If you’re counting on your buddy to do the things you need to keep your financial boat afloat and (s)he doesn’t, you may have to accept that you’re in this ship alone. If you love your mate, that may mean accepting them for who they are and getting on with the business of life. And if you have children, it may mean putting up a protective wall around yourself and your kids to make sure you are safe.

I’ve received hundreds of letters from people who are unhappy with their mates’ behaviour when it comes to the money. They feel at risk. They feel out of control. And they are stressed, sad, worried, depressed, and don’t know what to do next.

If you are living with a partner who is irresponsible with money, you have three choices:

1. you can stay, living life on the rollercoaster and hoping for the best,
2. you can leave, up-rooting everyone and bearing the cost of the breakup both financially and emotionally – so you better be dead sure this is the right step, or
3. you can accept that you can’t change your mate, stop your whining, and create a protective wall that isolates your partner’s aberrant behaviour and keeps your family safe.

Whether your partner gambles, drinks, does drugs, uses credit like it’s never going to run out, likes to change his/her vehicle every six months, or can’t walk past a store without dropping a bundle, if you’ve begged, pleaded, cried, threatened, and even tried to walk away, maybe it’s time to accept that this is who your partner is. If you can’t live with it, you know what you must do. If you can’t live without it, but don’t want his or her storms to sink your ship, take these steps:

1. Make sure you are not on the hook for any of his borrowing. That means no joint credit (which I disagree with anyway). No co-signing. No sharing of credit cards or bank accounts (keep your cards and your PINs to yourself) especially where overdraft protection may leave you on the hook.

2.  If you own a home together, accept that your home may not be around forever. Any joint assets will be at risk since if your partner ends up in bankruptcy, those assets will be part of the proceedings. The only way to avoid this is if your partner’s name is not on title. If it is, paying down your mortgage may be an exercise in frustration since whatever assets you build up may be affected by your partner’s wanton spending and rampant debt.

3. Keep all the important “must-pay” bills in your name. Put all extraneous bills – cable, telephone, sports fees, etc. – in your partner’s name. If your buddy blows at getting the bills paid on time, you don’t want it to affect the really important things or your credit history.

4. Make sure you have a big fat emergency fund. While the general rule of thumb is six months’ worth of essential expenses, if you’re married to a financial moron, you’ll need to have  9 months’ to a year’s worth of expenses socked away. Your partner is an emergency waiting to happen. Be prepared.

5. Save/invest separately. Ha! Who are we kidding? Your partner isn’t saving. Just make sure she doesn’t know where the money is or has any access to it. It doesn’t exist as far as she’s concerned.

6. Come up with a plan for the expenses. He has to give you a specific amount every week to meet the family’s needs. If he doesn’t then you’re stuck with a free-loader and should reconsider your options. If he does, that money goes into an account that you use to make sure the essential bills are paid. The other stuff he can pay from his own account. Yup, you’ve got separate accounts!

7. Keep your hand out of your pocket. This is the toughest thing you’ll have to do. You cannot save your partner. You should not attempt to rescue  her when the tears start. It’s part of the condition. You have to grit your teeth and NOT bite the hook. If you fail at this part, you’ll failed altogether!

This isn’t about punishing your partner it’s about protecting yourself. And if you have children, they need your protection. Just because one member of your team can’t see beyond his or her own nose doesn’t mean the whole family should suffer. If you’ve got a partner who just doesn’t get it, you’ve got a rough road to walk, and I send you many hugs.

No doubt I’m going to get a LOT of comments on this post. And some of you will have questions. I’m going to check in and answer them as often as I can over the day.

I say this because of all the people who tell me that they have “found themselves” in trouble. It is as if they just woke up one day in a mess. While they were out buying couches, TVs and their 24^th pair of jeans, they didn’t notice the hole they were digging. Now, at the bottom of they hole, they’re looking up and wondering how to get out. A big flashing sign, “Watch Your Step!” might have been handy, eh?

The early signs are the easiest to miss. Maybe you don’t have any financial goals. Yup, that’s a sign. Maybe you’re not living on a budget. A sign. Perhaps you’re spending money on STUFF instead of paying routine bills. And if you’re using your credit cards to buy food or pay for other necessities because you’re out of money, your “Watch Your Step!” sign should be flashing.

