Sunscreen And Spending Plans: How To Avoid A Budget Burn This Summer

BlostPost - Summer budgetingJust because summer break is here, it doesn’t mean you can take a break from your budget.  Summer presents a number of opportunities to overspend whether that be on vacations, renovations to your home, or maybe even on that new toy, like the boat or Seadoo you’ve had your eye on to enhance your summer experience.  These are expenses that people typically postpone throughout winter, knowing that they want to make the most of the summer months. However, sometimes while wearing their rose-coloured sunglasses, people can lose sight of their financial situation and end up in – or in more debt – by the time summer is over.

Planning ahead with a budget is key to avoiding post-summer overspending stress. To help you get started with your summer budget, follow these tips:

  • Take advantage of tech. Use the ease and convenience of a budgeting app like Mint. It’s a free app that you can download to your phone and will help you stick to your budget this summer.
  • Build your budget. Calculate your available cash each month by figuring out how much is left over after you deduct your household expenses, all your financial commitments (i.e. car payment) and debt payments from your sources of income. Ideally, you would want to see surplus funds available along with cash in the bank that will be more than enough to cover your summer expenses without relying on credit. If you are just breaking even with your income and expenses or you’re budget shows a deficit, in that your expenses exceed available income those months, you’ll have to adjust your summer plans to be more realistic on what you can afford.
  • Whip up a wish list. Make a list of the things you would like to do in July and August. Maybe it’s purchasing concert tickets, going camping, a home renovation or sitting on a restaurant patio every weekend. Whatever your list may be, prioritize the activities according to your desire to do them and make sure to include the cost of each. Remember, it is important to realize that you may not have the financial ability to do everything on your list.
  • Tailor to your top three. Narrow down your wish list to the top three things you’d like to do this summer. Before you make your final list, estimate the costs that will be associated with each activity, e.g., gas and food if it’s a road trip, and be prepared to set that money aside. Adjust your monthly budget for July and August to reflect the added costs. If your budget can’t afford those new costs, you may have to reconsider your top three. Remember, it’s okay to use credit to fund your summer plans only if you aren’t already carrying a credit card balance or if you have a plan in place to pay down what you use in full within 1-2 months of receiving your credit card statement.

Families with children can save money during the summer, too. 

  • Summer day camps are great for working parents and offer a variety of themes and learning experiences from sports to art and sciences that keep kids busy during the summer months. However, some camps can come with a large price tag and add financial stress to the household. Keep in mind, it doesn’t hurt to inquire about discounts for siblings and early registration and make sure to check out affordable options through your city and local YMCA.
  • Instead of heading out to the movie theatre where a child’s ticket is $10, plus popcorn, have a special movie night at home. Add an extra layer of fun by re-arranging your living room seating to make it more comfy or build a blanket fort and watch the movie underneath on a laptop.
  • Head outdoors to free parks within the community and pack a picnic to keep costs low. Try camping in your own backyard. Set up a tent on the lawn, star gaze, make s’mores in the oven and save money without sacrificing family fun!

If you’ve started the summer struggling with debt, now is not the time to use your money elsewhere.  It’s important to deal with your financial situation right away and not postpone it until September. Speak to a Licensed Insolvency Trustee to get informed of the options available to you to help resolve your situation.

Freida Richer LIT

 

Freida Richer is a Licensed Insolvency Trustee with our Edmonton, Alberta practice. You can watch her Money Smarts segment on the third Monday of every month on Global Morning News Edmonton.

Keeping Your Finances Afloat This Summer: Tips To Avoid The Debt Deep End

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Summertime is finally making its presence known across the country. The weather is warmer, patios are open and schools will be out in just a few short weeks. Although it is easy to get swept up in the lure of a Canadian summer, it’s important to remember that just because the temperatures outside are rising it doesn’t mean your amount of credit card debt has to as well.

During a 2016 CIBC poll, Canadians stated they planned to spend $1,346 on summer activities like travel, dining, recreation and home improvement. A 2016 Bank of Montreal survey found that 28% of Canadians use debt to pay for their summer spending habits, 27% admit to dipping into their savings to cover the costs and 13% say they put saving and repaying debt on the back burner during the season.

To help keep your summer spending on track, we’ve come up with the following tips to help you save this season:

