March 2008 Questions & Answers

 


I have so many questions, but I will concentrate on one of the two major devastating issues for us - credit card repayment. When you have one or several (in our case unfortunately) credit cards, is it best to make the payments at the payment date (i.e. once a month...as they each come at different times) or make continuous payments throughout the month? We would love to know how to make the appropriate payments to reduce our debt load, and if we could do it in a time frame of 2 years, that would be truly a wonderful gift for our young and growing family.

Name Withheld

You need to get yourself on a steady debt repayment plan that allots a specific amount each month to debt repayment in order to hit your two-year goal. Trying to make payments more than once a month:

a) doesn't make any difference to your credit rating, and
b) will make you crazy!

Go to my Own Up To Your Debt Worksheet and use it to figure out how much to repay each month.
Your first priority should be to make minimum payments on everything except your most expensive debt… on that you throw all your extra money.

Once your most expensive debt is paid off, take the money you were spending there and apply it against your next-most-expensive debt.

Keep going until you are out of the hole. If you don't have enough money to put against your debt to get out of debt within the timeframe you want, then GET ANOTHER JOB!

 

My husband likes to buy items at the end of season sales because they are such a "great deal"...which sounds good. Only he is buying them with a credit card that is carrying a balance. I keep trying to convince him that he is spending way more that the original full price when you add in the interest accrued on the credit card. Do other people make this mistake? Do you cover this in any of your episodes if so which one? What other mistakes do people make with their bargain shopping???

Name Withheld     
   

Great question! Yes, other people definitely make this mistake. Rob of Rob & Yvonne did this. And I recently worked with a couple where the woman was a coupon freak. She had a hissy-fit if her husband dared to buy anything without a coupon. I'll tell you what I told her, and you can tell it to your husband:

"So, where's all that money you saved?" If you don't have the cold, hard cash saved somewhere, you didn't SAVE it at all, you're just playing a game with yourself. "Saving" is when you take the money out of cash flow and put it somewhere else… in an account, in a mutual fund, in the stock market. Saving is the act of NOT SPENDING.

I'll do a blog on bargain-hunting just for you. Watch for it.

 

Would you say its better to get term insurance with enough insurance to pay off you house if something happened to you or buy the mortgage life insurance at the bank?

Name Withheld      
  

I definitely believe that term insurance is a better idea than mortgage life insurance. With the MLI, the lender is protected. With your own term insurance, you get to use the money any way you need to. And if you’ve paid down a considerable amount on your mortgage, the remaining amount from the term policy can go toward anything else you want it to.

 

Hey Gail. We just got married and put together a cocktail wedding which we planned kinda quickly to keep costs down (less time = less shopping and no dinner and self-stocked bar = big savings). Totally worked and we're in minimal debt. Thanks for making us think about these things before we got hitched. The question - 4 older friends or relatives have mentioned that when we file our taxes for last year (the year we were married), we get all of the tax back that we paid. Is this even true? I can't find any evidence of it online. And we were common-law for a year before we married. Is this folklore? Or a real thing?

Name Withheld        

Congrats on getting married and not going into debt doing so. What a smart couple.
As for your question: It’s a lie. There’s no such rule. Forgedaboutit!

 

Gail -- I'm confused as to why my credit score is so dreadful: it's 540, which is rock bottom, yet I never pay late, miss payments, nor have I ever missed rent, hydro or other payments. I have a good ratio of available credit to debt: I have two lines of credit (one for 10,000 and one for 5,000) both of which are empty, and one 1,200 credit card that's paid in full every month. I've paid off $25,000 of a $50,000 student loan: I still have half left to go. I have an excellent, stable job that pays $83,000 a year. Why, given this, is my credit score so crappy? I have one black spot -- an old Master card that I paid off and closed up in 2001 after months of struggles with payments -- but this seems awfully old to keep me down this low. Is there something else on it that the report doesn't show? Will I have to pay off ALL my debt to get the dang thing to come up above 600? I ask because once I've paid off the loans I'll be saving for a mortgage, and at this rate my rate will be 15%.

Joanne      
  

Wow, Joanne, I'm confused too. If you are making all your payments on time and have a good ratio of available credit to debt, I'm not sure what's buggering you up. Have you gotten a copy of your credit report so you can look at your credit history and see if there are any mistakes on it? If you haven't got a printout of your credit report, do that. Go read the article, How to Read Your Credit Report.

