. |
| Richard | Spending. Yes, denial. And spending is a form of reward. |
| Robert | Yes. |
| Richard | You don’t agree with that? |
| Robert | I don’t agree entirely, because what happens is sometimes we get things reversed when we need to do better things with our money. Saving is actually the rewards side and think of spending it is a little bit of punishment because we’re destroying the wealth we’re creating by doing so. Now, we all need to spend money, right? We have to pay rent. We have to buy gasoline for a car and a metro pass and some groceries. All of these things. But the end of the day is we’re trying to plan a long-range financial future. The savings aspect is actually the reward that we’re going to get later. But in today’s day and age, the concept of delayed gratification doesn’t exist. Where those who came before us? My parents, my parents before them? You didn’t buy things if you didn’t have cash in order to pay for it, you save money for a rainy day. You waited until you could afford to do something. But in today’s day and age where we have this kind of frictionless spending, you know, he used to be with a credit card used to make that noise, like when they actually ran your card. Now it’s tap and beep, the money’s gone, right? We don’t have any physical relationship to it. And that’s what I think messes us up about money today. |
| Richard | Well, you’re not going to get any argument from me. I’m an Insolvency Trustee, as you know Robert, and the whole concept of credit cards, although it has had a very positive effect on this overall standard of living, the economy in general, the size of the economy and |
| Robert | And there are people who use credit cards very well. |
| Richard | In fact, probably the majority. |
| Robert | I think the majority do. |
| Richard | Because it’s not the majority that to come and see me. But in any case, I have to agree completely with you. What you’re talking about there is essentially the difference between short-range thinking and long-range thinking, right? |
| Robert | Yes. |
| Richard | So the idea of instant gratification is that you can’t see beyond right now. A child thinks that way. He sees that he wants that and so on. Where, as an adult is supposed to come along and say, “So I don’t know. What am I gonna have to give up next week or next month or next year to |
| Robert | Right, and we can do a pro and con list if you want. If I do this today, what can’t I do tomorrow? If I’m willing to forgo this today, what will I be able to do tomorrow? And it’s that kind of decision-making process that hopefully allows us to make better decisions financially. |
| Richard | And it kind of leads into my next question, which is you’re referring to savings as something that is essentially, it has become a habit for it to be effective, basically or if you want. If you can get into the habit of doing it, it will really pay dividends. |
| Robert | And it’s the habit that drives us from a financial perspective. But we get into habits all the time, both good habits and bad habits. But when we’re trying to start that saving money process for somebody who’s always struggled with it, or never, ever saved a dollar, saving dollars, one through five is the beginning of a habit, and we do it this week and we do it next week to do it the week after, and the week after that and the lot more we do that, we ingrained the habit, it becomes second nature, and then we don’t even have to think about it anymore. It just happens. |
| Richard | And in your book, you essentially saying that the way to look to achieve this, when you move into this is to start small. So you use the example, one of my favourites that I think I learned when I was about 13 years old or something, I don’t know why, but I learned it, that little example, we’ll call it that of the value of a penny, double daily? |
| Robert | Yes. |
| Richard | Not one cent double daily? |
| Robert | Right. |
| Richard | The value of a penny double daily. So if it doubles tomorrow, you got two pennies, now double two pennies, you’ll have four. So by the end of the month, how much money do you have? |
| Robert | You have approximately $2.7 million now, realistically, there is no investment out there in the world. |
| Richard | But when you tell me where that was. |
| Robert | That will do that for you. But the reason I used the example in the book is to get the characters understanding the concept of time and compound interest in order to help your savings and investments grow over time. |
| Richard | And compound interest is what you call? |
| Robert | The Seventh Wonder of the world. And I didn’t I guess, seventh or eighth right, depending on your perspective, that you know. But the reality, I didn’t think that it was some guy named Baron de Rothschild’s in this 1800’s who eventually coined that phrase. But if you don’t start saving dollar one today, then 38 late days later or 38 months later or 38 years later it won’t matter. You will have lost that time and compounding opportunity in order to make your personal finances better. |
| Richard | I think you mentioned in your book that if used the example, that if a 20-year-old, give or take, is able to save $2000 a year and does it only for 10 years and stops saving at that point but allows it to compound at whatever rate of interest, whatever rate of compounding. But just to keep things simple, we’ll use 10% which is way higher than what you’re going to get today, probably on average, but for the sake of the example, that 10% how much money is a person had by the time they are 65? |
| Robert | Approximately $1.2 million. |
| Richard | And all they’ve saved his $20,000. |
| Robert | Right. But if their friend, who says I’m not going to do this from the time I’m 20 to 30, I’m going to start when I’m 30 and they save that same $2000 a month for 10 years for all the way to 60 |
| Richard | Oh, all the way. |
| Robert | For the next 30 years, they will still not catch up to their friend, who started earlier and stopped. |
| Richard | It’s pretty graphic. |
| Robert | It’s the value of time. Now to a viewer or listener to the podcast, they may go, I’m 48 years old, I’m screwed because I’ve never saved dollar one. No. Start now. The best time to have planted a tree in your backyard if you want to sit in the shade is 35 years ago. The second best time is today, because if you don’t do it today, 30 years from now, you’re still not going to have any shade to sit under. So it’s the point where, regardless of where you are in that spectrum, if you’re 22 and starting it, great. If you’re 32 and starting it, great. If you’re 42 and starting it, great. The key is you have to start. |
| Richard | And along with that starting, goes the idea of goal setting, isn’t it? |
| Robert | Goal setting is |
| Richard | Start, but start what? You can’t just flail around? |
| Robert | No you |
| Richard | I mean you could, I suppose. |
| Robert | You could. |
| Richard | But it’s not smart. |
| Robert | But goal setting is important because it’s what in many cases drives our behaviour in the decisions we make. Why are we doing this? Because I want to accomplish X Y and Zed. “X” in the next year, “Y” five years from now and Zed 10-15 years from now. But without those mileposts out for us to work towards, we don’t see the reason why we are doing this in the first place? So we need to get very clear about that. |
| Richard | Keeps us on point. And keeps us essentially on target. |
| Robert | And one of the cool things that happens about goals is once you start crossing them off the list, you get incentivized to go, cool, how do we get more of these? Well, then we create more of them, and we keep trying to accomplish them. |
| Richard | I’m going to throw an acronym at you, Robert, you may have heard of it before because it’s in your book. Smart. S M A R T. Tell us what that is? |