  1. Make a summertime budget. You’ve heard us say it before, and we’re saying it again: budget, budget, budget! With vacations, child care costs, recreational activities and an abundance of enticing patios to eat at, it’s pretty safe to assume that most people expect to spend more money during the summer months. The best way to deal with these new expenses: update your monthly or quarterly budget to reflect the extra costs during the upcoming months. Plan ahead and save a little more each paycheck in June (or earlier if you remember), so you don’t have to dip into savings for summer activities. Budgeting is an important skill to practice all year long, but when you know you’re spending will increase it’s important to plan so you aren’t relying on credit that you may not be able to pay back, or savings that you may need in the future.
  2. Use prepaid credit cards. If you aren’t the best planner and are having trouble sticking to your budget, try using prepaid credit cards instead. Similar to a regular credit card, prepaid credit cards can be used almost anywhere – even online – but the balance that is on the card is all you can use, there is no overdraft or risk of overspending what you can’t afford. These are great to use on vacations, when going out to eat or when hitting up the mall as it eliminates the temptation of overspending.
  3. Try “DIY-ing” your home improvement projects. Whether it’s cleaning up the backyard or repainting your kitchen, try doing what you can without hiring a contractor or landscaper. Many small home improvement projects like painting, gardening and small plumbing and electrical fixes, can easily be done with some elbow grease and don’t require hiring a third party. If you are unsure if it’s something you can do on your own, do your research, ask a friend, or get a third opinion from someone you trust before adding the extra cost of labour to your budget. However, as nice as it is to believe we can cut corners and do somethings ourselves, it’s important to remember not all DIY projects turn out like the picture. It’s always good to plan for a 10-15% contingency fund in your home improvement budget for those “oops” moments.
  4. Take advantage of rewards programs. If your credit card offers cash back, travel or entertainment rewards, the summer is a great time to take advantage of using them. Plan to save your rewards for that summer vacation or use cash back on extra expenses like food, amusement park tickets, or to gas up for a road trip. If you don’t have enough rewards saved up for this summer, plan to save up for next summer!
  5. Try a vacation rental instead of an expensive hotel. Vacation rental sites like Airbnb and VRBO are becoming a popular and sometimes a less expensive alternative to hotels. If you require more than two rooms for your family, friends or travel group, vacation rentals offer an abundance of options and the more people that can divide up the cost, the cheaper the accommodation can become. Vacation rentals often also offer a full kitchen, which means you can plan to cook at home certain nights of your vacation, saving on food costs so funds can be used towards other vacation activities.
  6. Look into free events in your neighbourhood or municipality. Many neighbourhoods and municipalities across the country hold free community days and events throughout the summer months. Whether it’s movies in the park, parades and festivals or concerts, there is normally something that everyone will enjoy on their event calendars. Check your local municipality’s website to view their upcoming events. Also, don’t forget that this year each national park, historic site and marine conservation will have a free admissions day on top of their normal free admissions on Canada Day. This means you can spend a day or two exploring some of our national treasures for free! Check out Parks Canada’s site to see when the free admissions day is at a national park near you.


There are many more ways you can have a fun summer season without dipping into your savings or credit. No matter if you are going out of town or having a stay-cation, taking advantage of summer deals and rewards programs, or getting your hands dirty with DIY projects there are simple and effective ways to help keep your finances afloat this season.Freida Richer LIT

Freida Richer is a Licensed Insolvency Trustee with our Edmonton, Alberta practice. You can watch her Money Smarts segment on the third Monday of every month on Global Morning News Edmonton.

Student Debt 101: The Class You Wish You Took During Your Degree

BlostPost - studentdebtGraduation from a post-secondary program can be an emotional time. You feel proud that your hard work has paid off, sadness from leaving the people and place that you’ve spent so much time, and excitement for what is to become during your journey into adulthood.

Fast forward six months and things begin to become a little less shiny and new. Maybe you’re working in your field of study, maybe you’ve taken the year to go traveling, or maybe you’re working a minimum wage job trying to make ends meet. Next thing you know the federal and/or provincial government or the bank that lent you your student line of credit come knocking for payments. This introduces or enhances another popular emotion among recent grads: stress.

According to Statistics Canada, the average tuition for a Canadian university — before the cost of books, travel and supplies — is $6,500 per year. This means while new students are worrying about gaining the freshmen fifteen, graduating students have to worry about gaining the post-degree twenty – as in the $26,000 the average Canadian graduate owes in student loans. Keep in mind this number doesn’t include any consumer debt, like credit cards and lines of credit, which the student might have also acquired over their time at school.

WHAT DEBT TO EXPECT

When you hear financial advisors talk about “student debt”, they are typically discussing two areas of debt that graduates tend to face:

  1. The repayment of their federal and provincial student loans used to fund their tuition, books and other student related expenses and,
  1. The repayment of a growing consumer debt, like credit cards and student lines of credit.

While grads might feel pressure to repay their student loans, this isn’t the only financial sore spot they have to worry about. Repayment of student loans can usually be managed under the government’s Repayment Assistance Program, which is paid at an interest rate lower than the interest rate charged on bank loans and credit cards, e.g., prime = 2.95% +5% (fixed) or +2.5% (floating). An average student loan interest rate is roughly 6-8% compared to the 19% or higher rate on credit cards. The real pressure comes from the growing consumer debt – averaging $18,000 – that graduates have to pay back on top of their student loans.  The reality is that the overall debt a student may need to repay upon graduation could exceed $40,000. 

ARE YOU IN FOR THE LONG HAUL?

The amount of time it will take to pay off student debt will depend on what you can afford and when you can afford it. Immediately upon graduating, there is a six-month grace period until you have to begin making payments towards your student loans; however, interest will still accumulate during that grace period.

To give you an idea of the numbers, if you can afford a payment of $530/month in your budget, it will take you 5 years to pay off $26,000 in student loans at a fixed interest rate (prime + 5%).  If you can only afford a payment of $315/month, it will take you 10 years to pay off the debt under the same interest rate terms.

The reality is, it’s taking closer to 10 years for grads to pay off their debt as they experience challenges in finding the right job at the right pay, right away. Whether it’s due to the economy or a competitive workforce, some grads must work unpaid internships or minimum wage jobs which delays the repayment of their debt.