Sometimes the things you do seem less obvious. Maybe you’re lying to your buddy about how much you paid for something. Or you’re avoiding talking about money completely. Amber signs. Ditto if you’re repeatedly dipping into savings to pay regular bills or you have little or no savings because you’re spending all the money you make.

Your warning sign should flash more brightly if you apply for a consolidation loan and are turned down, or if you can’t get your interest rate reduced by negotiating. Hey, that sign looks like it’s changing from amber to red! Watch Your Step!

Did you see how high your last cheques bounced? OMG! Have you been paying late or missing payments completely. Red Alert! And as for moving your debt to your home and then building a new balance on your credit card or line of credit , bells and whistles should be going off all over the place.

Consider your situation critical when you find yourself living in overdraft, missing even your minimum payments, or using credit advances from one card (or from your line) to make payments on other forms of credit. If debt repayment is eating more than 15% of your net income, your Watch Your Step Sign should not only be flashing red, the alarm sounds should be deafening. Can you hear it ringing when you don’t even bother opening your bills? How about when you resort to asking family or friends to bail you out? Or when you hit a pay advance loan store?

This is usually the stage at which people find me. They’re up to their eyeballs and don’t know what to do. But there were lots of signs along the way that things were amiss. Trouble is, some people are so unwilling to see their reality that it takes a two-by-four upside the head (me) to get them focused on the truth of their circumstances.

It doesn’t have to be this way. You can – and should – be watching your money and looking for the signs. Caught early, the problems can be reasonably easy to fix. By the time you get to the critical stage, sometimes only bankruptcy will see you out. Oy!

While the press has been reporting the good news that business bankruptcies are down (11% in the first quarter of 2009), the flip side of the story isn’t so bright. People are desperate and personal bankruptcies are on the rise (up 57% in March and 36% in April, year over year.) Almost 100,000 people declared personal bankruptcy in from April 2008 to March 2009. That’s a lot of people who are throwing their arms up in the air and saying, “I can’t do this no more!” And that doesn’t include the over 27,000 people who filed consumer proposals.

An economist at the TD Bank was quoted on as saying he expects 160,000 people will walk away from their bills in 2009 and 2010. Since over 35,000 walked away in April 2009 alone, I think the numbers are going to be much higher.

Lotsa people will be up on their high horses when it comes to the increase in personal bankruptcies. There are the folks who want to chastise spendthrifts for making their beds of thorns. There are the people who have paid off their own debts who see bankruptcy as an “easy way out” for people who won’t take responsibility for their debt.  And there are the lenders who will use the rise in bankruptcies as another excuse to raise their rates – “we have to” they’ll whine – when it was their own bad lending practices that put credit in the wrong hands in the first place.

Ultimately bankruptcy serves no one well. Bankruptcy is a lose, lose, lose proposition. Lenders lose. Borrowers lose. Corporations lose. But the reason bankruptcy exists is because there’s just no other way but to cut your loses and start fresh. Let’s face it, with unemployment at record highs, the economy in the dumper, and people carrying the highest levels of consumer debt ever, you just can’t get blood from a stone. Bankruptcy may be the only way to move forward.

Starting fresh is no walk in the park for those who have gone bankrupt. With crappy credit histories, they’ll see frost in hell before lenders will let them borrow at anything but the most exorbitant rates. That’s one of the penalties you pay for going bankrupt. And as bankruptcies rise, and lenders pay the prices of their hitherto irresponsible lending, the credit market tightens up even more, making it difficult for manufacturers to sell their stuff to people who have less “disposable income” because they have no more credit. Sales drop. Companies downsize. More people become unemployed. More people declare bankruptcy.

Not all debt can be discharged under a bankruptcy. According to the Superintendent of Bankruptcy, in Canada the following debts cannot be wiggled out from under:

• alimony payments and child support;
• student loans, if it has been less than seven years since you ceased to be a full- or part-time student;
• fines or penalties imposed by the Court; and
• debts arising from fraud.

