Canadian interest rate hike: 5 tips for consumers

With the today’s announcement that for the first time in seven years the Bank of Canada has raised the Canadian interest rate to 0.75 per cent from 0.5 per cent, it is a good time to get your financial house in order using both a cautious and deliberate approach.growthchart_burgundy

Rob McLernon, a Licensed Insolvency Trustee with Grant Thornton’s Nova Scotia practice, offers the following 5 recommendations to Canadians:

  1. Review your debts. Do a complete review of your debts to determine whether they will be susceptible to a rate increase now (variable rate products) or at renewal (fixed rate products).
  2. Review your spending plan. If you don’t have a spending plan, create one. Determine how much money you have left at the end of the month presently, the impact the interest rate increase will have and make adjustments.
  3. Create a debt repayment plan. Create a structured and focused approach to paying down your debts. For the greatest impact and most improvement on your monthly cash flow, attack debt with the highest interest rate first.
  4. Consider making cash-only purchases. Stop the accumulation of more debt and interest by relying less on credit.
  5. Seek out the advice of a financial expert.  Debt help experts, such as License Insolvency Trustees, can provide free advice regarding your personal financial situation.

To book a free consultation with one of our debt help experts, visit www.grantthornton.ca/consumer_insolvency to find a location near you.

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.

 

 

5 steps for getting your financial house in order this year

accountant-accounting-adviser-advisor-159804

Now that we are well into January, you’ve probably had many possible new year’s resolutions running through your head…lose weight, quit smoking, exercise more, spend more time with family…the list goes on. Where do you start?! My belief is that “getting my financial house in order” should be on, if not at the top of, most Canadian’s new year’s resolutions lists for 2017, and here is why.

As Canadians find themselves dealing with ever-increasing debt levels, a greater and greater portion of their monthly paycheck goes towards servicing this debt.  With grocery and gas bills on the rise, it’s predicted that the average Canadian family could spend $1,600 more in 2017 than 2016. So, now is the perfect time to review your financial health and set a plan for the coming days, weeks and months.


Step 1: Determine your personal net worth.

Review your current financial situation by creating a personal net worth statement. This should be done annually so you can see if you are gaining ground or not. List all your assets (e.g., home, car, investments) and give a realistic value for each. Then list all your debts (e.g.,mortgage, car loan, credit cards, lines of credit, etc.). File this away for next year so you can review your progress year over year

Step 2: Plan to pay down debt.

Review your list of debts from your personal net worth statement and create a debt reduction strategy.

Higher interest unsecured debt should be attacked first.
By reducing this debt first, you will free up more of your monthly income to be used to reduce other debt, or create savings. Paying down high interest, unsecured debt is a two-pronged approach:

  1. Stop (or limit) the future use of the unsecured debt.
  2. Pay more than the minimum the lender requires.

This seems simple in theory but can be difficult in practice because “life happens”. The budget you create should have some provision for unexpected expenses which can help with reducing the tendency to use the debt for such unexpected expenses.

Use cash on a go forward basis
Plastic (credit and debit cards) is very convenient and can lead to unanticipated or overspending. Leave the cards at home (in a safe place) to limit your access. Get receipts for everything you spend. Remember you are now using cash and without the receipts you have less ability to track where the cash went.

Step 3: Create a budget.

A budget is not a four letter word and it is not something to fear. A budget is merely a plan for how you want to spend your money. There is the old adage: If you fail to plan, you plan to fail. Nothing could be more true!  A budget is key to improving your financial health. If you already have a budget, pat yourself on the back. If you don’t, the beginning of the year is a good time.

The best way to create a budget is to review your spending patterns over the previous months because where your money has been going is probably a good indication of where it will go in the future.

  • As a starting point, look at your bank statements, credit card statements, etc.
  • It doesn’t matter what form your budget takes (pen and paper, Microsoft Excel, software, online), as long as it done in a method that you are comfortable using regularly.
  • It doesn’t matter what form your budget takes (pen and paper, Microsoft Excel, software, online), as long as it done in a method that you are comfortable using regularly.
  • Some resources to check out include the online budget calculator offered by the Federal Consumer Agency of Canada, and the budget tool and free mobile apps at Mint.com. Software for purchase such as Quicken can be useful, however, they come with a cost to purchase.
  • Look to online tutorials to help you create the best budget for your situation.
  • For your budget to be most effective and to be most successful achieving it, be sure to involve your spouse and your children (they will need to learn this as they get older) in the process .