TIPS OF THE TRADE: PAYING BACK STUDENT DEBT

After you figure out how much you owe in total (this includes your government loans, credit cards and lines of credit), it’s important to prioritize the amount for each payment based on how much interest you’re being charged.  Plan to put more towards the higher interest rate debt which will most likely be your credit cards.  Your bank should have an online “loan” calculator which will help you figure out how much you owe. Once you have your debts organized, follow these helpful tips to keep your payments on track:

  1. Make your payments on time. Student loan payments will affect your credit report. Missing your payments or paying them late will impact your credit score and rating. It’s important to remember how your rating will make you look to lenders when you apply for future loans and/or mortgages.
  1. Practice “paying yourself first”. This might seem impossible while you’re paying down student debt, but having a cushion of savings for emergency expenses will help you avoid dipping into more credit. You might also want to increase your monthly payments as your income increases. Setting up a direct deposit to transfer payments to your student loan will ensure you stay on track with tackling the debt.
  1. Make use of the Repayment Assistance Plan (RAP) by contacting the National Student Loans Centre or your provincial student loan office.If you find yourself struggling to make payments, you may be eligible for a reduction on your monthly payments through the government’s RAP. If you qualify, your monthly student loans will be reduced or you won’t have to make any payments, depending on your financial situation.
  1. Don’t forget to claim a non-refundable tax credit on your income tax return for the interest paid on your student loans.

If you’re currently a student with a few years left in your education, it’s not too late to graduate with minimal or at least manageable debt. Be proactive and budget!  Live within your means and seek out creative ways to live more frugally as a student, like using your circle of friends as a support network since they will more than likely be in the same boat as you.  Seize opportunities to earn income during the spring and summer breaks and, lastly, avoid signing up for credit cards or lines of credit. Focus on managing the cash you have available.

Planning to maintain a debt for as long as ten years can make acquiring additional debt overwhelming. If you’ve incurred more debt than you can manage, contact a Licensed Insolvency Trustee. We will be able to explore all the options available to you, including bankruptcy and consumer proposal filings, which can dissolve student debt after you have been out of post-secondary education for seven years.

Freida Richer LIT

 

Freida Richer is a Licensed Insolvency Trustee with our Edmonton, Alberta practice. You can watch her Money Smarts segment on the third Monday of every month on Global Morning News Edmonton.

When Common-Law Means Common Debt: Dealing With Debt In A Common-Law Relationship

BlostPost - CommonLawDebt

Common-law relationships are on the rise in Canada. According to Statistics Canada’s most recent census, more than a fifth of Canadians were living in a common-law situation in 2016 – up from just 6.3 per cent in 1981.

While the government may look at common-law situations differently than marriages, money and debt are major contributors to stress in any relationship no matter the marital status.

WHAT’S A COMMON-LAW RELATIONSHIP?

The definition of a common-law relationship varies from province to province.  In Alberta, my home province, common law couples are legally referred to as “adult interdependent partners” under the Adult Interdependent Relationships Act. You’re considered to be in a common law relationship after living together for three years or sooner if you have a child together.

It’s important to know that the federal government has a different interpretation of what’s considered common-law status. The Income Tax Act considers you to be in a common law relationship if you’ve lived together for 12 consecutive months.  You must file your income tax return based on this rule to ensure that you’re filing accurately and don’t create any issues with Canada Revenue Agency.

WHEN DOES COMMON-LAW MEAN COMMON DEBT?

Someone typically becomes responsible for their common-law partner’s debt when they have agreed to be one of the following:

  • A Co-Borrower or Joint Applicant: The most typical type of co-borrowing is applying for a mortgage together. In this case, you and your partner are held equally responsible for repaying the mortgage to the bank or lender.
  • A Co-Signor:  Consider yourself the “backup” for the bank or lender if your spouse or partner, as the primary applicant, defaults on payments or is unable to pay what is owed.  Having a co-signor is security for the bank or lender and is generally used when the primary applicant has a poor credit score or rating.
  • A Supplementary Card Holder: Your spouse or partner may request the credit card company issue an additional or supplementary card to you so that you can be an “authorized user” on the account.  Although this offers convenience for the couple, the downside is that both might be jointly responsible for the balance owing on the credit card.  It’s important to read the fine print before using the card as a supplementary authorized user.

INSOLVENCY IN A COMMON LAW RELATIONSHIP

When we looked at our data over the last four years, approximately 10% of consumers across Canada who filed with Grant Thornton Limited were common-law couples. Although married couples represented the highest percentage of consumer proposals and bankruptcies filed with us, people in common-law relationships expressed the same fears and concerns as most married couples do.

During our free consultations, consumers in common-law relationships generally ask these questions regarding how their debt may affect their partner:

  1. If I file a consumer proposal or bankruptcy, will my creditors go after my partner? If you brought debt into the relationship, a common-law relationship does not automatically create joint responsibility for the debt. If the both of you apply for new debt together, like a joint loan with the bank as co-applicants or if one partner co-signs for the other, then both partners are equally responsible for the repayment of the debt.
  1. Does my low credit rating or score automatically affect my partner? Firstly, the two main credit bureaus in Canada, Equifax and TransUnion, maintain credit reports for each person separately.  Credit ratings measure your behaviour with credit (e.g., late payments) from an R1 rating, which is excellent, down to an R9 rating, which results when a bankruptcy is filed.  When a couple acquires joint debt, their individual credit ratings are affected based on whether they make their payments on time and repay the debt according to the terms of the agreement.

If one partner has an excellent credit score of 750 while the other partner has a poor credit score of 500, it will be more difficult for the couple to qualify for a joint loan since the lender will view the credit scores collectively.  Credit scores represent how much of a risk you are to a lender based on payment history, length of credit history, etc. – the higher your score, the less of a risk you are.

