Which is the best method for paying down debt: Snowball or Avalanche?

Avalanche method recommends paying highest interest debt first, while snowball advocates smallest amount first.

Many of us have used our credit cards, cash advances and borrowed money over the holidays, shopped our way though the malls, ordered online and picked up gift cards for our friends, family, coworkers and picked up those little secret Santa gifts, all of this adding to the costs of the holidays. We purchased a turkey or ham, all of the trimmings, some spirits, made baked goods and bought boxes of chocolates.

Aside from the 5lbs you would like to lose, how many of us are going to be going on a debt diet over the next few months? Which is the best method to conquer those few debt pounds we plan to lose?

Blake Elyea, from our Vancouver office spoke to Canadian Press about some of his thoughts regarding the Avalanche method and the Snowball method, but which will work best for you?

‘Avalanche’ involves paying highest interest first

The avalanche method involves tackling the highest interest rate debts first — an approach that can save you money on interest payments, but may require more willpower if your highest-interest debts are also the largest ones.

“Mathematically that’s the best approach,” Elyea says. “However, you’re not going to see the instant results necessarily as quickly with that approach. It’s going to take more discipline.”

If you’re going to adopt the avalanche approach, you should be checking your balance and tracking progress and making a small budget to reward yourself when you reach your  short term goals.

‘Snowball’ method tackles small debt first

The snowball approach, popularized by U.S. radio and TV personality Dave Ramsey, involves tackling your debts from smallest to largest.

Knocking off the smallest balances first — while maintaining the minimum payments on all the other debts — gives the debtor some “quick wins,” making it a good approach for those who need to see some instant results in order to stay motivated, says Elyea.

“We all like instant gratification,” says Elyea. “We want to see that we’re making progress.”

It’s your choice

Although the avalanche method will save money on interest payments compared with the snowball technique, Elyea says any strategy that involves taking stock of your financial situation and actively tackling your debt load is a good one.

“If you have a structured way you’re going to approach your debt, either method is going to get you there,” says Elyea. “One might take you a bit longer than the other.”

If you are in a position where your debts feel overwhelming, one option might be to get a free consultation from a licensed trustee, not only can a trustee assist with helping you to plan and budget, but they may be able to offer additional debt reduction suggestions such as a  consumer proposal, an informal proposal to creditors, and, in certain situations to file for bankruptcy.

Whatever your financial situation may be after the holidays, if you feel financially hungover, there are options, take stock, develop a plan and reach out for help if needed.

Grant Thornton – Canada | We provide solutions for people with debt and financial challenges.

If you are facing financial struggles or would like some help with managing your debt—one of our professionals is available to discuss your situation. There are many options available, ask us about a consumer proposal. Contact us for a confidential, no-obligation, complimentary consultation. Call us toll free at 310 8888.

Excerpts adopted from the Canadian Press article: http://www.cbc.ca/news/business/debt-experts-recommend-avalanche-strategy-but-snowball-works-too-1.2886215

Happy upcoming September ‘New Year’

For many of us, September feels more like the start of a New Year than January does. September marks the end of summer and brings a ‘back-to-school’ reality that we feel (whether or not we have school-aged children).

September is a time to re-focus, get back to work and also—back on budget!

If you have back-to-school-shopping to tackle, then budgeting is essential. Too often compelling advertising, apparent sales and our child’s idea of what they need, can cause us to spend more than we have . . . and more than we can afford. Buying clothing, back packs, lunch boxes, stationery supplies and electronics can be an expensive undertaking. If your child is off to college or university the costs can be even higher to set up dorm rooms and to purchase books, food plans and transit passes.

A good start to managing your budget is to involve your child in the planning. Refer to lists the school or post-secondary institution has provided. Remind your offspring of the difference between ‘needs’ and ‘wants’ (it will serve them well for their future money management too). Determine together what is essential for when school starts and what can wait to see if it is really required. Encourage your child to pay something towards some of the ‘needs’ from their savings; or at least to pay for their perceived must-have from the ‘wants’ list. There are many back-to-school budget planners online to help you track planned and actual expenditures. These can help you avoid impulse purchases and stay within budget.

Budgeting for upcoming expenses

Balancing the budget

 

But what if you don’t have back to school expenses…

September can also the ideal time to pause and refocus on your personal or family finances. It’s a good opportunity to revisit your near and long term goals.