| Robert | It stands for specific, measurable, achievable, realistic and time-based. It’s the I’ll say, the backbone of goal setting. Everybody talks about goals, talks about this, and what it is creates a structure for you to set goals. Your goal has to be specific. I’m going to lose 36 pounds. It has to be measurable. Already had measured that when you get on a scale every once in a while, is it achievable? Well, it depends on your time frame if you said by the end of the calendar year, but we’re already in October, 36 pounds in a month and a half, may not be really may not be achievable or realistic? |
| Richard | Give up eating. |
| Robert | Well, exactly. But, then here’s what happens. We give up eating for like, three days, and on day four, we head to Tim Hortons for a couple of you know, sour cream doughnuts and a large double-double because after three days we have, we’ve committed ourselves to fail by not setting a realistic goal. |
| Richard | So that’s what SMART is? |
| Robert | Yes. |
| Richard | Okay, now you also mentioned something else. I’ve heard this before, but missed to see it in your book, nice to be reminded of it, the phrase called, Pay Yourself First. |
| Robert | When we think about the concept of money and saving dollar one, we have to, particularly for those of us who get a regular paycheck from an employer, take the money right off the top. So if you received $500 that week, is your paycheck the first X amount? Whether it’s $5, $10, $50 or $100 goes right off the top. You don’t see it. You don’t get it. You can’t spend it. |
| Richard | You don’t put it into the same account that you’re |
| Robert | Exactly. It goes into that account not linked to any of your debit cards, so that you have no access to it without maybe physically going into a bank branch in order to do it. |
| Richard | So this is a bit of takeoff on something you said earlier about, we’re talking about pretending that you have a 5% pay decrease. |
| Robert | Right. |
| Richard | Basically, you’re paying yourself that 5% first. |
| Robert | Right, and that once you do that the rest of the money you get to spend without ever worrying about it. The problem is, many of us try to do the reverse. How much money do I make? Here’s my bills, add all the bills up, and we draw that big line, say, I’ll save what’s left. |
| Richard | Right. |
| Robert | There’s none left. Because our unexpected expenses and our ability to go and hang out with our friends on the weekend and only eat into all of that residual income and then the amount at the bottom is zero, I don’t have any money to save. No, take it off the top and once it’s gone, the rest of the money, go ahead and spend the rest of the money. And I didn’t invent this phrase. I think it was the guy who wrote the book, The Richest Man In Babylon, in 1904, who actually coined the Pay Yourself First. |
| Richard | Nothing new under the Sun. |
| Robert | There really isn’t. |
| Richard | But, are munificent Government invented a couple of things for us, one is called on RRSP and the other one is called a TFSA, registered retirement savings plan, and the tax-free savings account. |
| Robert | Right |
| Richard | Now, you’ve got some ideas on the benefits and, to some extent, the detriments, of one against the other. |
| Robert | There are, I think there are certainly pros to both. The RRSP is thought of as a much longer-term vehicle for saving money. Because, you put money into the account, you get a tax break today, and then that income will be taxed back to you 10, 15, 20, 25, 30 years out. |
| Richard | Presumably at a lower rate because your overall income, |
| Robert | Presumably at a lower rate, because we make hopefully a decent living while we do that when we’re retired, our income falls. We’re taking money out, it should be taxed less. It grows compounds over all that time. And then we can tap into that later. The tax-free savings account, and I guess it’s a decade old now, so but it’s still relatively new in the grand scheme of things, allows us to put money away, and all of the growth has never taxed, in that account. We don’t get a tax break for contributing the way we do with the RRSP, but all of the growth that occurs in the account comes out of it, none taxed. I think, the one thing I wish they had given it a different name because they called it the tax-free savings account, so we tend to think of it as a savings account, like it’s transactional. We put money in this week, take it out two weeks now. Put money in next month, take it out two months from now. It wasn’t designed to be transactional that way, and you can invest inside it and hold stocks, mutual funds, ETF’s. It shouldn’t just be thought of as a savings account. Why? Because you can’t get compound interest when you’re only using, getting 1% on your money, using it as a savings account. |
| Richard | Yeah, and not surprisingly, and not that many people are terribly converse in with what a TFSA is and how it works, the way you’re describing. A lot of people, maybe most people understand what they’ve been, just a retirement savings plan, because CPP is that there’s always talk about providing for yourself when you’re as you get older. Generally, some concern and anxiety that comes into play for probably most people that, what will they be able to live on? Are they going to be totally dependent upon CPP and OAS? Or will they be able to provide for themselves completely, or maybe supplement themselves? |
| Robert | And, do some Canadians have a pension plan? Some of it’s a defined contribution plan based upon what you contributed through your employer and automatic deductions and what they might match. Others are defined benefit, which is more of an older style, which my father had because he worked for the same company for 35 years. But, all of these things, to me, go along with having a conversation with a financial professional because there’s lots of decisions to make, lots of options to have, and sometimes it helps to have another person help walk you through the process. Here’s the pros and cons. You’ve got 15 options. How do we sort our way through that? Yet, sometimes we try to convince ourselves that, I’m smart enough to figure this out all by myself. And, yes, some people are smart enough, but, going right back to where we started this conversation, how you work with your personal finances, has nothing to do with how smart you are it’s how, |
| Richard | What education is. |
| Robert | Or what education you have. It’s what are you willing to learn through the process to make better decisions? |
| Richard | Well, on that note, Robert, I think that wraps it up pretty good. You don’t have to be a PhD or anything like that to be able to manage your finances well. |
| Robert | Absolutely not. You just have to want to. |
| Richard | And, I know a little bit about how, and I can’t think of a better way for anybody to, for anybody to, find out how and to read your book, Rich Is A State Of Mind. Rich Is A State Of Mind. And highly recommend that anybody pick it up. Where can they get this book? |
| Robert | The best place to get a copy of the book is from my website, which is www.richisastateofmind.com. So it’s the book title, just as one word. If they’re interested in the other work I’m doing, It’s robertgignac.com, and they both link to each other. |
How To Save Money On Credit Cards And Travel With Barry Choi
This episode is about smart ways to use credit cards and consolidation loans to help you pay off your debt. Barry also discusses how to get more bang for your dollar when it comes to vacations.
Barry Choi is a Toronto-based personal finance and travel expert who frequently makes media appearances. Richard Killen is a Toronto Licensed Insolvency Trustee and author of the book “The Glass Is Half Full”.
