Over the past two years almost every time Finance Minister, Jim Flaherty and Bank of Canada President,  Mark Carney have issued a press release or spoken on camera they have been warning Canadians about their growing levels of  consumer debt.

There is finally some good news. Apparently some Canadians have started listening.

According to Equifax the average credit card debt fell in 2011 by 3.4 per cent.

It’s important to note that this drop is in credit card debt. Other types of consumer debt are still at record high levels.

Nadim Abdo, vice-president of consulting and analytical services for Equifax Canada cautions …

 ”Although this appears to be a good news story for Canada, there remains some concerns about the high level of debt Canadians carry on average. The main concern is how the Canadian economy may react to stressed global markets while our GDP is projected to grow at a very marginal rate in 2012. Canadians are at record-high levels of indebtedness with little room to maneuver. If there is to be another financial crisis, we can expect losses from serious delinquencies and bankruptcies.”

Equifax.ca  provides consumer and commercial information solutions including credit reports.
Read the Equifax news release here:
Vast Improvement in Consumer Debt According to Equifax Canada-but Sustainability is a Concern

Find out more more about the report and what other experts are saying:

CTV News:  Canadians handling credit card debt better: Equifax

Globe and Mail:   Debt still rising, but Canadians better at paying credit cards: Equifax

Clicking through the TV channels the other night, I was appalled by the number of ads for payday loans. They make is seem easy (it is). They show happy, smiling people and make it seem like a reasonable, temporary option (it isn’t).

Payday loans are easy to get, but they are about the worst decision you could ever make financially.

Here are the reasons why you absolutely NEVER, ever, ever get a payday loan.

1. Beyond High Interest

If you look at the amount they “charge” you, or deduct from one advance payment, it looks small … maybe even reasonable.

There have been instances where  annual interest rates of 8000% have been changed.  No, I didn’t accidentally add a few extra zeros … 8000%!

In BC the amounts that can be charged by loan companies are regulated. However fees can still range from $17 to $31 per $100 borrowed.  $31 per $100 amounts to 754% interest per year!

If you keep on getting advances, you will soon be in a  downward loan cycle that will never end.  It will just keep on getting worse every month.

2. Too Easy to Renew

Once you qualify for the first money advance, it is very easy to renew every week or every month. You can even renew before you have paid back your last loan. If you thought you had problems paying off your credit card bills, this is even worse.

3. Your Credit Score Will Be Negatively Impacted

When it comes to calculating your credit score, the “type” of credit you have tapped into makes a difference. Payday loans have a huge and negative impact on your credit score.

What are your Options?

• Family or Friends?  (pay them back immediately if you want to keep them by your side).
• Ask your employer for a one-time-only advance.
• Personal Bank Loan
• Even tapping into your Credit Card is better than a payday loan.
• Go into overdraft on your bank account can help temporarily. (My account lets me overdraft by $500 if I ever needed to).
• Get your budget under control.
• Take DRASTIC stop spending: measures NOW.

Another option is to consolidate your debt into your mortgage. With the new mortgage rules it has become harder to do this, but it is still possible.  Give us a call to discuss your options.

Once you have consolidated your debt into your mortgage, we will advise you NOT to rack up additional consumer debt. If you continue spending, you will end up in the same place again …  unless you take steps to control your money.

A friend mentioned that we take a look at a TV program called “Till Debt Do Us Part.”

Gail Vaz-Oxlade - Till Debt Do Us Part

The SLICE network program is hosted by financial expert Gail Vaz-Oxlade who uses tough love advice and techniques to help couples get out of debt.

In the programs I’ve watched,  couples are dealing with consumer debt issues ranging from $20,000 to a whopping $100,000.  This does NOT include their mortgages, if they have one.

Over the period of a month, Gail conducts a “reality” session where she shows a couple where their money is going and how much they actually owe.  It is no surprise to me that many of the couples have NO idea how much they owe. They are in total denial about their monthly spending.

In one episode, a couple was spending $8000 MORE each month than they were making.  In many of the episodes the couples are regularly spending thousands of dollars more than they are making … which is the reason they are in debt, and the reason they cried out to Gail for help.