If your partner resolves their debt through a Consumer Proposal or Bankruptcy filing, it’s a journey that the both of you will no doubt face together in terms of support—however, aside from that, your involvement stops there.  You won’t face the responsibility for your partner’s debt or the negative impact on your credit report as long as you’re not a co-borrower, co-signer/guarantor or supplementary credit card holder.  Your spouse may be required to report his or her income to the Trustee; however, it is your right to not disclose your income.

If you’re having issues with debt and are in a common-law relationship, it’s important to be open about your finances with your partner. Debt carries an emotional weight on any relationship. It’s important to talk to your partner about your current financial challenges, so you’re both on the same page when it comes to your financial goals as a couple.

If your financial situation has reached a point where you cannot continue to pay your debt, talk to a Licensed Insolvency Trustee.  We understand that debt happens, and during a free one-hour consultation we will assess your financial situation and discuss the options that will work best for you.

Freida Richer LIT

 

Freida Richer is a Licensed Insolvency Trustee with our Edmonton, Alberta practice. You can watch her Money Smarts segment on the third Monday of every month on Global Morning News Edmonton.

 

How To Avoid Tax Debt As A Member Of Canada’s Growing Gig Economy

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Whether it’s driving an Uber between shifts, selling the product of your hobby on Etsy or renting out the apartment in your basement as an AirBNB, more and more Canadians are opting for on-the-side jobs, becoming members of Canada’s ever growing “Gig Economy”.

The number of Canadians working on the side has more than doubled in the last 40 years according to Statistics Canada, and research conducted by Intuit Canada predicts that by 2020, 45% of Canada’s work force will be generating self-employed income under a “Gig Economy”.

What’s a “Gig Economy”?  It describes a growing workforce made up of people earning a living through “gigs” like freelancing work or short term contract jobs.  Drivers of the Gig Economy are the brave many who choose to ‘be their own boss’.

As a Licensed Insolvency Trustee, I’ve listened to many self-employed individuals talk about the financial struggle of dealing with insurmountable tax debt.  In many cases, the tax debt was so overwhelming that the only option was to file a personal bankruptcy.  The importance of being diligent with filing your income tax returns and making your remittances to Canada Revenue Agency on time is undeniably real and can save you the cost of penalties, interest and sleepness nights.

STAY ON TOP OF THINGS BY:

Having a proper record keeping system in place.

  • The moment you start working for yourself is the moment you have to start maintaining proper books and records. Not only will this help you at tax time, but in preparation of a audit from CRA, you’re expected to keep all of your paperwork for at least six years.
  • Keep a record of your income/revenue and expenses. What’s crucial is the day-to-day recording of transactions impacting your business. There are all sorts of methods available that will help you do this like using software or a spreadsheet. There are also apps you can have on your phone like Expensify or Freshbooks which helps you capture expense receipts, mileage, send invoices, etc.

Filing your taxes on time.

  • As we know, April 30th is the deadline for us as taxpayers to file our income tax returns. Self-employed people have a deadline of June 15th; however, CRA begins charging interest on taxes owing starting April 30th. It is important to pre-plan knowing you need to have your remittances paid by April 30th to avoid interest charges.
  • Filing your return late triggers penalties. The moment you’re late, you’re hit with a 5% penalty of the balance owing, plus an additional 1% for every month the return is late. Over the year, this could add up to a maximum penalty of 17%.
  • Familiarize yourself with CRA’s online portals called “My Account or My Business Account” where you can check on the status of your tax accounts (like your GST account), the remittances you’ve made and to stay on top of important due dates.

Knowing that the cash you receive from a job you complete isn’t disposable income you have available to spend as you wish.

  • Although there are benefits of being self-employed, one of the pitfalls is overlooking the fact that your income is still subject to taxes which must be paid to CRA. A good routine is to set aside 20-25% of what you earn for taxes. Remember, even though your tax return must be filed by June 15th, you must pay what you owe to CRA by April 30th.

The accumulation of tax debt year over year has dire consequences. CRA has a number of powers and remedies to collect what you owe them and most often, there is no notice given to you.

HOW CAN CRA COLLECT TAX DEBT?

  • You’ll be charged compounded daily interest on the balance. The fact that the debt keeps increasing should be enough motivation to pay it off as quickly as possible.
  • You’ll lose your GST credits or future tax refunds. CRA can make use of a ‘statutory set-off’ by applying your credits and refunds to the tax debt.
  • Your bank account funds can be seized. CRA can garnish without going to court and can serve notice on your bank or any party who owes you money.
  • Your home can be affected. CRA can register your debt with the Federal Court of Canada and obtain a “Certificate” which can be enforced like a judgment order. This certificate can be registered against your property which means if you sell it, you might not see any equity since CRA will get paid first.

These are stressful situations to face but being proactive is key to ensuring you stay on the good side of CRA. Taking simple steps like hiring a good bookkeeper or accountant to help you stay compliant while you focus on the business is money worth spending.  Be realistic about your skills and abilities when it comes the paperwork.  It’s true that record keeping isn’t everyone’s strong suit, but CRA does not see this as an acceptable reason to to ignore tax filings and remittances.

