May 2009 Questions & Answers

 

 


Hi Gail, I know everyone says this but I love your show. I appreciate your no-nonsense straight approach when it comes to money coupled with your ability to tackle the emotional/personal side when of people's financial problems as well. I'm slightly conflicted right now and hope you can help me...

I'm 27 years old, living at home and am employed. I earn about $43,000 gross a year currently (approximately $29,900 net after taxes, EI, CCP, pension plan, etc.) The only debt I have is a $11,500 OSAP loan I have remaining (I've paid off 60% of it already.) I contribute monthly to my RRSPs at $150. I have a $3,500 Emergency fund and a savings account that is about $2,000 currently.
I have been considering moving out of my parents' home to share a rental apartment with my best friends in downtown Toronto. My parents think this is an unwise choice as they feel I should stay, pay off my debt and save up to buy my own place.

Although incredibly generous of my parents, I feel like it's time for me to move out and be independent. I figure if I don't move out now and learn to do things on my own, I might never learn. I basically feel like a baby bird ready to take flight but the Mama bird ain't havin' any of that. At the same time, I feel my parents are right. I worked out a budget and it'd take me quite awhile to put a downpayment on anything if I move out.

Am I making the right choice to move out or is it financially unsound for me to do so?
I appreciate any advice you can give to me. Sincerely,

Caroline

Caroline, this is a perfect example of having to decide what you want MOST. While you parents are very generous and also right in telling you that staying with them reduces your costs and gets you debt free faster, you must balance this against your desire to be independent. At 27, I completely get why you want to be on your own. The question becomes, how badly do you want it? If you’re clearing almost $2500 a month and living at home (are you paying rent at home?) you could easily ramp up your debt repayment and build up your emergency fund so that you would be debt free and ready to move out on your own pretty quickly. As for saving for a home down-payment, that’s a long-term goal, and certainly should not be something you put your LIFE on hold for.

Have you done up a budget for moving out to see how much of your income will go to fixed and variable expenses? How much rent will you have to pay? How much will you need for transportation, food, clothing, and everything else in the life category?

Why not make this a black-and-white decision first. Do the math to see how much you save by living at home, and do the math to see what life will cost when you’re out on your own. Think about how your life will be different on your own, and what that will bring in terms of growing and having fun. And weigh the pros and cons of staying home vs moving out.

 

My husband and I purchased a home 3 years ago. We have a 20 yr old son now & this September he entered the Veterinary Med program, a 4 yr professional program. My question is we are now acquiring student debt (line of credit & osap) at the rate of approx $20-25K/year to stay afloat. I'm stressed, and curious if it would be best to sell the house now, rent & reduce monthly expenses and student debt to $10k/yr or keep the house, acquire the student debt and use the equity in the home in 4 yrs to eliminate a chunk of it then. Any advice would be great. Outside of student debt we only have monthly expenses, and we know in 5 yrs he will have a great income, but it's hard to imagine being $100,000 in debt when it's all said & done and I can't imagine ever being able to pay that off.   

Chantelle     

Chantelle, this is an exciting time for you. New opportunities. A little scary too, eh? Okay, it’s great that your husband is going to get a degree that will make you both more financial secure in the long run. But I get why taking on a ton of debt is scary, particularly right now. Unfortunately, I don’t have enough info to help your right now. For example, I don’t know if you’re working and the only debt you’ll be taking on is the school debt. I don’t know how much you’re currently paying for housing, what your home-equity situation is, and how much you owe on the house, or what the “rental market” in your area may be like.

I can tell you that this is a paper and pen exercise. You need to figure out the difference in housing costs staying in your home or selling and renting. And if you were to sell, after all the costs associated, would you actually have  any money in hand? Have you done a budget to see if you can trim your monthly expenses while he’s in school?

One final note: $100,000 debt isn’t horrendous if you know you’re going to be making $200,000 a year once you graduate. If you’re only going to be making $50,000 a year, it is horrendous. So the important thing to focus on isn’t the debt itself, but how much of your cashflow the debt repayment will eat. If you can manage it, then the decision is easy.