Gail starts her tough love rescues by confiscating all debit and credit cards and by placing the couple on a cash diet.  And diet it is … variable spending (food, clothing, entertainment, transportation) is drastically cut.  Drastically cut! So far I’ve seen cuts of anywhere from a  50% to 90% DECREASE in the monthly variable spending budgets.

The totally amazing thing is, almost all the couples manage to cope with the cuts and some of them even have money left in their cash jars at the end of the month.

The second amazing thing is, the couples develop debt payback plans that get rid of their debts in three years or less.  One couple went from racking up a $60,000 debt to developing a plan to pay it off in less than two years.

The show is well worth watching.  You will be entertained and educated.  The SLICE network regularly runs old and new shows.

The “Till Debt Do Us Part” series has several specialty programs including a series of shows focusing on couples who have huge mortgages and are on the verge of losing their homes.  The most current set of programs focuses on couples about to have a baby, or more babies or couples who can’t afford their kids!

This season, Gail has a new series called “Princess” … if you guessed it is about spoiled women who are totally selfish, indulgent and who are overspending themselves and their families into near bankruptcy, you guessed right!

My advice is to watch a dozen or so of the shows.  If you don’t get the SLICE network you can watch many of the episodes online.

Here’s a link to Till Debt Do Us Part
In addition to the schedule and online episodes you will find some great articles and extra videos on budgeting and debt reduction.

Here’s Gail’s Website >> Gail Vaz-Oxlade
Gail has loads of great advice on her personal website, articles, worksheets,  and links to her books.

http://www.gailvazoxlade.com/

In Part One of Avoiding Your Own Personal Debt Crisis we talked about credit card debt … how to control it and how to get rid of it.

In today’s post we will give you a few resources which will help you manage your budget, cut your costs and help you establish a savings vs spending plan.

In the past few years I have watched as communication costs have gone up and up and up.  For many families this is totally out of control and eats away a big chunk of their income.  Cell phones, computer connections, cable connections, ipads, messaging systems and more. They all add up rapidly.

I have a friend who recently cut the costs of phone, cable and Internet connections to 1/4 of what she had previously been paying.  She said she did it without sacrificing anything!

Women’s Day Online Magazine has an excellent article with a dozen actionable steps on Cutting the Cost of Staying Connected. 

Groceries are a major expense for many families.  The Women’s Day article, 4 Ways to Lower Your Grocery Bill, has some great tips.

Pay attention to the tip about shopping on Amazon.  A friend of mine regularly purchases grocery items on Amazon and has them shipped to a Point Roberts mailbox.  Bringing groceries across the border is duty free.  She says she regularly saves up to 75% on the items she buys online  (including the shipping fees, if any).

Car and Transportation costs have escalated dramatically.  OpenTravelInfo’s  How to Save Money on Gas – 29 Tips provides some solid tips on ways to save money.   TreeHugger’s article  66 Ways To Save Money on Gasoline is an eyeopener.  You can implement a half dozen of the tips immediately and you will see the results within the first month.

In the months to come we will have more “Save Your Money” strategies for you.

If you are implementing the tips and ideas to:

• pay off your debts and improve your credit rating so you can qualify for a mortgage
• save for a down payment
• pay off your mortgage earlier

… give me a call.  I can offer you some advice and insight, and help you achieve your goals faster.

Justin Blacklock
604-736-1855

I wrote this article for the Averbach Monthly Newsletter, but since not everyone who visits the site has subscribed I thought I’d also post the article in the blog.

If you are considering getting a new mortgage with lower interest rates, you WILL get dinged by mortgage penalties.

The amount of the penalty depends on your existing mortgage rate and the current rates.  When fixed rates go down, your penalties to get out of your current fixed rate GO UP!

You need to know how much your penalty will be before you decide to refinance or do an “early switch” with prepayment penalties.

Here is an example of a BASIC Interest Rate Differential (IRD) calculation:  
Based on a $200,000 with 3 years remaining on a 5 year term of 5.70%

There are 3 years remaining, so we will use the current 3 year rate to calculate the differential.