When in doubt, seek help from a professional.  If you’re unsure how to get started, seek help from a tax professional. If you’re struggling financially and worried about paying off your tax debt, speak to a Licensed Insolvency Trustee about your options before CRA takes action against you.

Freida Richer LIT

 

Freida Richer is a Licensed Insolvency Trustee with our Edmonton, Alberta practice. You can watch her Money Smarts segment on the third Monday of every month on Global Morning News Edmonton.

Having “The Talk”: Why You Should Define Your Relationship With Credit Cards

BlostPost - CreditCards

In most relationships, there tends to be a “give and take” mentality that is mutually agreed upon from the start. Your relationship with credit cards is no different. While credit cards offer ease and financial comfort when it comes to obtaining goods and services, their “buy now, pay later” philosophy comes with the large commitment of promising to use future income to pay past purchases.

THINGS TO CONSIDER BEFORE COMMITTING

  • Know yourself and your habits. It’s important to self-assess before applying for a credit card. For example, if you’re a spender, applying for a credit card with a lower limit might work in your best interest, by limiting that “buy now, pay later” mentality.
  • Set rules for the use of the card and how you plan to make payments. A credit card must be used, the bill received and the payment made on time in order to build a positive credit history. Make sure you have or will have the money to pay off the card, or at least the minimum payment, at the time of the purchase and that you know when the payments are due. Setting reminders on your phone or marking the payment due date down on a calendar are helpful ways to stay on track.
  • Be choosy about obtaining credit. Limit the number of cards you carry. Do you really need more than one card? Don’t fill out department store surveys and be careful when shopping around for credit. Too many “hits” on your credit report can actually lower your credit score.
  • Understand the costs associated with your card. Are there monthly fees? Annual fees? How is interest charged on your credit card? Take into consideration your spending plan to see how the credit card payments, interest, or even rewards program will work into your budget and financial goals.

KNOW YOUR TYPE

Before committing to a credit card, it is important to know which type of card will work best for your needs, budget and credit score. Everyday credit cards from banks, financial institutions and credit card companies, and secured credit cards – credit cards obtained by providing a security deposit in case payments aren’t made – are the only credit cards that will help you build (or rebuild) credit. Debit Visa or Mastercards and prepaid credit cards are loaded with your own money, therefore the borrowing of money doesn’t take place and credit cannot be built. If you’re looking to build or rebuild credit, start by getting an everyday or secured credit card.

If you are already establishing positive credit, but tend to be more of a spender, prepaid credit cards work great as a budgeting tool for flexible expenses, as your own money is loaded onto the card and overdraft is not an option. If you have room in your budget and want to receive something other than a good credit score from your card, credit cards with money back or travel rewards can be useful in achieving short term goals like a vacation or a new computer. Though these cards sound appealing, their annual fees and interest rates may be higher. It’s important to do your research, or talk to a financial advisor to see which credit card will work best for you and your budget.

PLAYING IT SAFE

It’s easy to get caught up in a new credit card relationship – especially when hopes of a vacation, money back or a higher credit limit may be involved. However, the risks that are associated with a credit card cannot be forgotten. Playing it safe will not only help boost your credit score, but will help set the tone of your future financial well-being.

How to Practice Safe Credit:

  • Understand how credit cards work. Having this knowledge will give you the upper-hand when deciding how to use your credit card.
  • Pay your credit card charges in full every month before the due date. If you do this, you won’t be charged interest. If you are unable to pay the balance in full – ensure you pay at least the minimum monthly payment by the due date.
  • Try to avoid taking cash advances on your credit card, unless it’s an emergency. Interest starts to be charged from day one for credit card cash advances, and it can add up quickly.
  • Limit the amount you charge on your cards. Never charge more than you can comfortably afford to pay off in full.
  • Keep an eye on what you’re spending with credit cards using online banking, a mobile app or by manually keeping a budget. If you notice your habits changing for the worst, it may be time to reassess your relationship with your cards.

WHEN IS IT TIME TO MAKE THE CUT?

Unfortunately, not all relationships are healthy. Sometimes, financial self-reflection is needed to figure out whether or not it’s time to cut ties and reach out for help. Warning signs of an unhealthy credit card relationship tend to include behaviour such as:

  • Consistently paying only the minimum balance on your card (or not at all).
  • Racking up past due payments.
  • Using one credit card to pay the balance on another.
  • Receiving or ignoring calls and messages from collection agencies.
  • Negatively affecting your credit score because of your relationship with your card(s).

If you’re beginning to worry about how your relationship with credit is affecting your finances, contact us for a free and confidential debt consultation. Our Licensed Insolvency Trustees understand how easy it can be to get caught up in an unhealthy relationship with credit cards, and will work with you to find the best solution for your debt problem.

RobM_HS

 

Rob McLernon is a Licensed Insolvency Trustee (LIT) and a Chartered Insolvency and Restructuring Professional (CIRP) with our Nova Scotia Grant Thornton team. He’s been working primarily in the consumer insolvency area since 2003. In addition to being a LIT, he is a Certified Insolvency Administrator and Counsellor. Rob has extensive background knowledge on debt restructuring and brings this to his current role.

The Other Option: The Rise of Consumer Proposals in the World of Insolvency

BlostPost - The Other Option - Consumer ProposalsAccording to the Office of the Superintendent of Bankruptcy (OSB), 122,198 Canadians filed an insolvency proceeding in 2017 – however 53% were able to avoid bankruptcy.  These individuals chose to file a Consumer Proposal instead of bankruptcy to resolve their financial difficulties.  Monthly OSB statistics also reflect a growing trend of Consumer Proposal filings in many regions across Canada.