| Richard | Hi, I’m Richard Killen. Welcome to the Glass Is Half Full. The show that tries to get people to get a better bang for their buck, even if they’re kind of short on the bucks. So today we’re joined by Barry Choi. Welcome, Barry. |
| Barry | Thank you for having me. |
| Richard | I have to read this Barry to make sure I get it right. Barry is a Toronto based personal finance and travel expert who frequently appears on City TV, Global, CTV and other TV programs. He is also a regular contributor, to many financial and travel publications, and his blog “Money We Have” is one of Canada’s most trusted sources when it comes to both finance and travel. So once again Barry thanks for joining us. |
| Barry | No problem. |
| Richard | Today I’d like to cover both of the aspects of finance and travel. Okay, so I’d like to start with personal finance, maybe on the basis that if you don’t have any money whatsoever and no credit cards you are not going to travel very far anyway. I think you’ll agree with me when when I say that credit cards are the most ubiquitous, the most common form of personal credit in Canada. |
| Barry | Definitely. |
| Richard | And with everybody 18 or over has at least one. |
| Barry | They should. |
| Richard | If not 12. I don’t agree with 12. |
| Barry | Don’t ask me how many I have. |
| Richard | So I’d like to start off with credit cards. One of the things about credit cards, if you’re in the credit card business, to promote the card, to push your product, use many gimmicks, shall we say? |
| Barry | Sure, yeah. |
| Richard | Special offers. One of the most common ones, certainly that I’ve heard of, is the balance transfer usually based on interest. Can you explain that to us? |
| Barry | Yes, so the thing about balance transfers, it seems like a gimmick, but I think it’s one of the best options out there, especially for people who have run up debt on their previous credit cards. Because usually when you look at an offer you are talking about points, cash back, benefits for airports or whatever, but what the balance transfer options, you’re basically guaranteed a lower interest rate when you sign up by transferring your previous balance to this new card. One good example is, and MBNA tree line gold card. It has a 0% interest rate for nine months. It comes with a $39 fee and 1% bounce transfer fee. But you know, 0% obviously is much lower than, say, the 19.99% that you’re currently paying. |
| Richard | Yes, I know there is a difference. |
| Barry | Yeah, huge, huge difference right? And even then, there’s the nice thing about that. even if you can’t pay off the entire balance right away, the balance or interest rate goes up to 8.99 or 12.99 depending on what you have. Which is still lower than what you’re paying before. The key thing is to understand that if you’re going to do this balance transfer it’s not just to, like constantly balance transfer to avoid paying your bills. The whole goal is to pay down your balance, right? So if you are to continue picking up debt with your new credit card, it doesn’t matter. You’re going to run into a whole eventually. |
| Richard | Now, obviously, this depends how you handle your cards. There’s nothing… |
| Barry | That’s right. |
| Richard | Like if you’re paying your card off the end of every month, you’re getting down to zero of every month. You really don’t have a credit card there, do you? |
| Barry | You have no debt, right? Like that’s a beautiful thing about credit cards when used responsibly. Not only do you build a good credit score, you can reap all the benefits from the points you earn or the cash back that you earn. |
| Richard | So, on whole, it’s good to take advantage of these things, depending on what it is you’re transferring, and how much… |
| Barry | 100% depends on the situation. |
| Richard | We’ve all kind of pretty well, everybody, I hope has heard about the term consolidation loan, but it may not be 100% sure how that works. Can you flush that out for us? |
| Barry | Yeah, generally speaking, is you get one big loan at a lower interest rate, I’m going to make up this number. Let’s just say you get that loan for 7%. Well, then, with that loan, you pay off all your other debts. So if we are talking about those credit cards that have 19.99%. Maybe your car financing is 10%. So you’re getting this loan with a lower interest rate to pay off all your other loans. The key thing to remember this, these loans are kind of open ended, so you can continue to pick up debt if you’re not careful. So you can’t just accept this loan thinking that well, I’m going to do this. You really need to have a plan to pay off your debts. |
| Richard | So, you have seven or eight credit cards, and you owe a grand total of $30,000, will say $40,000, so you would go and you would get a loan from a bank, from finance company or whatever, that is offering you an interest rate, which is going to be better than what the credit cards are. |
| Barry | Presumably. Exactly. You take that amount you get, pay if off. But you also really have to pay attention to the terms of that loan because it may be 7%, but it might be a floating rate where it could change at any time. Or, keep in mind, sometimes they may call that loan back and you don’t have that money handy, you actually end up with more debt. |
| Richard | But in this you’re changing from one type of credit to another. You’re changing from revolving credit to a fixed credit where you’re paying both interest and principal down over a scheduled period of time. |
| Barry | Exactly. So that’s where you had to really read the details. There are all these different types of loans you can get. Sometimes people get an interest only loan, for example, and they don’t realize that they’re making the minimum payments, but in reality, they still haven’t paid back anything. |
| Richard | That’s for sure. If all you’re doing is paying the interest. |
| Barry | Exactly. People just don’t realize that. |
| Richard | Yeah, but one of the things that I’ve found, in my business, is that people get a consolidation loan. But, perhaps the lending institution that gave him the loan didn’t insist on cutting up the credit cards or something like that. Or maybe they did and the credit card company sent him new ones and things like that, and within a couple of years or something, the consolidation loans still has three years to go, but the credit cards have gone back up to perhaps even as much as what they owed when they got the consolidation loan. |
| Barry | I think secretly, that’s the goal of the lenders, right? They want to make money off you. They’re not just… |
| Richard | Well, we shouldn’t be cynical about these things. |
| Barry | You know? Okay, let’s just say that’s right. |
| Richard | It’s unfortunate. |
| Barry | It is definitely unfortunate, that’s why I was saying, you need to have that plan of attack. That right. |
| Richard | That’s what you were talking about. |
| Barry | Exactly. So you take that loan and pay off your highest interest debt first, so you can just reduce the amount of interest you are paying, and maybe right away you lower, or either maybe cut up the card. It’s a good thing to do right away. You can’t spend it if you don’t have access to the card or you lower your limit. If you know you’ve had spending issues and problems or close some cards. Maybe just get down if you had 7 or 8 cards may be going down to one or two of the lower limit. Just get some self-control and educate yourself, and I think even gotten as far as getting this consolidation loan. You’re smart enough to realize that you might have a problem and you want to learn from it. |
| Richard | Hopefully, but the thought process will have started to move in that direction anyway. |
| Barry | Exactly. |
| Richard | Hopefully, yeah. Just to segway a little bit into the travel side of things that we’re going talk about a little bit later, Barry. I understand you’re a bit of a fan of travel rewards. |
| Barry | I like travel rewards, with credit cards, yeah. |
| Richard | I don’t fully understand them, but maybe it’s because I don’t take advantage of them like perhaps I should, I don’t know, educate me on this. |
| Barry | Yeah, it’s pretty straightforward. You know, when you sign up for a new credit card to travel when they offer you a nice generalized sign up bonus. But there’s always conditions you got to spend “x” amount before “x” date, usually three months, right? And, then you earn points on all your purchases, which can then be redeemed for a discount on travel. The key thing is, as we already discussed, is, you have to pay off your balance in full every single month because what good is earning 3% in travel rewards if I’m paying close to 20% in interest, it makes no sense. But quite often people can just fool themselves into thinking that no, I deserve justification. When it’s a good deal, it’s quite often not, right? |
| Richard | Let the emotional side of decision making take over. |
| Barry | There’s no doubt a lot of people suffer from (fomo) fear of missing out. They see on social media what their friends are doing, and they know they can do it, too. But they have to put it on credit. And unfortunately, you know, sometimes you think its people who don’t have any money or low income. They’re taking (wrenches). But you know you could have a good salary and just abuse or credit cards at the same time. |
| Richard | I see that a lot. In fact, that’s one of the reasons people get a lot of credit is because they have a good salary and they’re able to make the payments. |
| Barry | Well, that’s the key thing we’re talking about travel rewards. The higher salary you get, you qualify for better credit cards, which better benefits, better rewards. It’s really easy to get more debt if you don’t pay it off. |
| Richard | That’s for sure. On the subject of all of the travel and that, would it be advisable, and there are credit cards that lend themselves to this to have one or a couple of credit cards that are designed for travel and others for domestic use? |