Step 4: Create savings.

Pay yourself first.
Your budget should also have a monthly savings amount built into it. An effective way to do this is through payroll deduction. This way you aren’t tempted to dip into any savings you planned for at the end of the month.

Piggy bank_lavendarAutomatic Money Transfer
Another method of “forced” savings is to have your money automatically transferred from your checking account to your savings account according to your pay schedule. Start small and after a few months if you can handle slowly increase the amount. Out of sight is out of mind – over time you won’t even miss it!

Use a piggy bank
Collect your loose change. Loonies and Toonies can add up quite quickly!.

Step 5: Track spending.

An often overlooked step, you need to track your actual spending and compare it to your budgeted amounts. Review your budget at least monthly to see if your spending compares to your budget. If you find you are spending more in a category then the budgeted amount, you either need to increase the budgeted amount or decrease the amount you are spending.


Getting your financial house in order an important resolution. Create a plan and work towards achieving your plan. Don’t try to change everything overnight as you are more likely to give up and return to your old ways. If you find you are in over your head reach out to a professional such as a Licensed Insolvency Trustee for help.

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.

 

 

Black Friday & Cyber Monday: How to get past the hype and shop smart

pexels-photo-230544_72Door crasher deals. Limited quantities available. Lowest prices of the year – 4 days only!

With the holidays right around the corner and discounted deals constantly advertised to you, Black Friday and Cyber Monday is a time when you can get wrapped up in spending. Online shopping has become more prevalent and more convenient than ever before but can quickly send you into a spiral of debt if you’re not careful.

There is a psychology behind all the advertising and promotions surrounding Black Friday and Cyber Monday. It’s important to be aware that retail “events” like these are really just marketing tactics meant to over-hype discounts and deals that could promote and result in overspending. The advertising feeds on our emotions and plays into the fear many of us have of missing out on something big. There is a lot of buzz and excitement created as marketers aim to whip shoppers into a frenzy by putting high demand items on at seemingly deeply discounted prices — available only for a short period of time.

If you aren’t careful, you will end up buying more than you had intended – and spending more than you have by using credit and buying impulsively. If you are planning to participate in big retail days like Black Friday/Cyber Monday, be smart about it.

Tips for Smart Shopping

  • Don’t shop because you fear “missing out on something big”. The reality is that deals or discounts come in waves and will be available at multiple times throughout the year. Do the math to determine if it’s really a “deal” not to be missed.
  • Give yourself a financial reality check before shopping. It’s important for you to quickly pull out a statement of your largest debt (credit card or loan statement) to see the dollar amount owing on that account. You need to think about how you will feel tomorrow if you add on more debt today. Decide if it’s worth it.
  • Make a list. With discounts available on so many products, it can be easy to lose track of what you are looking for and make impulse purchases you will regret later. Making a list of exactly what is needed allows you to be in control of where your money is going.
  • Set a budget and stick to it. In addition to planning which items are on your list, set a strict budget of how much you are able and willing to spend. As you are shopping, keep a tab of how much you are spending and cut yourself off once you reach that limit. Despite the discounts being offered, some items may simply be beyond a reasonable budget.
  • Be aware that online shopping can result in overspending. These days, people don’t have to leave their homes to participate in Black Friday/Cyber Monday shopping. The problems with the ease of shopping via your home computer or cell phone is that you will likely use a credit card for the purchase and you’ll end up purchasing multiple items within a short time frame since it’s very easy to submit a payment and move on to the next item.
  • Is it really a “deal” if I buy it on credit? If you buy that great deal on credit, are paying only the minimum monthly payments on your credit card balance and it takes you more than 6 months to pay off your purchases, your overall cost with interest will end up voiding any original deal or discount you are getting.

Overall, just be honest with yourself about your financial situation. With the weakened economy and the unfavorable US exchange rate, many consumers do not have the financial means to participate in holiday shopping. If you are living pay cheque to pay cheque, assess if holiday shopping is a smart financial decision or if there are more economical gift options you can explore, like giving the gift of your time or making home-made gifts.

Do you have some great tips you use to avoid overspending? We’d love to hear them.

I’ve overspent! Now what?!

If you’ve already shopped and fear you overspent, don’t remove the tags. Leave the items in the bag and look at them the next day to decide if you still feel the same excitement. You might discover that an item in the bag was more a want than a need and you can still return it.

