by admin | Bankruptcy, Consumer Proposal, Uncategorized
If used responsibly and properly, credit cards are wonderful tools. Prudent use can help you establish such a stellar reputation, you’ll have no trouble obtaining the significant credit required to buy a home, finance a business, get a degree, and all sorts of other wonderful lifestyle options for which borrowing is likely the only option. They can help you over occasional hurdles and take the pressure off during emergencies. Without a credit card, you’ll have trouble reserving a hotel room or an airline ticket. They can take the stress out of your holiday shopping by allowing you to do all your buying online from the comfort of your couch. Many credit cards come with benefits, like points accruals that help you get membership awards or cash back, or they come with travel insurance or provide extended warranties or other perks. They also protect you from the vulnerability of carrying cash.
As positive and useful as they can be, though, they can be equally negative and destructive if they aren’t used properly.
Credit card interest is compounded, which means that if you fail to pay your balance off each month in full, the following month you’ll pay interest on the interest; for example, if you pay off a balance of $10,000 at 17.99% APR (annual percentage rate) by making only a minimum payment of 3% of the balance each month, it would take you more than 17 years and cost $9,487 in interest — that’s almost as much as the principal! (Your minimum payment will typically be anywhere from 1% to 4% of your balance.) To really appreciate the effect of credit card interest, before you charge something you can’t pay off immediately, ask yourself how much more you’d be willing to pay.
for it. A $90 movie night doesn’t seem like such a deal when you realize it’s actually going to cost you $180 by the time you pay for it.
In some cases, banks will let you make interest-only payments on a line of credit, which means you could conceivably carry the debt for years and never even touch the principal! Obviously, this arrangement is beneficial only to the lender.
Make sure you always read the fine print. Sometimes, a reasonable interest rate will jump considerably if you are late on even one payment. Another way lenders attract users to their credit card is to offer an APR that is low initially, but increases considerably after six months or a year.
Stay away from cash advances; while convenience cheques can be handy for transferring balances from higher-interest cards, be wary of them too. While interest on a credit card purchase usually doesn’t start to accrue until after your payment due date, giving you a chance to pay it in full without accruing any interest at all, cash advances are charged interest from the day you take them, and often at a higher rate. Low introductory rates won’t apply to them either.
Using credit cards to meet basic needs, like paying rent or buying groceries, transferring balances around to keep up with payments, failing to open your credit card statements, consistently making late payments or paying only the minimum, and having credit cards that are maxed out to their limits are all signs that you’re headed for financial trouble. If this sounds like you, call a qualified credit counsellor today.
by admin | Bankruptcy, Consumer Proposal, Uncategorized
When you and your credit counsellor discussing whether bankruptcy, is the right solution to your financial problems, you’ll need to know the difference between secured and unsecured debts.
Your repayment of a secured debt is essentially guaranteed by the asset for which you took the loan. A home mortgage is a very common type of secured loan — the loan to pay for the home is secured by the value of the home itself. If you fail to meet the terms of your repayment agreement, the lender can terminate the agreement, and seize and sell the home. For the duration of the mortgage they have a lien on your property that restricts what you can do with it. A car loan is another example. The lender maintains a lien on the vehicle until the debt is repaid.
By contrast, unsecured loans are essentially granted on the strength of your work history and credit score, and “guaranteed” by no more than your signature and good reputation. A credit card is the common example of an unsecured loan. The credit card company has no claim on the items for which you used your credit card to pay. Most
of your bills, including taxes and medical bills, are unsecured debts. You will usually pay a higher interest rate on unsecured debt, because the lender is taking a greater risk than if it were secured debt.
It’s only unsecured debt that is discharged in bankruptcy. If you have secured loans for an asset and wish to keep the asset, you’ll have to continue to make your agreed-upon payments. Secured debts are treated differently in a consumer proposal, too. It can get a little complex, so you should definitely talk over all of your debts with your bankruptcy trustee or credit counsellor.
(And remember that if you charge a significant amount just prior to declaring bankruptcy, your credit card lender will likely consider that fraud, and demand payment, although that still doesn’t make it a secured debt, even if you bought something seizable, like furniture.)
If your debts have become unmanageable, call a qualified credit counsellor today.
by admin | Credit Counseling, Uncategorized
Was Shakespeare right when he said, “Neither a borrower nor a lender be?” It often depends on the nature of the relationship. Borrowing and lending makes the world go round when it comes to national economies, corporations, or small business, but it’s a very different story when it comes to your spouse.
Debt can have a devastating effect on a relationship. It’s often cited as the No. 1 reason couples argue, and among the most common causes of divorce.
An American university study last year reported that couples who argue about money early in their relationships are at greater risk of divorce, whatever their income, debt or net worth. The 2012 study, “Examining the Relationship Between Financial Issues and Divorce,” also said that arguments about money were longer and more acrimonious than arguments about other topics. Another university in 2009 found that couples who disagreed about finances once a week were more than 30% more likely to divorce than couples who reported disagreeing about finances less often.
The best way not to join their ranks is to make good choices from the beginning. When you’re contemplating a major relationship commitment, talk to your partner about money.