| Barry | Yeah, for me, it’s like it’s not like a travel credit card that you’re using just for travel. It’s just the type of rewards you’re earning, right? So you can use them domestically or internationally. There again, it’s the type of rewards you want to earn. And so you know, the West Jets got their own credit card, Aeroplan has theirs. But then each bank has their own travel program where you can earn points. That said there are certain credit cards that may are designed specifically for all in one use. Scotiabank released the passport credit card a few years back, which gives you no foreign transaction fee. So it saves you a minimum of 2.5% whenever you make a purchase in a foreign currency. So, yeah, you could argue that that is a great card to be using internationally |
| Richard | Now that you mention foreign currency. I was going to ask you about are there cards that are advantageous in terms of what we call it currency exchanges? |
| Barry | Yeah, definitely. So I mentioned that 2.5% in a lot of people who are watching us right now might be like, what are you talking about? I don’t get charged that fee. What they don’t realize is that it’s baked right into your exchange. So if you’re buying something in U. S. Dollars when you see the Canadian amount, the extra 2.5% is already in there unless you have a credit card that doesn’t charge foreign transaction fees. Fortunately, over the last couple of years in Canada, it’s become a big issue. So there are more and more credit cards available. There’s almost like 10 credit cards now that in Canada has no foreign transaction fees. But if you go back three years, there’s only two, so there are more and more options, and just each card is different so you got to do a little bit of research. |
| Richard | I guess that the whole idea of transaction fees is another question, too, isn’t it? |
| Barry | Yeah, it’s crazy how many fees we pay, right? |
| Richard | How crazy is it? |
| Barry | Well, I guess the foreign transaction fee is just 2.5% right, But it’s on any foreign currency like these days. People are buying things online, US dollars. So why pay a premium when you don’t have to? You just apply for one credit card that doesn’t charge you the fees and you save every single time. So it’s not like a huge amount if you’re buying something small. But over time it definitely adds up. The way I look at it, let’s just say I looked at all my trip expenses. If I was going to Italy, the amount in fees I pay could be the same as one nice meal while I’m there. So I’d rather have that nice meal than pay fees. |
| Richard | Now you mentioned Currency exchange fees on that. But what other kinds of transaction fees should we guard against if we’re thinking of using credit cards? |
| Barry | Well, you know, it depends like a lot of people you know, there are cash advance fees right where you don’t want to get into that because that’s where you’re paying to access money that you don’t have and you pay a higher interest fee, as far as credit cards are concerned…. |
| Richard | When you get a cash advance, usually you start paying interest on that money, right? |
| Barry | Right away. Right? And yet pay a higher interest fee. |
| Richard | And higher interest. |
| Barry | That’s right. |
| Richard | Is there a separate fee on this? |
| Barry | There might be. It just depends on the terms of conditions of your card, every card is different. Generally speaking, most credit cards don’t have a fee when you use them, unless it’s a cash advance and international. But again, it really depends. |
| Richard | So Barry, I said we’d eventually get into the travel side of things, right? Because our audience presumably is looking for some information and let us call them tips, on how to get that better bang for the buck. |
| Barry | Sure. |
| Richard | So, now I’m going to ask you for some tips. |
| Barry | Yeah. |
| Richard | But we’re going over to travel side of things. |
| Barry | Okay. All right. |
| Richard | So most of the people watching are probably are family people, have children and all that. What tips can you give us about getting more from, you know, a single family holiday, we’ll say? |
| Barry | It really depends on your budget. So that’s where I like to start more than anything else. If you want to make travel part of your family life, you got to set money aside for it. You know a good example, and I’m throwing out a random number here, right? If you were able to put aside $500 a month, that would give you $6000 a year. That may seem like a lot of money for some people like, to put aside that amount. But, you know, I’m just throwing out these numbers there, just as an example. You have to remember that you can’t necessarily travel every single year. So if you don’t have that much amount saved, wait for next year, right? I didn’t try every single year when I was younger. But once you’ve got that money set aside, you could do whatever you want with it, right? Because the key thing is, you’re not dipping into your credit cards or any lines of credits to pay off for your traveling, and that’s where I like to start it and then, you know, based on what your budget is, then you start descending where you can go so If you’ve got a lower budget, maybe you take think about closer to home, road trips, right? Or taking advantage of the things that are going on where you live. A lot of events in the summer, you know, we’re based in Toronto. The city of Toronto throws on tons of events. You could spend every single weekend doing something within this city and not pay a penny. |
| Richard | I know of some of those, you know, that’s part of the action, right? The idea that you’re trying to end your vacation with less debt or there’s no more debt than what you started with, right? |
| Barry | You should never go into debt for vacation as far as I’m concerned. |
| Richard | How do you like that straight line, Barry? Are there some things you can tell us about saving money on air travel? |
| Barry | Yeah, well, the easy thing and this is really hard for families are the offseason travels obviously the quickest way to save money. You know, a good example is you to try to fly to Europe from Canada; you’re looking at, probably $1000 right. But if you were to go like, you know, right now, September or October, it may not be September or October when you guys are watching this, but the point is, it’s off season. A flight might cost you anywhere from $600 to $800, so you think about that’s 20% savings right there. On top of that, because you’re traveling during offseason hotels are typically 20 to 25% cheaper, also. Another easier way to save, in my opinion, is to literally sign up for every single newsletter out there, airlines, and tour operators. And the reason I say that is because they let their readers know right away when there’s a sale. So if you know there’s a sale and you can see discount another good example, Air Canada vacations quite often rent promotions where kids stay for free, right? That’s a great deal, but you just got to know about that promotion. |
| Richard | And then they bombard you with this stuff. |
| Barry | They totally do, because they want you to buy, they want you to spend with them, right? You do have a problem with those things is you got to have some self-discipline. There are some people out there who will see these deals and be like, why I got to go because it’s such a good deal. Well it’s not a deal if you got to pay back later and you don’t have the funds available |
| Richard | It never is, is it? Combination bookings? |
| Barry | Yeah, packages could be good. It depends on how you look at it. If you’re doing an all-inclusive resort, quite often, it makes more sense to go through, say, Air Canada vacations, Sun Wing, West Jet vacations. But if you’re also looking to book your flights, hotels and say, a car rental, Expedia.ca is probably one of the best solutions. Yeah, they openly advertise it and I’ve read the numbers in the past and it works. And nice thing about Expedia is you don’t need to book all three things at the same time. So, let’s say, you book your flight and you decide a week later, you know, I’m going to get a hotel, and then another week later, you’re like, oh, I need a car rental. If they give you, like, basically a window where it’s as long as you book everything, eventually, you still get the savings. |
| Richard | So you’re not locked into having planned everything. |
| Barry | That’s right. |
| Richard | Right down to the…. |
| Barry | Exactly. And they remind you, right, they’re like, hey, you know, you have two more weeks to save on X amount. So they want you to book with them, right? |
| Richard | Really? Would they say that? |
| Barry | They do. |
| Richard | How do you feel about cruises and tours? |
| Barry | Tours, I actually think are really good value. People don’t like tours because this is like, I don’t want to get on this big giant bus with, you know, 100 other people. And it’s not fun. Well, it’s an insane way to think about it. There are literally probably 1000 different tour operators out there, so it’s a matter of finding the right tour that makes sense for you, your lifestyle, and the type of adventure you want. I did a tour with Intrepid Travel a couple years back, and there are only eight people on the tour. It’s fantastic, right? And when you break down the cost of everything, meals that are included, which isn’t always included the guide, the accommodations and the transportation, it’s a pretty good value. More importantly, I hadn’t spent any time planning. Cruises are a little bit trickier because each cruise is so different. And what I don’t like about cruises is the fact that you basically pay a base price. You pay for every single upgrade, but you got to pay for gratuities. You got to pay for the nicer restaurants. Obviously, if you’re going to go to casino on the ship, you have to pay there. There’s every day excursions to, right, so you could avoid all that if you wanted, but most people will spend a little bit extra on cruises. |
| Richard | I’ve had a couple of people work for me who very, very, into tours, practically every year, the cruises, much the same thing because the big selling point to them was, they unpack once and they pack once. |
| Barry | That’s right. |