In the near term you might be looking at how you’re going to plan and pay for the expenses associated with the upcoming holidays (both Thanksgiving and Christmas) or deal with the additional rising costs of heating and electricity. There is also thinking about getting yourself ready, do you have what you need for fall and winter (ie:a fall/winter coat and other clothing)?

If you are carry debt, resume your commitment to paying it off; remember to start first with high interest rate credit cards. It can be a time to check in again on your household budget and ways to trim expenses. And, it can be an opportunity to start saving for upcoming holiday spending. Even a little money put away each week starting now, can help toward the costs of future Christmas or Hanukah celebrations.

If you are facing financial struggles or would like some help with managing your debt—one of our professionals is available to discuss your situation. There are many options available to help and you may not need to go bankrupt. Contact us for a confidential, no-obligation, complimentary consultation. Call us toll free in at 310 8888.

 

 

Take a ‘staycation’ . . . and other creative ways to have fun and spend less.

It’s summer and thoughts turn to fun ways to spend time and . . . (unfortunately) money. Whether it’s a family vacation, home improvements, backyard parties or out-of-town visitors – the impact on your wallet can be significant.

If you are already struggling with a worrying debt load, it’s likely time to change what you do this summer.

A recent BMO travel study found that more than half of all Canadians plan travel within their home province this year (in Albertans that number is an outstanding 81 per cent). This scaling back on vacation plans is due in part to cost-conscious Canadians who also see the impact of rising gas prices and are seeking to build savings; all positive news—and even more relevant if you need to address debt.

Paying off debt doesn’t have to be viewed as a burden, in fact, it should be viewed as an accomplishment. Reducing debt brings a sense of relief. Focusing on paying off your debt can provide an opportunity to explore cost-cutting alternatives to many summer activities.

Consider these ways to spend less and have fun:

  • ‘Staycation’: plan a ‘holiday’ in your own province. Be a tourist in your own City of one nearby. Load up on traveler information and see the sites you often overlook because they’re close to home.
  • Host a backyard ‘drive in’. Set up your TV outside for an evening video-fest and make it a pot luck BBQ or picnic with friends and family. (Maybe invite your close neighbours too, if it’s likely to get noisy!)
  • Camp in your own back yard. Adults and children alike can enjoy a night star gazing or reading under canvass. The bathroom and fridge are nearby and if it rains: enough said!
  • If you’re game to try crafts or Do-it-Yourself to save money on entertainment or home improvement projects, social sites like Pinterest and Houzz can be fun tools to get your creative ideas flowing.

 Remember to use the money you ‘save’ for debt repayment first—and start with high interest rate credit cards:

If you are facing financial struggles or would like some help with managing your debt—one of our professionals is available to discuss your situation. There are many options available to help and you may not need to go bankrupt. Contact us for a confidential, no-obligation, complimentary consultation. Call us toll free from anywhere in Western Canada 310 8888.

The curse of the ‘broke bride’: and other financial considerations as love blooms.

Wedding season will soon be in full swing with many Canadians will tying the knot and making the journey down they isle for better or for worse. Sadly, almost half of these marriages will end in divorce, stats citing that money issues are a leading cause of marital strife and the eventual demise.

So what should you be thinking about before that life changing day? What questions should you be asking?

Prior to marriage – learn about your partner’s attitude towards money. Are they are saver? A spender? Dependent on credit cards or a ‘buy now pay later’ purchaser? You want to know sooner than later if you have a similar vision and goals regarding how you will spend and save your money. 

Have the talk–Do you know your soon-to-be souses financial status? Do they have student loans that remain unpaid, or a car worth less than the loan out on it? Is their credit score damaged? You should know the financial health of your partner, good or bad. A poor financial past can put a cramp in your plans to buy a house down the road, so talk about it early and have a plan, if needed, to move past it.

Heads-up on – the wedding budget. Lavish events with big budgets may seem the norm in today’s celebrity focused culture but it’s far beyond the reach for most of us. So, for the rest of us being money minded leading up to the big event can be a necessity, because the reality is, overspending on the wedding day can leave a bitter debt ‘aftertaste’. Bottom line: a wedding is a celebration . . . but a marriage is a long-term commitment. Setting a responsible budget for a wedding based on your means (including savings and/or family contributions) can go a long way to starting a marriage in a financially stable position.

