Looking Back

Don't be a sucker!

I am still trying to wrap my mind around the fact that I will finally get a chance to speak to the one and only Gail Vaz-Oxlade on September 10th! It still feels a bit surreal to me. My last post had the highest readership of all time and in the past month I have gotten well over 1000 views on my blog which means that a lot of people are reading what I have to say and are watching my progress.

Even better are all the in-person conversations I am beginning to have with friends and strangers about how to get their finances on track. The yoga studio has really brought me into the spotlight to a whole new audience. It is so important to have a dialogue going about debt. Once others realize that they are not alone in paying down their debt, they can begin to see that there is a light at the end of the tunnel, no matter how dire the situation may seem. Even though I am doing very well in my repayment, I still learn so much from the people I talk to about how I can cut corners and stay on track. Sometimes I need reminders that what I have accomplished is really quite incredible.

When I began this process, I really had no idea where it was going to take me. Part of me was scared that I would fail and stay stuck in the hole that I had dug, another part of me was excited to take control of something that had completely derailed me. When my friends had left for a trip around the world using the savings they had, I realized that my spending was awful and my savings were nonexistent because they were both making the same salary as I, but they had so much more to show for it. I needed to come to terms with the fact that I wasn't as good with money as I had always believed. More importantly, I needed to see that I had become everything that banks and retailers wanted - a sucker.

Do you remember that when I started this process I was paying $314.06 PER MONTH on interest payments? Now that figure has been reduced to under $40 , which is still $hitty, but it's a massive improvement. Can you see now why paying things off rapidly is so important? Think about all the money that you could be saving if you can pay off your debt in under 3 years. The banks take enough from you in fees, so why let them take your money in interest as well? What is the point in having savings at less than 2% if you are going to pay interest at 19.98%? There are so few things that you actually need to pay for on your credit card, and using your own money is so much more rewarding.

If you take control, kill the debt and build your savings, the banks will start paying you! You could be the one collecting $314.06 in interest per month, and you SHOULD be in that situation eventually. Few of us want to work for the rest of our lives, so we need to plan ahead and be realistic with where we see ourselves in the future. We are expected to live longer and longer, so we need to have savings that last longer and longer as well. Pension plans are great, but they won't keep you living at the high standards that you may be accustomed to, so start now, try to live with less, and you will gain so much more happiness for the rest of your life. 

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Tobacco Free Spanking Account (TFSA)

Saving and Shaving are completely different things

Every so often, I get a comment somewhere along the line of “You’re $40,000 in debt, why are you saving anything? You could pay off your debt faster if you use that 15% you’re putting aside for savings for your debt repayment.” Yes, I sure could get ahead a little quicker with the debt repayment, but then in 2 ½ years I end up with nothing in my bank account? That doesn’t make a lick of sense. It’s really important that you establish a savings plan; it will help give you a glowing credit record and you’ll be one step closer to making purchases toward your big goals (buying a car, financing a house, taking an extravagant trip to Saskatchewan, etc); not to mention your retirement! I hate to be the one to break it to you, but if you spend your money willy-nilly and expect to maintain this kind of spending on your pension alone, you should also start planning to save a refrigerator box to live in for when you’re broke 5 years after retirement.

Think about it -  I mean really think about it. Most of us would like to retire today even though we still have a good 25 years left in the workforce, but that’s just not affordable. I would love to retire in my 50s and nowadays, we all are living well into our 70s, 80s, 90s, and oh god, 100s. If I live that long I really hope that I get to be that crazy crotchety old man who yells at teenagers to get off their hover-boards on the sidewalk! Imagine, if you’re living another 20-40 years after you retire, you better have a solid plan to make sure that you aren’t living on cat food and Melba toast. Figure out what you would need to spend every year to live comfortably. Consider that you already own your house and your debt is paid off so you really only need some money to eat well, pay utilities, buy all your crazy medications, and spoil your grandkids. I think this is all possible on around $1,000 per month. Now there are 12 months in a year, and you want to be retired for 30 years, that means that you need to have $360,000 in the bank to live comfortably for 30 years. How in the hell is this even possible?

Well the trick is to focus more on baby steps to establishing a savings. A general rule of Gail is that you should put away 10% of your income automatically into savings. What do I mean by savings you ask; well, this would include your retirement savings, long-term planning savings goals, and emergency fund. Yes, I said emergency fund; and FYI, new shoes are not an emergency - seriously. Doing this is simple, whenever you get a pay cheque, figure out what 10% of it is, and put it into long term savings. There are many benefits to saving, but one of the greatest ones is that you can get tax breaks from the government for doing so. That’s right, you can get actually save even more money by saving money! For example, if you’re looking to build an emergency fund, consider a tax-free savings account (TFSA). Almost every bank offers them, and the best part is, you can put $5,000 every year in there without getting taxed on the interest – how cool is that?