| Richard | It’s like their hotel moves with them. |
| Barry | It’s experience, right? There’s no doubt some cruises like, you know, you think about the cruises that go through Scandinavia or the Mediterranean like, just think about planning that on your own, say, you pack once to take you there. It’s great. So I do actually think cruises can have a lot of good value. People just got to realize that it’s not necessarily just the base price you are paying. There will be extras you’re going to pay because you’re not going to sit on the ship the entire time while docked in some new exotic destination. You’re going to go explore, right? You’re going to go buy. Go shop. |
| Richard | What you’re saying? Basically, is there two types of tours, right? Is the tour that essentially is focused on you just having fun. It’s almost like the casino tour where the casino goes with you and you dock here in there and you want to go off and buy some things at the local market or something? But then, the essence of the tour is what the ship can provide. I’m sorry, the cruise. |
| Barry | Yeah. You’re basically paying for access to the cruise. |
| Richard | The Mediterranean cruise that you mentioned, you’re going from here to there, and then you get off and you visit and you come back to your hotel. Your hotel moves over to the next place. |
| Barry | That’s pretty much it. That’s exactly it. |
| Richard | They’re different tours. |
| Barry | It’s a unique experience. Where cruising it, is great. It can be fun, but not everyone’s into it. |
| Richard | This kind of difference is between a cruise and a tour. |
| Barry | Well, I’m talking about cruise ship versus a bus tour, right? |
| Richard | Yeah. I know what you mean. The one the Mediterranean one that I described. There is more of a tour than a cruise. |
| Barry | Well, no, it’s a cruise. If you’re on a cruise ship it’s a cruise, right? It’s not a tour, it’s a cruise. |
| Richard | One lady I’m thinking about used to always say, I’m going on a trip. |
| Barry | She’s going on a cruise, assuming she’s on a boat. |
| Richard | I used to argue about that, too. Interesting. Is there any particular Garden of Eden out there for us? Is there any particular place that you recommend people to set their eyes on for in terms of this tour, cruise? |
| Barry | Well, every time with destinations, it depends on what you are looking for. It’s so hard. Different budgets, right? Like I said, if you’re flexible, you can get a lot of deals out there as far as I’m concerned. Cruising, again, flexibility. Good examples, I was talking to my mother the other day and she found a cruise coming out of Vancouver about six nights ending in Los Angeles, including airfare. It was $1200. That’s like actually really cheap when you think about it, cause the flight alone was about $600. So, you know, 6 or 7 nights on a ship, some stops. It’s like you said, basically a hotel for a week that travels with you and all the meals. I’m like, that’s a pretty good price, right? That’s because she’s retired and she can just jump on a plane next week and it won’t matter, right? |
| Richard | But for $1200 for a week. Most places you’ll stay will charge you close to that. |
| Barry | Yeah, exactly, right? |
| Richard | And it doesn’t move. |
| Barry | But I also like to look at other destinations. To me, it’s kind of like, what’s trending and what has good value. It sounds a bit crazy, but, 5-6 years back, after Egypt was going through the Middle East crisis and Egypt uprising, as soon as they elected a new president, I was like, I’m going because it’s like they got a new president and everything’s safe. And more importantly, everything was like 50% off still. So sometimes you got to look at the situations around the world. |
| Richard | Did you write about that? |
| Barry | Take advantage. I think I did. I don’t remember. |
| Richard | I think my sister in law must have read it. |
| Barry | I’m not saying, like, you know, put yourself in any danger going. You were crazy, but you could be smart about your travels |
| Richard | With credit cards, since they’ve replaced the traveler’s checks, what can you tell us about, number one is avoiding the devastation of losing all your cards and the inconvenience of things? |
| Barry | Yeah, it’s tricky. You just got to be smart about your surroundings. Just be smart about how you use your credit card. Number one whenever you travel most of the times, you still need to let your credit card provider know that you’re traveling so you don’t get locked out when you make purchases. And being smart, you know, if you’re going to a heavy tourist area that’s known for pickpockets, you know, maybe you’re wearing your wallet in your front pocket or you put your bag in front of you. You can’t make yourself a target, right? I know it’s easy for me to say that, but you don’t need to be aware of your surroundings, and also people forget, is that when you go home, what you should also do is change your pins right away. Because in the event that used terminal that was compromised, they still usually need your pin to actually make a transaction. So even if they cloned your card, you change your PIN, it’s no good to them anymore. |
| Richard | Right. Prepaid cards. How do you think of them in terms of travel? |
| Barry | Depends on how you look at it, right? Like the old traditional prepaid cards that people are probably thinking in their heads right now, is where you could be able to take advantage of an exchange rate early, which is not bad, but prepaid cards, as weird as it sounds, it’s not always accepted everywhere. These days there are better prepaid options in the sense where you just, loadable credit cards like Stack and CoHo, that use a Visa and MasterCard networks that are more internationally recognized. I like them, but, you know how we’re talking about credit cards without foreign transaction fees. I still think that’s the cheapest way. So why would you go with the prepaid when you’ve got a credit card without foreign transaction fees? |
| Richard | So in terms of travel, you’re not a big fan of them? |
| Barry | Prepaid cards, not at all. |
| Richard | For domestic use, so certainly, in my world, that prepaid cards are a very positive thing to have. I won’t explain why. This is about you talking about travel. But speaking of that, I understand that you publish or you have a guide called The Cost Of Travel. And my God, Barry, it’s free |
| Barry | It is free. |
| Richard | How does one get that? |
| Barry | Just go to my website, moneywehave.com and a box will pop up, saying sign up for my newsletter. |
| Richard | Sounds tricky to me. Tell us what the guide covers? |
| Barry | Literally, everything you need to know. A few things we already talked about, setting up your budget, how to save on flights, how to save on hotels, travel insurance, picking your destination. It’s just like a little guide I wrote. I don’t even remember how many pages; I think it’s like, 50 or something. Of all the travel tips I’ve learned over the years that have helped me save money. And funny thing is, once you know these tips, it’s like they’re just in your head. There’s nothing really special. People just don’t know how to take advantage of things that are right in front of them. |
| Richard | And keep your back, back on the front. |
| Barry | I guess technically, that saves you money. |
| Richard | In the crowd. And on subways. |
| Barry | There you go. |
| Richard | So thank you very much for joining us. |
| Barry | Yeah, no problem. |
| Richard | Here’s a little gift. Put it this way, so that folks can see it. It’s a book. This is why we call this, The Glass Is Half Full. It was written to emphasize the value and the importance of attitude in turning whatever negative situation may find yourself in whether it be somebody stole your backpack or something when your Geneva or you just run out of, you’ve overspent on your credit card here in Toronto, doesn’t matter. A negative situation could be turned into a positive opportunity with the right attitude. I’m sure I tried to put that into print. Thanks again for joining us! |
How To Get A Mortgage with Bad Credit
| Richard | Today we have with us, David Grossman. He’s a mortgage broker with Rock Your Mortgage which serves the Greater Toronto Area. Dave has been arranging mortgages for people for over fifteen years now and he brings to us a wealth of experience and know-how to a business which I find somewhat mysterious and a little bit intimidating. |
| Richard | What Does A First-time Homebuyer Need To Know? |
| David | There are several things that lenders are looking for. Presumably, people would need a mortgage. Most people don’t pay cash. Therefore, they need to have savings of at least:
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| Richard | Is there Anything Else They Need to Know? |
| David | Besides having a down payment, the other things that lenders are looking for are credit, income, and the type of property.
Credit Credit is important. People need to take steps to establish credit and maintain it. For a first-time homebuyer, lenders want to see that they have a history of at least a couple of years. The assumption is that people want to get mortgages from the bank or places like a bank, therefore, for those types of borrowers, they need to have about five to ten percent down payment. Income First-time borrowers need to have income too. If they are salaried, lenders want to see their job letters and pay stubs. If they’ve been in the job for less than one year, lenders would want to see some history of income. Moreover, people need to build up some credit. |
| Richard | If Borrowers Are Applying For Mortgages Through your Services, What Are The Mechanics of Doing It? |
| David | The first thing people usually do is give me a call. I’ve got a direct number that people can reach me on and I’d like to have a quick conversation with people to start. Within five to ten minutes, we can determine what’s the scope of what’s going on whether it’s a purchase or a refinance, or a pre-approval. We also take into account its urgency. Does somebody need the money to pay out a creditor in two days?