What are some warning signs that you are spending more than you should?
• You’ve maxed out your credit card (and are already only making the minimum payments).
• You feel guilty about your purchases – knowing you’ve bought ‘wants’ and not ‘needs’.
• You’re regularly spending more than you make.
• You’re dipping into your savings.

If you recognize some of these warning signs and are feeling the pressure of carrying an overwhelming amount of consumer debt, book a free consultation with one of our Licensed Insolvency Trustees. They can look at your personal financial situation during a confidential, no obligation meeting and make recommendations on what options are available to you.

freida_hs
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.

 

 

What is a reasonable amount of debt to have?

Henry Francheville, LIT

Henry Francheville, LIT

A reasonable amount of debt allows you to make your monthly payments on time and in full while allowing you to maintain your other expenses.

You should be in relatively good shape if:

  • you’re able to pay your credit card balance in full each month;
  • your housing costs do not exceed 30% of your monthly income;
  • you’re not using payday loans or living in your overdraft; and
  • you’re able to put some money into your savings account.

For a large number of Canadians this is not always possible due to various reasons such as illness, job loss, separation/divorce, helping family members or simply the lack of a workable income.

We are pleased to offer a free consultation to discuss your situation.

Should I use my RRSP to pay debts?

4x6-4104

Larry Crandall, Licensed Insolvency Trustee

Larry Crandall, Licensed Insolvency Trustee with our Saint John, New Brunswick office, shares what you should consider before withdrawing money from your RRSP:

  • RRSPs are intended to save for retirement. Every dollar you withdraw today is a dollar that won’t be available when you retire.
  • Funds taken from an RRSP will be considered income in the year in which it is withdrawn. The institution will withhold income tax based on a sliding scale, but depending on your income, they may not withhold sufficient tax. This could leave you with a large tax bill at the end of the year.
  • Depending on the amount that is withdrawn from the RRSP, your increased “income” for the year may bump you into a higher tax bracket, which would increase your overall amount of income tax.
  • RRSPs are exempt in a proposal or bankruptcy (except for contributions made in the last 12 months). This means that if you file a proposal or go bankrupt, your RRSP will not be affected. If you have already withdrawn RRSP funds to pay debts and later file a proposal or go bankrupt, those funds are gone – your Trustee cannot get them back. However, the Trustee could help take care of the income tax liability created by the RRSP withdrawal.

Grant Thornton Limited provides advice and solutions to individuals and businesses experiencing financial difficulty.

If I go bankrupt, how long before my creditors stop calling me?

Blaire MacNeil, Licensed Insolvency Trustee Sydney, Nova Scotia

Filing for bankruptcy creates a “Stay of Proceedings,” which prohibits creditors from taking any collection activity, including phone calls. This “Stay of Proceedings” is sent to all your creditors when you sign your bankruptcy papers.

In our experience, most creditors respect the bankruptcy process and stop calling. But, if you find otherwise, let your Trustee know and they can call the creditor, explain the process to them, and get the calls stopped.

We are pleased to offer a free consultation to discuss your options, what bankruptcy would mean for you and to help you make a fresh start! Grant Thornton Limited provides advice and solutions to individuals and businesses experiencing financial difficulty.

For answers to frequently asked questions about bankruptcy, visit our website.

For a free, no obligation consultation, in person or by phone, contact one of our offices:

Alberta | Manitoba | Northwestern Ontario | Quebec | Nova Scotia | New Brunswick and PEI

Having an honest talk about finances before getting married

With wedding season approaching and the focus on plans for the “Big Day,” it’s important before tying the knot to set aside time to review where you stand financially as individuals and as a couple, and have an honest discussion about how your finances will impact your marriage.

Whether you are entering into a marriage or a common-law relationship, this is a partnership that will benefit by having an open discussion about your finances prior to getting married or living together. Debt or disagreements about money issues are one of the top reasons for marital and relationship breakups.

Discuss finances with your partner

Here are some important points for you and your partner to discuss:

  • Share your credit ratings and credit reports with each other.
  • Talk about your past spending and use of credit behavior.
  • Discuss whether you should have a joint bank account or separate accounts. There is no one solution here. Many couples keep a joint account for shared expenses, then each person also keeps his or her own separate bank account.
  • Tell your partner about the amount of debt you are bringing into the relationship.
  • Budgeting for the wedding is a great exercise in prioritizing together and making compromises.

Am I responsible for my partner’s debt?

Although you are not responsible for the debt your partner brings into the marriage or common-law relationship, you are responsible for the debts you incur as a couple.