How much debt is your fiancé bringing to the marriage? Their current financial obligations will now impact your ‘family’ finances for day-to-day living—and, your future plans. Ask too if they are current with their obligations to Revenue Canada (CRA). You won’t be liable for any debt they have to CRA but it’s an indication of their approach to personal finances—and, has implication to your joint lifestyle if they have significant arrears to address. Keep in mind: financial irresponsibility can lead to a poor credit score, later affecting the probability – or ease – of buying a new home or other large joint purchase.

If you intend to register or re-register real property (home, vacation property) in joint names upon marriage, get advice from a lawyer first. Understand the implications—including the very real likelihood that each of you is then deemed to have equal, shared ownership. Consider: you may have brought more assets to the marriage and if your partner was later to go bankrupt, half of (now) joint assets could be lost. 

Getting a supplemental credit card under your spouse’s existing card may seem to make sense and perhaps comes with a ‘romantic notion’ of your new status as a couple. Understand the risk: the moment you make your first purchase on that secondary card you are now jointly and severally liable for all charges on that card whether made by you or your spouse. If your spouse defaults on the credit card you are responsible for the entire debt.

If you are facing financial struggles or would like some help with managing your debt—one of our professionals is available to discuss your situation. There are many options available to help and you may not need to go bankrupt. Contact us for a confidential, no-obligation, complimentary consultation toll free from anywhere in Western Canada 310 8888.

Visit us online www.gtdebt.ca or www.gt.alger.ca 

You can’t take it with you… but—what CAN you keep in a bankruptcy?

There’s a lot of confusion and misconceptions about what you ‘lose’ or have to ‘give up’ through a bankruptcy and what is ‘exempt’ – meaning what you get to keep.

When you enter into bankruptcy (with the assistance of a Bankruptcy Trustee) this legal option will address your insolvency, provide you immediate protection from you creditors and an opportunity for a fresh start. (Remember, while most debts are covered by bankruptcy – not all are, talk to a Trustee for specifications.)

There are some assets you may not be allowed to keep if you file for bankruptcy. These are sold to pay as much as possible to your creditors against your debt. However, there are assets you are legally allowed to keep, these vary by province.

Some of the items you are generally able to keep, in Alberta, are:

  • Clothing up to a value of $4,000
  • Household furnishings and appliances to a value of $4,000
  • One motor vehicle not exceeding a value of $5,000 (equity)
  • Medical and dental aids required by you and your dependents
  • The equity in your principal residence up to a value of $40,000. If you are a co-owner of the residence, the amount of the exemption is reduced to an amount that is proportionate to your ownership interest
  • Personal property (i.e., tools, equipment, books) that you require to earn income from your occupation up to a value of $10,000
  • Social allowance, handicap benefit or a widow’s pension if the proceeds from the payment are not intermingled with your other funds
  • For farmers where your principal source of livelihood is farming: you may be able to keep up to 160 acres and personal property that you require for the proper and efficient conduct of your farming operations for the next 12 months

In BC:

  • Home equity in Greater Vancouver and Victoria up to a value of $12,000. In the rest of the province up to a value of $9,000
  • Equity in household items up to a value of $4,000
  • Equity in a vehicle up to a value of $5,000; The vehicle exemption drops to $2,000 if the debtor is behind on child care payments (to facilitate the enforcement of Maintenance Orders)
  • Equity in work tools up to a value of $ 10,000
  • Equity in essential clothing and health aids is unlimited

Keep in mind, if you chose instead to do a Consumer Proposal as your debt solution—you get to keep all your assets. A consumer proposal may also reduce your overall debt (by up to 75%). A Proposal isn’t bankruptcy but rather a means to explore other ways to address a variety of debt problems.  With the guidance of a Trustee you negotiate to pay creditors all, or a portion, of your debt over a specific time period or to extend the time allowed repaying the entire debt.  You need the majority of creditors to agree to the proposal—then all unsecured creditors are bound by it.

With a Consumer Proposal you keep control of your assets and it has shorter-term – and less significant – impact on your credit rating than bankruptcy.

More on bankruptcy exemptions in Canada.

If you are facing financial struggles or would like some help with managing your debt—one of our professionals is available to discuss your situation. There are many options available.  Contact us for a confidential, no-obligation, free consultation. Call us toll free from anywhere in Western Canada: 310 8888 or visit us online for more information and videos on this and many other topics: (AB) www.gt.alger.ca or (BC) www.gtdebt.ca

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