Once I know that there’s a potential deal, I will send people a two-pager application that they need to fill out and sign. Subsequently, I’ll give them a list of papers that we’ll need to go after the mortgage. |
| Richard | We were talking about this $75,000 down payment on a million-dollar home the downpayment to get a mortgage with a bank. There are other places where you can get mortgages. Do they not have similar requirements? |
CMHC Insurance and High Ratio Mortgages In Ontario |
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| David | There are A-lenders. They are banks, credit unions, and trust companies. With those lenders, you can get high-ratio financing. A lot of people have heard of CMHC (Canada Mortgage and Home Corporation). It is a government-run and they’re there to help Canadians buy homes. |
| Richard | Is CMHC an insurance program? |
| David | That’s right. It’s an insurer, however, it’s not in the way that people normally think about insurance. Unlike life insurance or car insurance, it comes at a borrower’s expense but it protects the lender. |
| Richard | How does CMHC help the borrower? |
| David | It helps the borrower because now, they can get high ratio financing or small down payment. |
| Richard | What If They Still Want To Buy a Million-dollar Home? |
| David | They can get it with just $75,000 down payment with the insurance. If you don’t have insurance on it, you’ve got to have 20% down payment. |
| Richard | Is the Bank Mortgage through CMHC as well? |
| David | Yes. The $75,000 is for an insured mortgage. If you have enough money, you can get it uninsured and make at least 20% down payment. |
Mortgage requirements for Self Employed People In Ontario |
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| Richard | You were telling me that there are papers that they need to bring to you. Are these requirements different if the borrower is self-employed? |
| David | There’s a key difference for self-employed people often in that self-employed people are going to minimize what they report for tax purposes. One of the benefits of being self-employed is that you can have legitimate tax expenses. Oftentimes, if a self-employed individual goes to the bank, the first thing the bank asks is their tax returns and notice of assessments. And the net income per the tax return and the notice of assessments are often not reflective of what’s happening.
Somebody could have $200,000 in sales and their net income is only $40,000. The bank looks at the $40,000 and may approve them for a $200,000 to $250,000 mortgage but this is somebody who might be able to afford $500,000 to $600,000 and wants a bigger home. Therefore, we have lenders which are not the prime banks. We have alternative institutional lenders. They charge between a half a point to a point more than the banks. They’ll also amortize the loan over a slightly longer period. Therefore, even though there’s a higher rate, the payment will still be affordable. This way, even self-employed people can get the mortgages that they want and still benefit from some of the tax write-offs. |
The 3 types of mortgage lenders in Ontario |
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| Richard | You mentioned A-lender before and I’ve heard the term ABC. How many are there? |
| David | Some lenders can go to Z but I think A, B, and C are good categories. |
| Richard | Can you tell me who are they? What makes an A-lender, B-lender and what are some of the pitfalls that one might accrue to dealing with one or the other? |
| David | There are three different types of lenders. A-lenders are essentially prime lenders or bank type of lenders, which most people would like to get a mortgage from because that’s where they would get the best rates and the best terms. In that same category are credit unions, trust companies, and there are many institutions out there that we consider as A-lenders that people have never heard of that serve strictly the mortgage brokerage community. There’s no shortage of A-lenders out there but they look for people who have a good credit and provable income.
The next category is B-lender. A B-lender is also an institution who will take self-employed borrowers. They’re more flexible in how they look at income and credit. Hence, people who have credit issues might still be able to get a mortgage from a B-lender. B-lenders will charge a percentage point more or less premium over what the bank is charging. If you can get your loan from an institution, either an A or B-lender, that’s the best-case scenario. However, if you’re in a pinch, there are C-lenders which are also known as private lenders. Private lenders include individuals who just like to lend out money on mortgages and MICs which stands for Mortgage Investment Corporations that do private loans. These are high-risk types of loans that you wouldn’t be able to get from an institution so you pay higher rates. Moreover, you pay fees. They are more expensive and should be avoided, if possible. The other thing about private loans or the C-mortgages is that they’re usually short-term loans. Therefore, lenders will want to know how are you going to repay the loan. That’s an important question. As a borrower, if you need it as a bridge to get over a hump, then it’s alright. However, you have to think long-term. You need to take into account that private lenders don’t always want to renew and if they do their fees could be high. If you get a one-year term and that lender is not prepared to renew the loan at the end of the year, you need to have a plan to get out of that private mortgage either by refinancing at the end of the year or selling the property. |
| Richard | For anybody, whether they’re a first-time buyer or not, the ideal thing is to try and get an A-lender mortgage, right? |
| David | Ideally, you want an A-loan but I also deal with a lot of people who don’t mind dealing with B-lenders. they don’t mind paying a little bit higher because it allows them to save a lot of money on their taxes as they’re not shy about writing down the legitimate business expenses. They don’t mind paying a little bit higher rate if it gets them into the property that they want and can afford. |
The Mortgage Stress Test In Ontario Explained |
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| Richard | A lot of people heard about the Mortgage Stress Test which is a relatively recent development. Can you explain that? |
| David | At the beginning of 2018, the Canadian federal government decided that they needed to take some steps to cool down the market. They implemented or imposed this stress test which applies to almost all institutional lenders except a few lenders that are provincially-regulated. However, the lion’s share of institutional lenders out there are federally-regulated.
It is called a stress test because you have to qualify for the mortgage as though it was 2 percentage points higher than the rates you are actually getting. For example, you’re borrowing at 3.5% and they look at what the payment is and figure out how much you can afford and how much mortgage they’re willing to give you. With the stress test, the rate goes up from 3.5% to 5.5% and then they look at how much they think you can afford and the result is that you could you can only get a smaller mortgage. That has really thrown a wet blanket on the real estate market. |
| Richard | If you’re borderline in terms of your means, this really might cramp your style. |
| David | Yes, it could definitely impact. But I think they’ve acknowledged that they’ve done enough to cool off the market, therefore, there’s a new incentive coming out to help first-time buyers. |
RESPs (Registered Education Savings Plan) |
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| Richard | There’s a lot of public discussions about the government assisting people to be able to get into the market. What is it out there for people? |
| David | There’s a couple of things. First of all, there has been a program where you can use the money that’s in your RESPs (Registered Education Savings Plan). That’s been around for quite a few years. I think the maximum was $25,000 per person that you could take out of your RESP tax-free. You have over 15 years to put that money back into your RESP. I believe the government has just increased that to $35,000 per person.
There’s a new thing coming up very soon where the government is going to contribute like a partner in your home. If the family makes less than $120,000 a year and your down payment is 10% or less, they could potentially get part of that government program. |
| Richard | Is it repayable? |
| David | Yes, when you sell the house. You have like 25 years to repay the government, therefore, I think it’s a plus. It’s free money. They haven’t released all of the details yet but we should know more very soon. |
| Richard | They have a similar program for RESPs where the government contributes. |
| David | Yes, that’s right. |
| Richard | In the insolvency business, we run into these things. RESPs are factored because they become an asset of the bankruptcy, however, not the part that the government has put in. Let’s say, there’s $1,000 on your RESP and the government put in 20%. Then, it’s only worth $800 to your creditors if you’re the owner of the RESP. I wonder if it’s going to be a similar kind of thing. |
| David | Yeah. I’m interested to see how that impacts people in a case of bankruptcy. |
| Richard | In the bankruptcy, the property itself is actually on the table. The creditors, through the trustee, have a right to the equity of the property. Whereas, if you don’t get to that stage in a proposal, then the RESP is a hypothetical asset. It’s not really at risk.