And declaring bankruptcy won’t get you off the hook for a debt that’s been secured: a mortgage, a car loan, anything for which you’ve offered security. The good news is that if you can afford your monthly payments, financial arrangements can usually be made with a secured creditor.

For people with whopping student debt, if you have been out of school for at least seven years you can apply to have those debts discharged. The better news according to the Superintendent is that the Court can “order a release from the obligation to repay a student loan as early as five years after the bankrupt has ceased his or her studies if repaying the student loan will result in the person continuing to experience major financial difficulty (undue hardship) and if the person has made efforts to repay his or her loans.”

The key to moving through bankruptcy smoothly is to get yourself to someone who is smart, capable, efficient, and committed to helping you.  Trustees are a dime a dozen these days, and as with everything else, all trustees aren’t good at what they do. So make sure you find someone reputable to deal with.

If you’re so buried in debt that you can’t keep up with payments and keep a roof over your head, then navel gazing and questioning the “ethics” isn’t going to get you to a place where you can take control of your life. A plan for how to fix the mess, and how not to do it again EVER will.  Time to fish or cut bait!

People have a b’zillion questions about credit and how it works. And just when I think I’ve covered everything, I get another great question that makes me realize why people are so buggered up about credit: It’s really complicated man! Jeez! So here are some recent questions and answers from which you may learn and thing or two.

Kerrie wrote:

I recently noticed that the credit limit on one of my credit cards had been increased by a lot – far more than I would ever need or want to put on a credit card. I always pay the balance on this and my other cards in full. I plan to call the company to have this limit lowered to something more reasonable. I wanted to check first though – does lowering my credit limit have any negative impact on my credit score? Common sense tells me it should improve my credit score, but I wanted to check with you.

Kerrie, lowering your credit limit won’t affect your credit score if you pay off the balance on your credit card every month. The only time a lower credit limit has an impact on your score is if you’re carrying a balance and you get close to the limit. Some people say you shouldn’t use more than 60% of your limit to stay on the good side of the credit score system. Since you always pay your balance – smart girl – you should lower your limit for two reasons:

• You’ll feel more comfortable, and
• You’ll reduce your “available credit,” which is something lenders take into account when they decide whether or not to give you a loan.

J wrote:

I have very good credit (I know that because I just double checked my credit score). However my daughter – who isn’t quite 20 yet – has needed to get a consolidation loan which I had to co-sign. So far she’s made all the payments but how much am I at risk for my credit being damaged? The bank wasn’t all that straight forward on this one.

J: You’re on the   hook for the whole amount outstanding, but your credit history won’t come into the picture unless your daughter defaults and they come to you for payment. If you pay off the debt in full, your credit won’t take the hit. If you can’t and payments are missed then your credit score will go down. You should also keep in mind that lenders consider the co-signed loan as part of your debt obligation so it could affect your ability to borrow for your own purposes.

Y wrote:

Hi Gail! As a couple with jobs in middle management, making a respectable earning (household gross income of $130k), I am hoping you can help us. We are well aware of the mistakes we have made, student loans, consolidation loans, bad car leases and high consumer debt. Lessons learned, and we want to move forward with our best foot, but is it possible that it is just too late!? Despite our difficulties with money, we have gone ahead and bought a house (our mortgage is always paid), and continued with “life” in that we have 2 children (neither involved saving before my maternity leave which does not include any kind of company top up). I am currently on maternity leave and will be returning to work asap to avoid digging a deeper hole. In the meantime, the bills continue and there doesn’t seem to be any reprieve. At what point is filing for bankruptcy the better answer, and can 1 person out of a married couple file for bankruptcy without a detrimental affect on their partner?

Y, one partner can file for bankruptcy without affecting the other as long as the other is not also signed on the loan documentation. So if your husband has a card in his name, and you are in no way signed on that card, if he declares bankruptcy it will not affect you at all. As for it being too late, it is never too late. You may not like living through the next few years because you’re going to be living on a shoe-string. But you can make your life better with grit and determination. Go and read this blog about becoming debt free. If when you figure out your monthly repayment amount it is in no way do-able because you just can’t find the money anywhere, then bankruptcy may be the next option.