WHY IS THIS HAPPENING?

  • The emotional and social stigma heavily tied to “Bankruptcy” is disconcerting to people, so they seek an alternative remedy to their debt problems.
  • People have less money to give to their creditors if they’ve experienced short or long term job loss.
  • For a variety of reasons (ie. poor credit score or lack of assets to pledge as collateral), people aren’t qualifying for consolidation loans to pay off 100% of their debt.
  • Those currently impacted by or who are recovering from a recessionary period are earning substantially less than what they were earning pre-recession, thereby impacting the ability to service debt.

WHAT IS A CONSUMER PROPOSAL?

Simply put, a Consumer Proposal is an offer to pay your creditors a percentage of what you owe them. A Consumer Proposal allows for the consolidation of debt—often at a reduction of the total amount owing—under a single manageable payment up to 60 months. The payments must be affordable, fitting within your monthly budget, and realistic to personal circumstances.  For example, if you plan on retiring in less than 2 years, offering a proposal over 60 months would not make sense.

YOUR CREDITORS HAVE A SAY

A Consumer Proposal is a creditor driven process in that your creditors will vote on whether to “accept” or “reject” your offer. This is determined 45 days after filing the proposal.  Acceptance of your offer will be legally binding and, upon completing the terms of your proposal, creditors agree to write off the remaining balance that you owe.  For example, if creditors accept your offer to pay back 40% of your debt over 5 years, they will write-off the remaining 60% once you complete the terms of your proposal and requirements in the process.

The motivation for creditors to accept your offer is that they are receiving a higher return over what they would get if you go bankrupt.

WHY ARE CONSUMER PROPOSALS THE MORE ATTRACTIVE OPTION?

  • You are in control of your assets. You can continue to make mortgage and vehicle payments during the Consumer Proposal.
  • It provides a solution for tax debt and multiple payday/cash store loans.
  • You know where you stand with your creditors. Collection action and interest charges from creditors will immediately stop upon filing a Consumer Proposal.
  • Your monthly payments are fixed and paid at no interest.
  • It’s viewed more favourably. You avoid the stigma of filing a bankruptcy and there is less of an impact on your credit rating which will sit at an R7 instead of an R9 (bankruptcy).  You can also continue to act as a Director of an incorporated business.

Bottom line – the offer to repay a percentage of your debt over five years or less must be realistic, monetarily and circumstantially, based on your financial situation. A consumer proposal might not be the right option for everyone, but it is important to explore before deciding on bankruptcy. Talk to a Licensed Insolvency Trustee to see if a Consumer Proposals is the right option for you and your debt.

Freida Richer LIT

 

Freida Richer is a Licensed Insolvency Trustee with our Edmonton, Alberta practice. You can watch her Money Smarts segment on the third Monday of every month on Global Morning News Edmonton.

The Cryptocurrency Craze: Is Debt Worth It Or Will Bitcoin Bite You Back?

BlostPost - The Cryptocurrency Craze

Cryptocurrency is a hot topic that has catapulted it’s way into mainstream media, social media, water-cooler gossip and dinner table discussions alike.  While there is something to be said about the excitement and optimism generated from a ground breaking concept like Bitcoin and the rest of the cryptocurrencies, the bad news is that some people are risking their financial security to join the cryptocurrency craze and avoid the fear of missing out.

CRYPTO-WHAT?

Cryptocurrency is a digital form of currency which changes the traditional way we store our money. Unlike paper money—which is government regulated, controlled and issued by central banks—cryptocurrencies exist without any regulations and no central authority.

Another way to explain it is to use the example of purchasing something from an online retailer.  Normally, you would rely on a third party authority like your bank, PayPal or a credit card company to verify and facilitate the payment for the product; however, using cryptocurrency, there is no third party involved.  You, the consumer, are dealing directly with the retailer as your Bitcoin, Litecoin, etc, would simply be paid from your cryptocurrency wallet.  Yes, a wallet.

HOW DO YOU GET CRYPTOCURRENCY?

The main step is setting up your cryptocurrency wallet using an online software. Think of the wallet as a bank account where you send and receive the currency. A person can have multiple wallets that are stored online, in your computer harddrive or on your mobile device. Once you have your wallet, you’re ready to invest in one or more of the 1,500 different types of cryptocurrency directly from an online exchange.

HERE’S WHERE THE PROBLEM STARTS

There is now a major concern surrounding the fact that people are taking out mortgages, depleting their retirement funds or savings and even using credit cards as means to invest in Bitcoin and other cryptocurrencies.

Throughout these financial crazes, people adopt either a ‘fear of missing out’ or ‘get rich quick’ mentality, as they want to get into the game that their peers and potentially friends and family are profiting from. Unfortunately, when this happens people lose sight of assessing their current financial situation and put themselves at risk in hopes of a big return. Those especially vulnerable, are people who are already carrying heavy debt loads and getting into more debt to chase a profit they may never see.

Fortunately, I have yet to come across a situation where a person’s financial distress was caused by their investment in or use of Bitcoin or other cryptocurrency. However, in my experience as a Licensed Insolvency Trustee, I know that people might be reluctant to disclose the true cause of their financial difficulties because they are too embarrassed or ashamed.