That’s not the actual money that the person would end up with if they sold their house. There are costs of selling them so the real equity they might have in that place might only be $175,000 instead of $200,000. Equity is the difference between what the thing is worth against what you might owe. |
This is the end of Part One of the Interview with Mortgage broker David Grossman. Stay tuned for Part Two of the interview.
Getting out of debt on your own
Tax season is here. Like many Canadians you may discover that you now have a tax debt to add to your regular commercial debts: credit cards, loans, etc. This can make it a very stressful time of year. Of course, if you are one of the lucky few who has minimal or no regular debts and have the means to pay what you owe in taxes, you have no problem. If you’re not, you do.
As nervous as all this might make you, keep your eye on the end target – being debt free. It might help you deal with things more easily. Taking control of your situation comes with its own rewards: first, you’ll have less stress, and second, you’ll have more cashflow to put to savings.
To start, if you’ve decided to tackle your debts alone, you need a clear plan to help you determine:
Whether you can do this using only your own resources
How much can you afford to put towards paying off the debt?
How will you find the money to pay the debt?
How long it will take to pay off the debt?
Next, your payment options may be:
Making monthly minimum payments
Using your tax refund
Talking to your creditors to change your payment terms
Or, getting a consolidation loan
Do you know exactly how much you owe? This is a simple calculation. Be sure to include auto loans, payday loans, credit cards and other loans like family loans and medical bills. Start by itemizing your debts by gathering your most recent financial statements for all loans and credit cards. You may also decide to check your credit report from each of the credit bureaus (Equifax Canada and TransUnion Canada).
Next, list all our debts on a worksheet or computer program, specifying:
Name of creditor
Balance due
Interest rate
Minimum monthly payment
From this list you can create a monthly budget:
A: Add up our monthly income after taxes and other remittances.
B: Tally up all our monthly expenses, which will include our rent or mortgage payment, utility bills, childcare, student loan payments, insurance, groceries and other monthly household expenses.
C: Subtract all of our monthly expenses from our monthly income and what’s left is the amount we have left to pay off our debts. The formula would basically run this way: A minus B = C.
If you think the amount going towards your debt payments is too small, review your expense numbers and look for ways to reduce your spending. Also, consider ways to make more money so you can pay off your debt faster. It’s important to remember that the higher A is and the lower B is, the faster you’ll reach the finish line.
Another option is to try to obtain better terms. Now that you’ve come up with a clear repayment plan, you can try to negotiate better terms with your creditors. Remember: nothing is necessarily carved in stone. With a good plan, you actually have something of value to offer the creditors. Your main goal is to negotiate a more favourable interest rate. That would make the finish line closer still, which makes a big difference.
Here are some tips to use when speaking to your creditor about lowering your interest rates:
Ask if you qualify for a balance transfer on a zero interest or low rate interest credit card. This can save you a lot of money in terms of interest.
Check out student loan consolidation and income-based repayment plans that are exclusive to high level student loan debts.
Look into whether you can refinance a high-rate auto loan into a lower-rate.
Inquire if you can consolidate your debts into a personal loan or home equity loan.
Richard Killen, Licensed Insolvency Trustee and author of the new eBook The Glass is Half Full which is now available to be downloaded for free from iBooks, Amazon, Indigo and Kindle. Richard Killen & Associates, with offices conveniently located across the GTA, have been helping Canadians resolve their debt issues since 1992.
Understanding your credit rating
When it comes to managing debt, do credit rating reports help?
There is a simple way to avoid taking on personal debt: never take out a loan without first knowing its purpose, the long-term goals and benefits it will achieve, and the plan to pay it back. Simply put, use credit with good judgment ideally to profit from your borrowing. But as we all know, we often borrow without considering the consequences, and then we find that our debts pile up quickly, resulting in an overall negative impact on our financial position.
Look before you leap
The best way to know how to control debt is to look before we leap. We need to ask ourselves if the credit is necessary, what it will involve, is there a better way to get what we want without incurring this debt and how fast will we be able to get rid of it. Also, it’s good to know where we stand with our creditors. If we know exactly who we owe, we can figure out how much we owe, either as a pay-out figure or as an amount to be repaid over time. If we’re not sure who we owe we can also pull our credit report from each of the two national credit bureaus in Canada: Equifax Canada and TransUnion Canada. If we just need to see what debts we have and how much we owe, looking at our credit reports is a great place to start, though it probably won’t be able to provide current amounts owing.
These credit bureaus are companies who carry a file on each of us which was opened the first time we applied for a credit card and it contains all our financial information, at least where our credit is concerned. This information is usually supplied by the credit companies with which we do business. When we request a report, it will give a fairly detailed summary of our individual credit history including key information on all our financing transactions like our credit card balances, outstanding mortgage, auto or student loans. It will also note any negative events like a default collection record, bankruptcy or consumer proposal filings, or any other court-related event like a judgment or garnishee, tax liens and even promissory note defaults from personal loans, even from friends and family if they are reported. The credit bureau report will also provide past creditor information that we may have forgotten about because a lot of time has elapsed since we last paid them.
Ideally, obtaining a report from both credit reporting agencies is a good idea because there is no guarantee that they will both have the same information. But before requesting a report, it’s important to know a few things about how this system works and that our rights are protected. In Ontario, the credit bureaus are regulated by the provincial government through the Consumer Reporting Act. This law lays out:
● what a consumer reporting agency can report,
● how a consumer’s credit report can be used,
● when someone can request a credit report, and
● what consumers can do if their files contain any information that is wrong or incomplete.
The Consumer Reporting Act also recognizes that businesses, landlords and employers need to have correct information, but at the same time it must ensure:
● that agencies collect, maintain and report our credit and personal information responsibly;
● our right to know what is being reported about us and to whom; and
● our right to correct (or fix) information about ourselves that is inaccurate.
When we receive our report, we will see a score — a number on a scale — that indicates whether we are in good stead with our creditors or whether we have some adjustments to make to improve our score. Basically, every transaction we make, every application we file and every legal action we get involved with ends up on our file for others to see, and those actions are taken into account when determining our score. While on the surface, this process may seem daunting, but in fact it’s empowering. Not only can we ensure that our information is true and accurate, we can also use the knowledge to improve how we manage our debt, which is good news.
Richard Killen, Licensed Insolvency Trustee and author of the new eBook The Glass is Half Full which is now available to be downloaded for free from iBooks, Amazon, Indigo and Kindle. Richard Killen & Associates, with offices conveniently located across the GTA, have been helping Canadians resolve their debt issues since 1992.
2 Things You Can Do To Take Control of Debt
If you are struggling with debt, you are certainly not alone. Most Canadians, if not all, have debt. Some of us have just a little bit of debt and that’s completely normal, and we must know how to take measures to keep it at a manageable level and avoid becoming trapped in a cycle of debt.
On the other hand, there are also some of us who have a large amount of debt and it’s creating stressful financial issues as we try and juggle payments on the debts and put more effort into meeting the monthly payments on time.
