by admin | Credit Counseling, Debt Management, Uncategorized
As we get closer to tax time, many start to think about the tax breaks offered by a registered plan but many may be confused about what they are looking for, what with all the acronyms.
The two most notable are TFSA and RRSP. They aren’t the same, nor do they serve the same purpose.
The Tax-Free Savings Account (TFSA) is a flexible, registered, general-purpose savings account that earns tax-free interest. Canadians can contribute up to $5,500 annually into a TFSA and can withdraw the money in the account at any time. The money contributed to the TFSA is not tax exempt, though, as it is with an RRSP. The benefit of a TFSA is that you can save up for anything and collect interest that you can put toward whatever you decide to spend it on.
An RRSP is a retirement savings plan into which you or your spouse or common-law partner contributes to a set limit, dependent on your income for that year. RRSP contributions can be used to reduce the income tax you pay and the interest accrued is also sheltered from tax. You do, however, pay tax on the withdrawal at the time of withdrawal. The RRSP is a great retirement savings tool because you can contribute to it in your high-income earning years to reduce your tax owing, and then use the money as income in the future when your earnings may put you in a lower tax bracket.
RRSPs help you meet long-term financial objectives such as comfortably living in pension years, while TFSAs allow you to save for short to long-term goals.
Both allow you to top up what you may have missed putting away in previous years, but you have to be careful with a TFSA that you don’t over-contribute per year, which would incur fees. Say you contribute $5,500 on January 1 and take all of that money out by the time you receive your tax refund. You cannot simply put the refund back into your TFSA because you would overstep your contribution limit. You have to wait until the following January to add it along with the $5,500 for that new year (so, you could add $11,000 on January 15, for example).
With an RRSP, the government tells you what you can contribute for the following year based on what you earned that year. It also factors in what unused contributions have carried over. Say your allowed contribution is $5,500; you put $3,000 into your RRSP and on your tax assessment and the government tells you that you can contribute $6,000 next year PLUS the $2,500 carried over from the previous year for a total of $8,500. You can put your tax refund toward the following year’s contribution. Say that’s $1,000, which means you can contribute another $7,500 until the deadline for the next year’s contribution. Withdrawals from an RRSP are taxable, so you cannot simply replace the money you take out (with a few exceptions, such as using it as a down-payment on a house) without it going against your allowance for the tax year.
One last important thing: on death, the RRSP is counted as income on the deceased’s final income tax return and added to the estate. The other alternative is to roll it over into the RRSP of a spouse, common-law partner or dependent, where the transfer is tax free and continues to grow tax free until such time as the new owner cashes it in or forwards it along to dependents on passing away.
On death, the amount in the TFSA of the deceased is generally passed along to the spouse or common-law partner.
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by admin | Credit Counseling, Credit Repair, Uncategorized
Perhaps the best reason to protect your credit is that good credit will help you obtain a mortgage when it comes time to buy a house, and at the best possible interest rate.
If you’ve decided it’s time to get on the property ladder, you need to be realistic about your financial management abilities and your employment stability. Remember, too, that a home costs much more than its price tag: you must also factor in property taxes, condo fees, utilities, insurance, maintenance and repairs, and all the other costs of ownership — they quickly add up.
When you’re deciding how much home you can afford, first take a good look at your household expenses and your reliable income. As a general rule, your total housing costs for mortgage repayment, taxes, condo fees and utilities shouldn’t be more than about 30% of your gross (before tax) monthly income.
Ideally, you want to save for a down payment 20% or more of the price of the house you want. You can under some circumstances in Ontario obtain a mortgage for 95% of the value of the home, but you’ll have to pay insurance fees to Canada Mortgage and Housing Corporation (CMHC) that could cost you thousands.
Before you shop, visit potential lenders and get preapproved for a mortgage. Your lender will decide how much home they think you can afford. Canadian mortgage laws are pretty strict, but it’s still possible to become overextended. It’s in the bank’s best interest to loan you as much money as they can; since they have your house as collateral and you’ll pay thousands in interest before you even begin to pay off the principal amount, they can’t lose. Don’t give into the temptation to buy more home than you really need.