RISKY BUSINESS

The cryptocurrency market is extremely volatile. In 2009, Bitcoin’s value was worth only a few cents. In 2017, it’s price bounced from $1,000 to $20,000 and then dropped back down to $13,000.  With that much volatility, true value is hard to pinpoint, and combined with it’s newness and not fully understood technology, these concerns make cryptocurrencies a risky investment.

Let’s be clear, there are numerous stories of people who’ve got lucky with cryptocurrency—but this risky investing is not for everybody.  Especially, since using cryptocurrencies doesn’t protect you from the risk of being scammed. In 2017, the Canadian Anti Fraud Centre reported that Canadians lost more than $1.7m through scams connected to cryptocurrencies—doubling the numbers from 2016. If you do plan on investing in cryptocurrencies, it is important you make yourself aware of potential scams such as:

  • Scammers who have attempted to extort money from people using Bitcoin
  • Scammers who have posed as tax collectors from Canada Revenue Agency demanding immediate payment through cryptocurrency

IS DEBT WORTH GETTING INTO THE GAME?

Over-extending yourself on credit to purchase cryptocurrencies or depleting your savings intended to pay down debt could potentially position you in an insolvency situation.  With household debt levels in Canada already high, people simply can’t afford to lose more money and fall deeper into further debt.

The banks are taking notice as well. TD Bank announced on February 23rd, 2018 that it would be banning the purchase of cryptocurrency with its credit cards to protect its customers as well as the bank. This ban announcement joins the wave of bans globally from other major banks.

THINKING ABOUT INVESTING?

If you are thinking about investing in a cryptocurrency or other risky investment, please consider the following steps before making your purchase:

  • Educate yourself & seek professional advice. Take the time to do the research and talk to a professional investment advisor about the cryptocurrency market.  You should have a solid understanding and realistic expectation of what you’re investing in.
  • If you don’t have the money, don’t invest. Focus your efforts on paying down your debt first or building your emergency fund/savings.  You do have control over in seeing your debt go away and having a comfortable cushion of savings.  You don’t have control over your return on investment in the cryptocurrency market.Freida Richer LIT

Freida Richer is a Licensed Insolvency Trustee with our Edmonton, Alberta practice. You can watch her Money Smarts segment on the third Monday of every month on Global Morning News Edmonton.

Brokenhearted with an Empty Wallet—Warning Signs of Online Relationship Scams

BlostPost - Brokenhearted with an empty walletAs a Licensed Insolvency Trustee, I hear a variety of facts, circumstances and events that have led to one’s financial distress. Being victimized through an online relationship scam can leave someone both emotionally and financially devastated.

According to the Canadian Anti-Fraud Centre, online relationship scams are the highest grossing scam compared to other internet frauds. As is usually the case, the online dating starts out innocently on a legitimate dating website, but evolves with intention by the perpetrator to ultimately steal money from the innocent party. It’s tough to pinpoint the exact number of people in Canada who have been victimized by an online dating scam, because a person is usually too embarrassed or ashamed to admit that they were taken advantage of.

The most heartbreaking story I’ve heard was from a lady who was involved in a nearly one year online relationship which was ultimately discovered to be fraudulent.  Throughout the “relationship”, she lost in excess of $100,000—her entire life savings—from a series of wire transfers to the perpetrator.  She didn’t see the warning signs at the time. Why? She believed him.  She was in a time in her post-divorce life where she was desperately seeking companionship and he preyed upon that.

With love being top of mind during the month of February, those involved in online relationships should take time to evaluate whether their relationship is causing them financial distress.

Look for the non-financial warning signs by asking yourself:

  1. Is he/she “too good to be true”? Have your guard up if they appear perfect or are giving you all the right answers all the time.
  1. Is he/she transitioning the contact from the dating site to personal email, text or phone? If so, they may be moving into their next phase—gaining trust and more personal information from you outside of the restrictions of a bona fide dating website.
  1. Is he/she making excuses for not being able to meet in person (i.e., problems with their travel visa or lost passport)? Keep their reasons for not being able to meet in your back pocket and determine if there is a pattern.

Look for the financial warning signs by asking yourself:

  1. Am I being asked about my financial background in the early stages of the relationship? If they want to know how much you earn, the car you drive, whether you invest, or the kinds of credit cards you have, you’re being sized up. This is the start of their attempt to gain access to your assets, money and credit.
  1. Am I considering sending money to this person and why? Scammers often use the excuse of an “emergency” or “crises”, like a sick family member. The dollar amounts usually start out small, but progressively get higher and with more frequency.
  1. Am I using credit more frequently to cover living expenses or taking out bank loans? Finding yourself with more money issues since you’ve started the online “relationship” should be a clear warning sign.

Taking these simple steps can prevent you from falling victim to an online dating scam:

  • Tell a family member or close friend about your new relationship.  Victims have told me in hindsight that had they told a friend about the first wire transfer of money, matters wouldn’t have escalated.  If you’re blinded by love, let your friend or family member be that voice of reason.
  • Don’t release financial information about yourself and never send money to someone you’ve met online.  Be clear from the start that there will be no discussions about your finances, and if a request for money is made stop communications immediately.  If these conditions are a problem for the other person, then you’ll know where their intentions lie.


If you are concerned that you are being financially targeted in an online relationship, you should contact your bank immediately to stop payment on any cheques or money transfers you’ve recently issued.  Unfortunately, any money you’ve given the perpetrator up until that point is money you’re never going to see back.  Next, report the matter to the RCMP.  You’ll likely be directed to file a report with the Canadian Anti-Fraud Centre.