And then there are a number of Canadians, unfortunately, who have out-of-control debt that has really become a burdensome problem and causing them to feel a deep sense of shame, guilt, and embarrassment to the point that they suffer physical and psychological health issues, such as anxiety and depression.
Managing debt is the very first step to prevent it from getting out of control. That’s really the rule of thumb when you take on credit. Once you take on any type of debt, it can affect your entire financial life. That’s why it’s so important that you take the steps towards being the one in control of your debt, instead of debt taking over your life. If you are in control of your debt, it will make you feel confident about being able to pay it off in a timely manner and you won’t be afraid about facing any financial demons over time.
Here are two important things to understand to help you always take control of your debt:
Know how much you owe.
Monitor your debt so that you are always aware of how much you owe. You monitor your debt simply by creating a detailed budget to plan your expenses. A budget will provide very important information for effective debt management. It will show you:
- The net income you have available to spend.
- What your regular expenses are (e.g. rent, childcare, food, transportation, savings).
- The total of the payments you have to make each month for your debts (e.g. credit card debts, mortgage, car loan and other loans).
Make sure you list each of your debts, one by one, indicating the total amount each creditor it is owed, the monthly payment you need to make, and when the due date is. Check your credit report to verify all your existing debts and to make sure you didn’t miss putting something on your list. Total up your expenses and payments and subtract this from your net monthly income. Depending on how much money you have left over at the end of the month, you’ll need to decide whether you have too much debt or if you feel comfortable with the level of debt you have now. Make it a point to update your debt list as you make payments on the due date. This will help you to stay aware of how much you owe all the time and prevent you from making any financial decisions that will lead to potential debt problems in future.
Recognize if you need help.
For some people, following a realistic budget to pay off debts and plan expenses is enough for them to take control of their debt. However, for others who have bigger debt problems and budgeting is not enough, there may be a need to create a manageable repayment plan to help you pay your debt and other bills each month in order to regain control of your finances.
As soon as you find that you’re struggling with payments and feel that you may have a potential issue on your hands, maybe you’ve made a late payment or think you’re not going to make a payment on time, reach out to your lender right away to find out if they can offer some ways for you to catch up or stay on time with payments. You’d be surprised that there are a number of creditors who are more than willing to work with borrowers who reach out to them for help before they are way behind on payments. Creditors may lower your interest rate, reduce your payment or even temporarily suspend your payments for a number of months until you get back on your feet. The key is not to wait until you’re delinquent because you have more options if you have no missed payments.
If you really cannot pay even the minimum payments on your debts or cannot even meet your basic monthly needs such as buy food or pay the electric bill, then your debt problems are more severe and you may need a more permanent solution to help reduce or eliminate your debts entirely.
At this point, the best thing you can do to take control of your debt is to talk to a debt professional. A licensed insolvency trustee is the only debt expert in Canada licensed by the federal government to give advice about other options for debt relief such as a debt management plan, a consumer proposal or a bankruptcy. Each of these debt solutions have advantages and disadvantages and a trustee will be able to explain each option thoroughly and answer any questions you may have. The trustee will do an in-depth assessment of your financial situation and be able to make recommendations on the best option to solve your debt problems. By getting the help you need, you can get back in the driver’s seat and take back control of debt with some good advice instead of ignoring your debt problem and making matters worse like leading you to declaring bankruptcy.
Taking control of debt is a commitment. You need to be able to manage it responsibly. Even if you have just a little bit of debt, you need to exercise restraint to keep it at a level you are able to manage. If you have more than just a little debt, you need a little more self-discipline to have more control over your debts. If you have more debt than you can handle, it would require you to seek the help you need and make certain sacrifices to get back on top of things.
Debt problems and financial challenges are inevitable in life. They will happen to each one of us at some level and at some point in our life. It’s important to realize that there are solutions to debt problems no matter how terrible your situation may seem to be. There is no need to spend your entire life in debt and allow it to ruin your other financial goals. All you need to do is make the decision to take control of debt and do all that is necessary to improve your financial situation.
Good and not-so-good debt: What’s the difference?
If you use credit with good judgment and with a solid plan to pay it off, you stand a good chance of profiting from the funds you borrowed. It’s important to remember that when it comes to taking on debt, you should approach the decision carefully and only take on debts that will grow your financial worth and/or positively affect your life. The best way to know how to control debt — along with most things in our lives — is to look before you leap. Be sure to ask yourself if the credit is necessary, what will it involve, is there a better way to get what you want than by incurring this debt and how fast will you be able to get rid of it. For example, ask yourself:
- What is its purpose, i.e. the long-term goals and benefits you will achieve as a result of taking on the debt?
- How you will pay it back?
- And, where it fits within your cash-flow budget?
One way to ensure that taking on new debt won’t be an issue for you is to understand the difference between good debt and not-so-good debt.
Good debt generally has the following qualities:
- It is taken on for something that will likely not lose value over time
- It will leave us better off in the long-term and provide us with lasting and, with luck, ever-increasing benefits
- The debt will not have negative consequences on our present and near-future overall financial position
- It will help us manage our finances more effectively
- It will help leverage your wealth
- The debt is used in a responsible way, with details carefully thought out and with the long- term view in mind
- There is a clear and specific reason for taking out the debt
- There is a realistic plan for paying back the debt as quickly as possible
- The debt was obtained through the cheapest and most effective borrowing method available, with the most reasonable interest rate, term and charges
Not-so-good debt has the following features:
- It feels like free money
- It often provides some form of instant gratification
- It will not provide some increase in value to us over time
- It reduces your wealth or offers no opportunities to grow wealth
- It keeps growing, because of the interest rate and supplementary charges
- It seems like it will never be paid off
- It may have an unrealistic repayment plan
How to stay out of debt
The fact is that no matter how much our financial life may have jumped the rails, you always have the power to get it back on track, regain control and avoid debt situations like bankruptcy. You’ve also seen how much of a role our attitude plays in grasping that empowerment. Seeing the glass to be half-full rather than half-empty can make all the difference in the world. If you can manage your credit wisely, you can enjoy the many benefits it offers. As you know, it can be a very useful tool by helping you accomplish important life goals, boost your net worth over time and enhance your quality of life, just so long as you remain the one in charge.
The next logical question likely is: “What can I do to make sure that I do remain the one in control of my debt?” Of course, the short flippant answer is: don’t borrow. But as we’ve already seen, there are times that taking on debt will be necessary. The majority of us may see abstention as too lofty a goal. It can be done, but very few of us will be in the envious financial position of having the money to satisfy all our needs, and our wants, without borrowing. The trick will be to manage it properly and not allow it to take control.
Consider sticking the following reminders to your fridge to help keep you on the straight and narrow in 2019:
- Best way is to stay out of debt completely, don’t borrow full stop. But some are not avoidable:
- Mortgages
- Car loans
- Student Loans
- Impulse — clothing, food, entertainment
- f you actually need to take on some debt, what is it that you are trying to accomplish?
- Have a plan – this is the goal of how you’ll pay of the debt
- Develop good habits and stick to positive financial routines
- Most important, learn to manage your cash flow
- Create a simple cash flow spreadsheet or table; this can also be done through money management software like Intuit Quicken or MS Money
- Make tracking your money an automatic process; enter and update your transactions regularly
- Remember, when it comes to tackling your debt:
- Be honest with yourself about what went wrong
- Make a decision to tackle the problem
- Seek professional advice to understand your options; remember, you’re not alone, keep your pride in check
- Accept the reality of the situation and stay positive
- if it becomes too much for you to handle, never be afraid to consult with a debt expert or professional.