Now, since we’re on the topic of opening a new account, consider this: you do not have to stay with the same bank to open a new savings account. Since you love to shop so much, start shopping for the best accounts among the banks. They all want your business, but it is completely unnecessary to stay with only one bank. When you’re choosing a TFSA, watch for the interest rate, user fees, and accessibility. Paying a transfer out fee of up to $100 (I’m looking at you CIBC) on your money is completely counterproductive. If you put $5,000 into your account and let it sit for 1 year at a 1.25% interest rate you are only making $62.50 that $100 will gobble up all the interest you made, and then some. I did a little research and Redflag deals did a nice chart which compares a number of banks here in Canada. It was outdated so here’s what I found out as of November 21, 2010:

BMO

Transfer out fee: No

Interest Rate: 1.75%

Minimum Investment/Deposit: $50

Check Interest Rate Online: Yes

CIBC

Transfer out fee: $100

Interest Rate: 1.25%

Minimum Investment/Deposit: $25

Check Interest Rate Online: Yes

Canadian Tire Financial Services

Transfer out fee: No

Interest Rate: 1.50%

Minimum Investment/Deposit: None

Check Interest Rate Online: Yes

HSBC

Transfer out fee: $50

Interest Rate: 1.25%

Minimum Investment/Deposit: None

Check Interest Rate Online: Yes

ICICI Bank

Transfer out fee (quoted from their website): “Fees: ICICI Bank shall be entitled to receive a fee upon transfer of Account funds to another financial institution. Fees in effect at the time the Account is opened shall be disclosed to you in writing at that time. ICICI Bank reserves the right to amend these fees from time to time subject to minimum 30 days notice to you and where necessary to Federal and Provincial tax authorities.”

Interest Rate: 2.00%

Minimum Investment/Deposit: None

Check Interest Rate Online: Yes

ING  Direct

Transfer out fee: None

Interest Rate: 1.50%

Minimum Investment/Deposit: None

Check Interest Rate Online: Yes

President’s Choice Financial

Transfer out fee: $50

Interest Rate: 1.50%

Minimum Investment/Deposit: No

Check Interest Rate Online: Yes

RBC

Transfer out fee: $50

Interest Rate: 1.25%

Minimum Investment/Deposit: $100 or $25 with a monthly automatic withdrawal

Check Interest Rate Online: Yes

Scotiabank

Transfer out fee: No

Interest Rate: 1.25%

Minimum Investment/Deposit: No

Check Interest Rate Online: No (according to the person I talked to on the phone)

TD Canada Trust

Transfer out fee: None (but the person I talked to didn’t seem to understand what I was talking about so there might be a fee depending on what you’re transferring the money to)

Interest Rate: 1.25%

Minimum Investment/Deposit: None

Check Interest Rate Online: Yes

A bee with an itch is a nice way to say b!tch. 

ICICI is our interest frontrunner with a 2.00% interest rate (however they have the sketchiest “fee” section in my opinion); RBC wins for nicest and most helpful person, and Scotiabank wins for fastest response time. ING has this cool sort of MSN thing when you log onto their website and then someone chats with you about banking! How progressive! I realize that the handsome-voiced RBC man was just making a sales pitch, but he did bring up some great points. He told me not to look only at the interest rate, but consider the service and advice that you will receive from your bank. Sometimes there is a little more value than just the interest rate and I’m sure we can all agree that we’ve had some $hitty service from a number of banks. While I agree with him, I do think that for me the overall winner for me is BMO. Who cares about minimum investments when you have a savings account? You should definitely be putting more than $50 into it so their $50 minimum is nothing to stick a shake at. There you go; I’ve done the homework for you and even put up with the “bee with an itch” lady from the one bank which shall remain nameless. Let’s just call her T.D.

TFSAs are great for when you need your savings to be a little more liquid, i.e. for an emergency fund. If you’re planning to do some more serious long-term saving, start looking into RRSPs and GICs, which I will go into more detail in another blog. Keep up the good work and you’ll have so much money in the bank that those people who were taking your money in interest will have the roles reversed for a change!

Smell you later!

John

Give me some Credit

Hooker boots are typically found in pay-by the hour "ho"tels.

Let’s get down to the dirtiest kind of debt – credit cards. Credit cards can be a very helpful tool to help you buy the things you want right now. It’s all very necessary to book flights, rent a car or a hotel room. And let’s face it, any airline, car rental, or hotel that takes cash only is either sketchy, ready to break down, or has “by the hour” hotel rooms – yes I’m talking about hookers (another way to waste your money).  I’ve been receiving a number of emails and phone calls from people telling me that my credit card balance is too high and my general response has been “no $hit.” Here’s some helpful info about credit cards I’ve learned and the steps I’ve taken to getting my credit card debt paid down.