A party can only be held responsible for repayment of a debt if they have signed a contract, loan agreement or credit card application. If your spouse or partner never signed a contract or requested a credit card, they cannot be held responsible for the debt. In Canada, marriage alone does not make you responsible for your spouse’s debts.

With respect to credit cards, there are two ways in which the second party can be held responsible for repayment of the debt. One is where the individual actually requests a secondary card and signs an agreement saying they accept full responsibility for current and future debt. The other is where the credit card company sends a card out in the second individual’s name with the primary cardholder’s number and the second individual actually signs and uses the card. Use of the card may hold the secondary person responsible for not only their own, but all purchases made on the account by all cardholders.

Definition of a Common-law partner

This applies to a person who is not your spouse, with whom you are living in a conjugal relationship, and to whom at least one of the following situations applies. He or she:

a) has been living with you in a conjugal relationship, and this current relationship has lasted at least 12 continuous months; in this definition, 12 continuous months includes any period you were separated for less than 90 days because of  breakdown in the relationship.
b) is the parent of your child by birth or adoption; or
c) has custody and control of your child (or had custody and control immediately before the child turned 19 years of age) and your child is wholly dependent on that person for support.

More about common-law partners from the Government of Canada’s web site.

Related Videos

Contact a Licensed Insolvency Trustee

If you or your spouse / partner are in debt and need to discuss your options, contact one of Grant Thornton’s Licensed Insolvency Trustees in Canada. We offer a free, confidential meeting – in person or over the phone – to review all debt solutions, including debt consolidation, a consumer proposal, or bankruptcy.

Contact one of Grant Thornton’s Licensed Insolvency Trustees in Canada:

Alberta | Manitoba | Northwestern Ontario | Quebec | Nova Scotia, Newfoundland and Labrador | New Brunswick and PEI

Licensed Insolvency Trustees

The Office of the Superintendent of Bankruptcy Canada has recently issued a new directive changing the designation of a bankruptcy trustee, or “Trustee in Bankruptcy” to Licensed Insolvency Trustee (LIT). This designation will help individuals struggling with debt identify those who legitimately provide government programs such as Bankruptcy or a Consumer Proposal to eliminate debt from consultants who are not licensed by the federal government.

The designation of Licensed Insolvency Trustee instead of Bankruptcy Trustee is more indicative of the wider range of insolvency and debt restructuring services that these professionals provide. In other words, Trustees assist not only in filing bankruptcy but also consumer proposals and other debt restructuring services. The new designation may also help to alleviate the fear people may have in talking to a “bankruptcy” trustee and make it clearer to individuals that Licensed Insolvency Trustees can provide a variety of debt management solutions.

The role of a Licensed Insolvency Trustee remains unchanged. They will still:

  • Meet with you, during a free initial consultation, to review your debts and your financial situation in order to help you find the best available debt solution. That may or may not include any type of insolvency proceeding under the Bankruptcy & Insolvency Act. The role of a Licensed Insolvency Trustee is still to help you consider all of your options.
  • Collect information from you and prepare the necessary documents to be filed with the government, whether you are filing personal bankruptcy or a consumer proposal.
  • Notify your creditors, accept and review all claims, and otherwise administer the insolvency process.
  • Ensure you complete all necessary duties and apply for your discharge or completion certificate.

It’s important to know that the person you work with is licensed and has the training and experience needed to help you get out of debt. Licensed Insolvency Trustees are just those experts.

Learn more about Grant Thornton’s Licensed Insolvency Trustees in Canada:

Alberta | Manitoba | Northwestern Ontario | Quebec | Nova Scotia, Newfoundland and Labrador | New Brunswick and PEI

Albertans Using Credit During the Downturn


Our own Freida Richer, a prominent Edmonton trustee and proposal administrator, was recently interviewed by the CBC on how Albertans are coping with the economic downturn. Unfortunately a number are turning to credit at a time when they can least afford it.

“According to Industry Canada data, insolvency rates in Alberta were up 8.3 per cent during the first quarter of this year compared to the same time in 2014. Richer says that increase has translated into more people struggling to make their minimum monthly payments and turning up at offices like hers looking for help. She blames easy access to credit and the “buffet” of available cards, each with its own incentive and rewards.”

Click here to read the whole article.

For  a free consultation, if you are facing peronal financial difficulty, call us toll free at 310-8888 or visit us at www.gt.alger.ca. to get more information on consumer proposals, personal bankruptcy and other debt solutions.

Bruce Alger