If the lenders current 3 year rate is 4%, there is a difference of 1.7%.

Because there are still 3 years left, the principal is multiplied by 3

$200,000  x  1.7%  x    3     =  $10,200 penalty

**This calculation is an estimate and will change every time mortgage rates change. If the differential increases, the penalty will also increase.

The BIG question is … Will you still save money by refinancing?

Here is how to do the IRD calculation.

Step 1: ________ (A)
What is the current interest rate of your Mortgage expressed as a decimal (for example, 6.75% = .0675).

Step 2: ________ (B)
What is the current interest rate (choose the term closest to your remaining term).

Step 3: ________ (C)
A – B = C, which is the difference between your current interest rate and the interest rate in B above (write C as a decimal).

Step 4: ________ (D)
Amount you want to prepay (if any).

Step 5: ________ (E)
Number of months for the remaining term of your Mortgage.

Step 6: ________ (F)
(C x D x E) ÷ 12 = F, F is your estimated Interest Rate Differential Amount  or  “the penalty amount.”

If you want to find out the best rates available … I can do the calculations for you!  Just give me a call and I’ll help you decide if refinancing at today’s low rates will save you money and if it makes sense for YOU!

Justin Blacklock
604-736-1855.

No matter where you go, the media is buzzing with stories and opinions on the US debt crisis and how it may affect Canada.

While most people feel powerless over what governments at all levels may do in an attempt to avert an even bigger mess … there is something YOU can do. You can take the steps necessary to avoid your own personal debt crisis.

In the next few blog posts, we will share some of the best financial solvency tips we found while doing research on the Internet.

CreditDonkey is a credit card comparison site that publishes credit card research, informed opinions and related news/trends.  Here are a few tips CreditDonkey published in a recent press release.

• Keep track of your debt—Knowledge is power; especially when it comes to debt. When consumers don’t know what they owe, it’s easy for them to slowly slip more and more into debt.

There are several free financial management websites now available to consumers to help combat this problem. These sites help consumers keep track of what’s coming in and what’s going out of their banking accounts. By enrolling in one of these free programs, consumers are able to see exactly what they owe each month.

• Pay on time every time—Making payments on time each and every month is critical when it comes to managing debt. Being late not only damages a consumer’s credit score, which makes it more difficult to qualify for future loans, but it also results in late fees. These fees can really add up and will just add to the amount that is owed. Being late on credit card payments can also result in a higher annual percentage rate (APR). The higher the rate, the more a consumer will have to pay in interest.
• Take advantage of refinance offers—Refinancing an auto or home loan can help decrease monthly payments. When auto and home loan payments are lower each month, consumers are able to put more money toward their credit card debt.

If a consumer isn’t receiving preapproval offers in the mail, it doesn’t necessarily mean they won’t qualify for a refinance loan. Credit unions typically have less strict lending policies, so if a consumer is looking to save money on their monthly payments, they can contact their local credit union to see if they would qualify for a refinance loan.

• Be responsible with credit card usage—Credit cards are great tools… when used responsibly. With the advent of credit card rewards, many consumers are using the rewards as an excuse to charge an increasing amount of purchases to credit. This doesn’t necessarily have to be a problem. However, it can be easy to go overboard, charging more to the credit card than can be paid at the end of the month.

The best rule of thumb when it comes to credit cards is for cardholders to limit their purchases to an amount they can easily pay off at the end of the month. If a cardholder wants to make the most out of their rewards program, they can use their credit card to pay their monthly bills instead of using rewards as a validation to go on a shopping spree.

• Look for credit cards with balance transfer offers—Consumers who have existing credit card balances can help lighten their debt load by completing a balance transfer to a credit card with a lower rate. No, this won’t eliminate the total amount owed but it will decrease the amount they will ultimately pay in interest, potentially saving them hundreds of dollars over the life of the outstanding balance.

There is additional information at CreditDonkey.com … but be careful, they are trying to sell credit cards AND a lot of their information is aimed at US consumers.