Talk about your attitudes, your culture, what you think money is and its role in society. Talk about your financial priorities. If one of you wants to save for retirement and the other wants a speed boat, you’ll need all the open communication you can get. Disagreeing doesn’t mean your relationship is doomed, but it will take continued non-judgmental communication and regularly revisiting the issue to keep from developing resentments and creation
financial tensions down the road. Talk specifically about the debts you bring to the relationship, and be absolutely honest.
If you’re in a relationship with someone whose debts far outstrip yours, or who seems to constantly be accruing more, consider waiting before making a long-term commitment. Give him or her the chance to straighten out their financial difficulties, or at least take the right steps towards doing so, before you walk down the aisle.
If you’re already married and you or your spouse is in financial trouble, it doesn’t necessarily mean both partners are in the same boat. A debt that is yours alone (for which they did not co-sign) does not affect your spouse’s credit, and a bankruptcy affects only the insolvent spouse. Joint debts can be a different story, and can even your ex-spouse’s (or one from whom you are legally separated) behaviour can affect you financially.
If you’ve got concerns about your financial future, or that of your prospective spouse, talk to a qualified Credit Counselor today.
by admin | Consumer Proposal, Credit Counseling, Uncategorized
It’s amazing what we can convince ourselves we “need.” When in truth we need to look after our families, sleep indoors, eat nutritious meals and drink clean water, we convince ourselves we need a cell phone, a gym membership — and new furniture. We work hard, and certainly in theory we do deserve to have the things we want, not just the things we need. When the springs start to poke through the couch cushions and the mattress has more lumps than grandma’s gravy, we convince ourselves we need new furniture, even when we can’t afford it. At least furniture, unlike a vacation, is around for a while, but except for your house and your car, you should start working towards habits that let you pay cash for everything else. If you can’t quite bring yourself to do that, at least be very careful not to fall into the rent-to-own furniture trap. The allure of rent-to-own retailers is that you can make small monthly payments — smaller than you would pay if you financed the furniture through your bank. The downside is that payment often stretches over so long a length of time and at such a high interest rate, by the time you actually own the furniture you could have paid off a bank loan twice. In addition to interest rates that are substantially higher than the going bank rate, there is always a lot of fine print. If you decide to return the item early, you’re out whatever you’ve already paid on it. Of course, if you miss a payment, the company will repossess it, and quick. They don’t report timely payments to credit bureaus, but they don’t report missed payments either, because technically it’s not a loan. Rent-to-own prices are much higher than other retailers, often shockingly so. We did a quick check on one rent-to-own website and found a 32” Toshiba LED TV for $10 x 156 months, or $1,560. We found the same TV at an electronics retailer for $275. A certain Acer laptop was $549.99 at the electronics store; it was $1,976 ($19/week for 104 weeks) on the rent-to-own site. If that’s not enough, rent-to-own retailers are often under fire for complaints to the Better Business Bureau and consumer advocate groups. The bottom line is that these companies exist to serve
customers with poor or no credit who can’t get traditional financing. With today’s rampaging consumer debts, rent-to-own furniture, electronics and appliances retailers are more popular than ever, but they’re seldom a good idea.
by admin | Credit Counseling, Uncategorized
If you’ve ever been to one of those payroll loans shops and taken an advance on your salary, you might be in financial trouble. If you barely make it — or can’t even quite make it — to your next pay day, you’re living in a vicious financial loop where you can never get ahead. You’re likely paying exorbitant interest because you can’t make more than minimum payments on your debts; you may never build up equity in your home. Even the smallest of emergency situations, like an unexpected car repair or a sick pet, can be a trial. Big, life-altering situations like serious illness or divorce can be devastating. A resort vacation or a new car? Forget it.
It’s a hard habit to break, but it can be done. The first thing it will take is the acknowledgement that you didn’t get here by magic — the decisions you’ve made in the past and the way you’ve chosen to handle your money are why you’re living paycheck to paycheck. Once you get real about what got you here, it’s time to get real about your spending. Check out our last post for some help making a spending plan.
Be prepared to cut. Do whatever it takes for as long as it takes — getting off the paycheck-to-paycheck merry-go-round will be worth it. Start with little things, like turning off lights when you’re not in the room and taking your lunch two or three days a week. Move on to carpooling and ditching your cable television. Then, take on the big stuff, like selling your motorcycle or getting by with one car between you. Then, start talking to your family about the really, really big stuff, like whether you should be selling your house, using the equity to pay off your debts, and renting an apartment for a couple of years.
Start putting away a small amount for savings, even if it’s just $25 or $50 a check. Have it taken directly from your bank account on pay day and put into a tax-free savings account (TFSA), where it will require a special request and 24 hours’ notice to get at it. It makes it hard to buy on impulse, and over time, you’ll be surprised how much small amounts add up.
Pay your bills as soon as they’re due, and pay more than minimum on credit debts, even if it’s just $5 or $10 more. It will make a big difference in how long it will take to pay them off, and how much your borrowing will cost you. Get in the habit of keeping just one credit card with you, with a small limit, strictly for emergencies, and leave the rest at home.
Also get in the habit of tracking your spending, maybe forever. Keep a little journal and write down every penny you spend for the first few weeks, and then when you’ve developed better habits, start looking at your spending
perhaps once a week. If your expenses start creeping up again, act to reduce them. Consider turning a hobby into a part-time venture, or volunteering for overtime at work to increase your income.
Take responsibility and act now. Enlist the help of a qualified Credit Counsellor to help you stop living paycheck to paycheck.