Remember you’ll also need to have several thousand dollars put aside for title searches, lawyer’s fees and the like.
It can be daunting, but real estate has a reputation for outperforming the stock market in the long haul, and it’s about the only investment you can use while it appreciates. If you own your home outright, it could be a substantial part of your retirement savings. This all makes owning a home one of the smartest financial moves you can make.
If your debt load is preventing you from owning a home of your own, there are steps you can take to pay off your debts faster. Call a qualified Credit Counsellor for help today.
by admin | Bankruptcy, Credit Counseling, Uncategorized
It’s an unfortunate truth that by the time most people admit their finances are in trouble, they’re already in deep. Learning to identify a few financial red flags in their earliest stages can help you stay on top of your debt.
If any answer yes to any of these questions, you may be headed for financial trouble. Stop spending, and make an appointment with a qualified Credit Counselor.
- Am I making only monthly payments on my unsecured debts?
If payments to your credit cards and lines of credit are consistently minimum-only, you are in danger of paying nearly the principal in interest before you pay off your debt. For instance, if you owe $10,000 at a rate of 16%, with an initial minimum payment of $200 and making only the required minimum monthly payment thereafter (remember that the minimum will go down as the balance goes down), it would take you 36 years and cost you an additional $18,659 in interest charges!
- Do I pay my bills late?
If you are habitually late in making payments, it’s a sign you’re mishandling your money. It will begin to reflect on your credit rating, and will accrue additional interest as well.
- Have I been turned down for credit?
If you’ve been denied a new loan or a credit card, it means the potential lender took a look at your credit history and your credit score, plus some additional factors like how much of your total available credit is currently in use, and decided you were a bad risk for timely repayment. If you’re overextended, it’s time to stop charging and start tackling your balances.
- Am I charging monthly expenses?
If you find yourself using credit to pay for groceries, gas, prescriptions or other necessities, it’s a sign your spending is outstripping your earning. The solutions are simple: make more or spend less. If you can’t pay your credit card bills in full each month, put them away and go cash-only.
Of course, the key to effectively managing money is as simple as living within your means. Stop spending, pay off your debts, set up some savings for emergencies, for big-ticket items, and for retirement, and you’ll be amazed at how quickly your nest egg grows. Call GTA today and let us help you stop trouble in its tracks.
by admin | Bankruptcy, Credit Counseling, Uncategorized
Are your debts making you sick? There’s a growing mountain of research that says it sure can. The journal Social Science and Medicine, for example, released a study that found individuals with higher debt had higher blood pressure, higher stress levels, and poorer general health — and this was in young people, aged 24 to 32. In a 2008 AP-AOL study at the height of the US mortgage crisis, those reporting high levels of debt stress suffered from stress-related illnesses including ulcers, migraines, back pain, anxiety, depression and even heart attacks.
Stress triggers the same fight-or-flight response that’s plagued humanoids since the beginning of time — the effects of reacting to a shrinking bank account can be the very same as being surprised by a saber-tooth tiger. Your heart races, stress chemicals like adrenaline and cortisol are released into your system, and you’re poised to take on the tiger or run like hell. But when it’s the bank account getting to you, tiger-slaying isn’t an option, and the stress can just build and build. Hearburn, headaches, and stomach knots are all common symptoms of a build-up of stress.
It’s a vicious cycle in the bedroom, too, where anxiety about debts keeps you up, and you can’t heal from the anxiety because you’re sleep-deprived. Your reaction times and creativity are affected, so you’re not performing as well through the day, which makes you worry and stay up at night.
But it’s not the amount of debt that can make your heart race, it’s weather you let it get to you
According to Stanford University researcher Kelly McGonigal, PhD, “Basically, it invades your home, your work, what you’re able to provide for your family, and your fantasies for the future. There are studies that show it’s not how much money you owe that predicts depression and health problems. It’s how much you worry about it.”