V wrote:

I recently got my [Life Planner] in the mail and have been getting all the info. I need to complete the budget worksheets. I’m going to get the jars started this month. Our debt has been causing me sleep loss. My husband and I have accumulated over $84,0000 in debt. It has grown to that from over spending, student loans, poor financial decisions and never living on a budget. Our debt is all consolidated into the Scotialine Visa (current interest rate of 3.5%). It’s humbling every month to open the Visa statement and see that number…$84,000 (Wow!). Our mortgage is up for renewal in 2010. We bought our house 5 yrs ago and our mortgage is currently around $250,000 (4.5% interest). I would like to roll some, if not all of our debt into the mortgage when we renew. Is this advisable?

V, how did you ever qualify to have $84,000 on a credit card? That’s just ludicrous. You don’t say how much equity you have in your home, but if it’s just five years old (with the recent downturn in the market) you may not have enough to cover the debt. And since your credit card interest rate is lower than your mortgage rate, that means you’ll be paying more in interest. AND once it is rolled to  your mortgage, it can’t be discharged through a bankruptcy in the same way it can as a cc. So my answer would be to do more homework, visit a bankruptcy trustee to see what alternatives you may have, and cut up the fricken’ card!

H wrote:

Hi Gail! I read your section about student debt and it was really helpful. In 2010, at the end of my 5 years at school, I expect to be about $26000 in debt. The National Student Loan Service Centre has a really helpful loan calculator to determine monthly payments, and my question is – should I go with a floating or fixed interest rate? And, if I choose one over the other, is there any way to ’switch’? The calculator estimates that the floating interest rate will result in lower interest payments, but I know it carries more risk. Also, the Ontario student loan has an eight month grace period until payments begin; I usually have leftover OSAP at the end of the school year and want to use that, plus as much as I earn in the 8 months after, to ‘throw’ on to my principle in lump sums before I start making payments – is that a good idea? Thanks!

H, you ask great questions. When you choose a variable rate, you pay a far lower interest rate, but it means you have to keep your eye on interest rates because if they rise, more of your money will go to interest. I believe the spread right now between fixed and variable n student loans is about 5 points, which means rates would have to rise SIGNIFICANTLY to make the fixed-rate loan more attractive. If you’re planning to get that debt paid of PDQ, I’d go variable. I don’t know if you can switch. I expect you can go from variable to fixed, but as variable rises, so would fixed. You would be wise to use your left-over OSAP and anything you earn to knock a whack off your debt. It is soooo gooood to hear from a sensible girl.

Sandi wrote:

I recently received an offer from a credit card company for a balance transfer, with a much lower interest rate than I am currently paying on my credit card. I called Visa and asked them to lower my rate to match the rate of the new card and I was told that it culdn’t be done, that the interest rate I have on my card is a “standard interest rate” and cannot be lowered. She also told me I couldn’t speak to a suprevisor because it wouldn’t do me any good. Where do I go from here?

Sandi, why would you want to deal with a company that is so uncooperative. You can’t speak with a supervisor? Really? First, I would call the company back and ask to speak with the vice-president of the department since you think (s)he should know how employees are representing the company to clients. You are, after all, a CLIENT.  Let’s see if that gets you anywhere. If not, then I’d accept the offer from the other credit card company to do the balance transfer, assuming there are no hidden fees or “tricks” up their sleeves. So read the paperwork carefully. Do not cancel the old card. Just stop using it. You want that credit history to remain intact until you’ve built up a history on the new card. I would tell the credit card company who has not treated you well that you will be telling everyone you know the story. Finally, get that debt paid off. You should be doing everything you can to pay off all your consumer debt as fast as possible. Times they are a’changing, and being debt-free will be your ace in the hole.

On a final note and from personal experience, when you cancel a credit card, that does not mean that all the charges to that card automatically stop. Much to my surprise, I cancelled my HBC card, which I only used for online transactions and like to change periodically for security reasons, only to find that the transaction for my daughter’s facial product went through on the cancelled card. Hmmm. Good thing I hadn’t set up the auto-ship plan on the new card just yet! If you want a card to actually be cancelled, it appears you must report that card lost or stolen to ensure no further charges go through.