If you are now facing overwhelming debt because of a fraudulent online relationship, it’s important to speak to a Licensed Insolvency Trustee.  The emotional toll of not only losing the relationship, but your savings as well, can make it extremely difficult to focus on resolving your situation. A Licensed Insolvency Trustee can help sort out the situation and help you come up with a viable solution to your financial troubles. Practical solutions such as budget adjustments, debt consolidation and a consumer proposal are all options to consider before bankruptcy.

We can’t mend your broken heart, but we can help mend the hole in your wallet.

Freida Richer LIT

 

Freida Richer is a Licensed Insolvency Trustee with our Edmonton, Alberta practice. You can watch her Money Smarts segment on the third Monday of every month on Global Morning News Edmonton.

A Tough Pill to Swallow – The Link Between Your Medical and Financial Health

BlostPost - Medical and Financial HealthIn Canada, we’re fortunate to have a health care system that covers our basic medical needs. Therefore, as a Licensed Insolvency Trustee, I don’t come across a lot of situations where people are in debt due to unpaid medical bills and invoices. What I do see however, is the impact of how a medical condition or health related issue can prevent a person from continuing to pay their financial responsibilities like mortgages, vehicles payments or credit card bills. In fact, according to Grant Thornton’s 2017 numbers, 20%, of those we helped cited medical or health-related issues as a contributing factor to their debt situation. That’s one in five of all people who filed a bankruptcy or consumer proposal with us last year.

WHAT HAPPENS WHEN MEDICAL SITUATIONS ARISE?

When I listen to peoples’ stories about how their medical or health well being is linked to the state of their financial affairs, it is incredible how every situation can be so different, yet result in the same thing; that people lose the stability of an income and the ability to continue to service their debt payments.

For example:

  • Workplace injuries that evolve from being short term downtime to more lengthier recovery periods and, in some cases, people finding they are unable to return to work.
  • People who’ve suffered from severe depression for many years and have a pattern of being unable to sustain employment because of their condition.
  • Those with an acute or short term medical condition that actually turned into a longer term/chronic condition which resulted in the inability to work can be financially devastating to households, especially when it happens to the sole income provider.

Lastly, serious & unexpected news, such as a cancer diagnosis, hits you like a brick wall and can put you and your family in a financial tailspin.  When my husband was diagnosed with stage 4 colon cancer over 10 years ago, it was very difficult to focus on anything other than fighting the disease.  So, when people come to me saying everything was a blur, I fully understand that. It wasn’t because they were being negligent, it’s just such a difficult time.

According to the (CCAN) Canadian Cancer Action Network, a family dealing with cancer goes into debt an average of $30,000 to $40,000 in the first three months from:

  • lost income to not one but maybe both partners
  • increased daycare costs for your children because you have to be with your partner or spouse;
  • increased travel expenses for fuel, parking costs at the treatment facility and staying in a hotel (if it’s out of town)
  • medical equipment and drugs that aren’t covered

So, what occurs is a reliance on credit to supplement the reduced income flowing into the household.

WHAT CAN YOU DO IF YOU’RE IN THIS SITUATION?

Check with your employer on the availability of paid sick leave and other benefits you are entitled to receive such as

  • Workers Compensation;
  • Short term (up to max. 17 weeks) and Long term disability insurance – so that you can get paid a % of your salary while you’re not working; If you don’t have disability insurance through employment, you can claim Canadian Employment Insurance (EI benefits) (NOTE: employers are not required to have a LTD plan for employees; it is discretionary.)
  • Other health benefits through your employment

Unfortunately, if you’re self-employed or unemployed, you have to rely on savings or borrowing money if you don’t have disability insurance.

If you have additional private health insurance (ie. Alberta Blue Cross),determine what additional health benefits and coverage you may have.

  • If you have it, look into your Mortgage Protection Insurance (this is NOT the same as “Mortgage Insurance”, which protects the lender if you default on the mortgage and is required if your down payment is less than 20% ). MPI is essentially a type of life insurance that pays you (MI pays the bank/lender) a lump sum to use towards paying your mortgage if you become disabled or pass away.  As with any insurance program, there is a premium you’ll pay on top of your mortgage.
  • If you have it, look into your critical illness insurance on credit cards and loans.This type of insurance pays the minimum payments on your loan or credit card for a certain period of time if you fall ill or are unable to work due to an accident. Generally, it won’t pay off the entire balance owing.
  • Don’t ignore your bills.To prevent delinquent accounts, you may have to dip into your savings or emergency fund to continue with the debt payments until you’re back to work. If focusing on bills is tough for you during this time, seek help from family members or friends to remind you or to help facilitate the payment of your bills.
  • If you’re in a situation where the debt is overwhelming, set up a free consultation with one of our Licensed Insolvency Trustees to talk about what you can do if your medical condition is causing a temporary downtime or if the situation is more long term.

One of the benefits of a Consumer Proposal is that you can reduce your debt payments while your income is low and you will be protected from collection action while you focus on your medical situation and getting better!

Other Helpful links:

Freida Richer LIT

 

Freida Richer is a Licensed Insolvency Trustee with our Edmonton, Alberta practice. You can watch her Money Smarts segment on the third Monday of every month on Global Morning News Edmonton.