If your worries about money and the stress they create are starting to affect your health, here are some ways to cope better:
– Think about the worst-case scenario. This may sound counter-intuitive, but sticking your head in the sand or coping with drugs, alcohol, food, or other crutches are short-term “solutions” at best. Look down the road at the bigger picture and realize that there is no tiger at the door. Your life is not in jeopardy. Your kids are healthy. You are blessed to live in a great country. Even if you lose your house, you won’t end up on the street. You’ll still have your family. If you love your work or your hobby, even better. Concentrate on the positive.
– Write it out. Journalling can be a powerful coping mechanism for stress. Keep a little notebook handy and every time you find yourself stressing about money, jot down the worry, as well as any ideas for something you could do to help alleviate the worry, such as give up your Starbucks coffee in the morning or calling a friend to unload a little of your burden.
– Start doing better. Meet with a credit counsellor, set up a spending plan, and start behaving in a way that will help you get different results in the future.
Remember what Shakespeare said — nothing is either good or bad, but thinking makes it so. Yes, you should take steps to clear your debts and relieve the associated stress by eliminating the root cause, but in the meantime, learning to cope without stressing over things you’re not in a position to immediately change might even save your life.
by admin | Bankruptcy, Consumer Proposal, Credit Counseling, Uncategorized
On of the things that get many people in debt trouble and on the road to bankruptcy, especially self-employed people or small business owners, is non-payment of taxes. Income tax debt can pile up very fast because it never goes away unless you pay it all off (or most of it, under a consumer proposal) or it is discharged in bankruptcy.
The annoying part is that whereas other debts don’t come back unless you don’t learn your lesson and fall back into bad habits, income tax owning keeps accumulating as you work hard (literally!) to meet your proposal or bankruptcy obligations.
There are really three problems in dealing with income tax debt: getting up to date on income tax owing, straightening out your current income tax return and staying on top of future income tax payments.
In a bankruptcy, one of the bankruptcy trustee’s first tasks is to file an income tax return for the year prior to bankruptcy. The trustee must then file a return for the current year up to the time of bankruptcy. And then you must file a return for the remainder of the current year before the tax deadline in the coming year.
The past tax owing gets lumped in with all your other debts, under certain conditions, and it will be eliminated when you are discharged from bankruptcy. However, if income tax debt is your biggest debt (as is the case in most bankruptcies), it may not be automatically discharged when you emerge from bankruptcy (especially if it tops $200,000 or if it accounts for more than 75% of your debt).
However, there are other paths you can explore prior to filing for bankruptcy.
First and foremost is applying to the Canada Revenue Agency (CRA) for debt relief. The CRA may exempt payment of penalties or fines if the financial hardship was caused by extenuating circumstances such a physical duress (an accident or serious illness), emotional stress (such as that created by a death or divorce), natural or man-made disasters (such as floods or fires), or civil disturbances or disruptions of services (such as a lengthy postal strike or government shut-down).
Payment relief may also be available if the cause of the debt stress was related to CRA actions, such as processing delays or errors, not providing information in a timely manner to the individual or providing information later deemed erroneous, or undue delays in processing on the agency’s part.
And lastly, relief may also be granted if you can show an inability to pay due to loss of employment, if the interest penalties are a significant portion of the amount owed, or if repayment would result in considerable hardship to provide the basic necessities of life (food, shelter, medical help or transportation).
In the case of a small business, relief may also be granted if having to repay the outstanding amount might lead operations to cease, cause job losses or somehow influence the well-being of a community.
If relief cannot be had from the CRA, the next step to explore would be a consumer proposal. As in dealing with other debts, the trustee would file a proposal for repayment of a portion of the outstanding debt to the CRA, which may choose to accept the proposal.
If either of those avenues fails, then bankruptcy would be the final option. But remember, as you keep working under your new financial freedom, income tax keeps accruing, and if you’re not getting taxes deducted off a paycheque, then there is the chance you may not be able to pay off the accumulation at the end of each year and that would be considered new debt for which you are responsible.
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