Everyone hates telemarketers

Little do my friends and readers know that I used to work for a credit card company as a telemarketer. I think it’s in the top 3 for worst jobs I’ve ever had.  While there I learned a number of things about credit cards. The first one is that, if you think your credit card debt is high, it’s no where near what some people carry. I had one client want to do a $100,000 total balance transfer from their 7 credit cards. Talk about a nightmare! I felt like I was committing some kind of crime by signing this person for their 8^th credit card. This leads me to the next thing I learned about credit cards; the more credit you apply for, the worse your credit history gets.

If you’re one of those people who are constantly applying for every credit card out there to receive a free hat, beer mug, or whatever else they are offering and know that you’re going to be rejected, I’m warning you that this probably isn’t a good idea and if you’re applying to get more credit to pay of your credit, you’re a flocking idiot. 

Each time you apply, you’re allowing someone to search your credit history which can raise a few eyebrows to creditors. They start asking why you’re trying to accumulate so much credit and the more you’re able to dig yourself into a debt pit, the more of a risk you are to them. Keep your credit card number down to one, maybe two in the event that they don’t accept the kind of card you have but this is rare and you should be paying in cash anyway. The other thing I learned from working as a credit card salesman is that credit card companies are sneaky ba$tards.

Credit card companies care – about your money and their profits. When you’re paying interest rates like 19.5% on a $10,000 balance you might as well be walking over to your credit card company’s office with a box of condoms (safety first) and some Crisco and let them have their way with you. You are the consumer people! Don’t just settle for the first letter you get from some bank saying “you’re preapproved” because it’s all bull-hooey. I talked to all sorts of “pre-approved” people who made jack $hit for cash and had debt out the ying yang and I can guarantee that these people did not get approved even though the golden ticket they received in the mail said so.  

How do you choose a credit card you ask, well here are some general tips I can give about which cards to choose.

1. Department store cards are garbage.
2. Paying anything above 10% interest is ridiculous.
3. Almost all cards come with rewards, your card should too.
4. Reward cards are only worth it if you actually use the rewards.
5. Always read the fine print. Did you know that if you miss a payment some cards will boost your interest rate from 9.5% to 19.5%? Holy $hit, right?
6. You should not have to pay an annual fee to have a good credit card.
7. Don’t let them raise your credit limit by more than $5000. You shouldn’t need to spend any more than that at one time on your card and if your credit card is “for emergencies” you’re delusional. Start an emergency fund instead and have the bank pay YOU interest, not the other way around.

I used to have 3 credit cards, an AMEX, a department store card, and my MasterCard. I got rid of the department store card because they took me to a collection agency (to my credit they never sent me a bill so I forgot about paying it). This was a good thing since the interest rape (not a typo) was somewhere in the 20th percentile. The other card I got rid of was my AMEX because it had a zero balance. You can only cancel a credit card when it has a zero balance. I should have kept it because the interest rate was only 9%. The card I did keep is my MasterCard. I’m currently carrying a $14,247.57 balance on it. Yes, I am constantly in the process of being gangbanged by MasterCard. My MasterCard had an interest rate of 19.5% which means that every month, I was paying $236.95 in interest!!

Now, if you’re like me and carry a lot of credit card debt, you would be wise to transfer your balance and consolidate your debt into a lower interest line of credit so that you can pay down your principle balance faster (which will save you a ton of money). This however wasn’t the case for me. I tried to do this and the bank said “no.” I carry way too much debt for the bank to be interested in giving me more credit. Desperate times call for desperate measures. Since I can’t get rid of my credit card debt by consolidating it, I got my interest rate reduced from 19.5% to 12.5%! Doing this is surprisingly easy to do. I used the following script (brilliantly provided by the NDP):

“Hello, my name is YOUR NAME.

I have been a good customer of yours and would really like to stay with CREDIT CARD NAME.

I’d like to talk with someone about lowering my current credit card interest rate. Can you help me with this?”

It was THAT simple. For more information on this, check out this website.  By having my interest rate lowered to 12.5%, I am instantly saving almost $100 per month interest. Talk about amazing. 

Another dumb thing I was doing was paying for balance insurance on my credit card. This was probably the stupidest thing I’ve ever let the bank talk me into. I paid an additional $60 per month to insure my balance in the event that I die. That boosted my interest rate up into the 20% range! If you get offered this “feature” – decline it! It’s not worth it at all.  And yes you can cancel it at any time.

If you can maintain your good spending habits for 6 months, go back to your bank and they might actually start considering consolidating your debt. Talk to your friends and see what kinds of credit cards they have and shop around for the best one for you! Credit card debt is a nightmare, but if you can learn to take your card, throw it behind the fridge, not use it, and pay that mother trucker off, you can be quickly on the road to financial freedom like me.

Love,

John