 

Gail, I plan to start my own business. How do I save for retirement without a pension? Are RRSPs my only option? (I don't understand the benefits of RRSPs when retired because you pay taxes if you use that money, isn't that when you need it most and can't afford to pay thousands of dollars in taxes?) Help.

Stephanie        

Congrats on being brave enough to start your own business, Stephanie. You're part of a trend. As for your retirement question, an RRSP is the best way to save for retirement.

Let me see if I can explain the benefit of the tax deferral.
Let's say you make $50,000 a year, and your marginal tax rate is 30%. That means on the last dollar you earn in income, you'll pay 30¢ in tax… unless you put it in an RRSP. If you do put that dollar in an RRSP then either:

a) you won't have to pay tax on it; since you're self employed, you may not be deducting tax and remitting it monthly, but you would have a tax bill at the end of your first year, and then quarterly thereafter, or
b) if you have paid tax on your income, you'd get the 30¢ you'd paid on that dollar back.

Now, when it comes to retirement, you will have to pay tax on the money you pull out of the RRSP (or RRIF if you convert to a RRIF). But since you haven't paid tax on that money yet, you aren't being "double-taxed", as some people think. And if your tax rate is lower because your income is lower, then you'll pay less tax.

The other HUGE benefit of an RRSP is that for as long as the money remains inside the plan, it grows on a tax-deferred basis, meaning you don't have to pay tax on any of the interest/dividend/capital gains you earn on your money. That means a ton more money inside the plan than you could earn outside the plan, particularly if you're using interest-bearing investments.


I have a car loan and I would like to know if you know of a calculator that would allow me to figure out when my loan would be paid off when I make lump sum payments and how much interest I would save.

Name withheld        

I couldn’t find exactly what you need. If anyone else knows of one, I’m open to suggestions. In the meantime, be creative and try these:

www.coastcapitalsavings.com/Tools_Calculators/Loan_Calculator/
www.finaid.org/calculators/prepayment.phtml
www.jandickson.com/mortgage.asp
www.canadiandriver.com/tools/loan.htm


Hi, I teach math and was wondering if it was possible to order a few episodes of your show. I think it will be great to help teach students about budgeting their money etc. It will really get them to think about it. If not, can you please let me know how I can go about ordering a few episodes, the costs etc. Thanks so much!

Name withheld       
 

You need to contact the production company for this. Email Chelsea at cjohnston@franticfilms.com


Great show Gail! I watch it with my 13 year old daughter. I was brought up by parents who didn't believe kids and money mixed. Family finances were never discussed in front of me. I did not learn about money until I was much older and in serious debt. I want to make sure my kids learn about money; learn to budget and live within their means. I would love to get some more info on children and money. My four kids (13,11,9,7) have their own saving accounts, however, I have control over these accounts. At what point do I let them control their own money? Is it a good idea to give your teen a credit card (a very small amount of course) so that they learn early on in life on how it all works? Thank you in advance and I'll be watching you on TV!

Name withheld     
   

Thank you so much for asking these questions.

At what point do I let them control their own money?
From the very beginning. If kids don't have control over their money, it's not their money, it's yours and you're just playing a game. Your job as a parent is to set some expectations, and then take the opportunities to teach the lessons that come from the natural consequences.

Is it a good idea to give your teen a credit card (a very small amount of course) so that they learn early on in life on how it all works?
Absolutely. I'd start young kids (age 12+) out with a credit card on the Bank of Mom. You charge the item for them, you issue them a "statement", they have to pay you on time or you charge interest and/or repossess their stuff. Later - I believe they have to be 19 -- you help them get a credit card with a really low limit so they can build some real experience.


My husband and I make about $70,000 between us. we want to buy a house in the next couple of months but his credit score is really low and unfortunately we have not saved a dime. What would you recommend to get his credit score higher and for us to save some money.

Erin        

First, go read Fixing the Mess You Made
As for saving money for a home, how much do you want to have saved, and by when? If you want to have $20,000 saved in the next 24 months, then you'd divide 20,000 by 24 to get $833.33, which is how much you'd have to save each month.