 

I have to make a very big decision by tomorrow and I am really not sure what to do. Since your last email, there have been some new developments in my situation. My counsellor and I decided to make an appointment with a trustee to discuss bankruptcy. Within a few days, the collection agency (NCO Financial) acting on behalf of CIBC called; I told them I had made the appointment and they suggested trying to resolve the situation by going back to CIBC to see if they would accept a settlement. NCO faxed a form to my counsellor (on CIBC letterhead) requesting that I submit information around my monthly income and expenses. I did as they requested and my counsellor handled things from there. Within a few weeks, NCO contacted my counsellor and advised that CIBC was willing to accept 50% of the debt in collections. I've been able to come up with the funds. However, I am a little concerned that NCO will collect the money and sometime down the road, CIBC will come looking for the remaining amount.

My counsellor received a condition settlement letter from NCO (on NCO letterhead) stating that they were agents acting on behalf of CIBC. NCO is telling my counsellor and I that the settlement letter won't be coming on CIBC letterhead and keep reassuring me that CIBC cannot come after me for the remaining amount in the future, explaining that the account will be closed and the payment will be reported to Credit Reporting Agencies as "Settled in Full" (vs. paid in full).

I am under a very tight timeline... the settlement letter is conditional on receipt of the funds as agreed by Monday, January 26. I'm leaving the province on Sunday and won't be back for a week. I really need to make a decision whether or not to pay this money by tomorrow. I really hope you can offer some advice by then.
Thanks so much.

Name withheld

Good that you're getting this settled. NCO Financial is a large company but most collection agencies have many complaints against them because of the nature of their business. If I wanted to assure myself I was dealing with the right guy, I would call CIBC's credit department and confirm that the account had been handed over to NCO for collections. Other than asking NCO for written proof that CIBC had indeed given them the debt to collect, that's the only way I can see of reassuring yourself.

 

Hi Gail, I watch your show on a regular basis and have a question for you regarding credit card interest rates.
I have a credit card with a balance a little over 2000. Basically it was a card I had when I was in university and well... dumb. I racked up a 5000 dollar debt along with a 10 000 student line of credit debt. Well, I barely avoided collections by a harsh wake up call. Since then both have been revoked and I am just making payments back. I have been quite good with the payments on both. Actually, very good. The line of credit is now at about 2500. And the visa is a little over 2000 like I mentioned. I have tried numerous times to lower my %19.75 interest rate through the credit card company but to no avail.

It boggles my mind that I have managed to pay off 8000 on my line of credit and not even 3000 on the visa in the same amount of time especially when I have made consistent payments and usually a little over the minimum payment required.

As I said, I always make payments and I've asked them nicely a few times, but they say they just can't do it. They tried to switch me to another lower interest credit card but bc I have to apply for it, my low credit rating or the fact that this credit card has been in a sense revoked I'm not eligible for it.

Is there anything I can do? This debt is not a lot, but it JUST WON'T GO AWAY!

I've learned my lesson the hard way and am in a much better situation than I used to be - your show helps. thanks,

Name withheld

The reason you've made such headway on your Line and so little progress on your credit card is simple: the interest rate on your credit card is killing you. You need to find a way to get that interest rate down. If you can't get them to lower the rate, go and see your banker about letting you use your line to pay off the credit card. As for not knowing what your credit rating is, shame! It isn't rocket science girl. Get a copy of your credit history/score and figure it out. I have articles on my site about this.

You should shop your business around. I know this is a tight credit market, but if you've been making your payments diligently, you should be able to prove your credit worthiness, get a line at a reasonable rate and get the most expensive debt transferred to your new lower cost option.

You must be persistent. You must find a way to lower your interest costs. The option is to get another job and put every cent you make against that credit card debt!

 

Reading through your articles, I found a quote where you tell your daughter that the RESP money is yours, not hers, and that she won't get a free ride through school because you had the sense to put money away. I understand that that quote was cut out of a larger thought that you want to teach her about money, but is that particular money not supposed to go toward school things, by the very fact that it was put into an RESP? What do you mean by that?

Marie

Marie, this is a really good question. Yes, the RESP money is meant for Alex's education, but the money remains mine as the "subscriber" until the payments to her begin. At any time if I decide to, I can roll some or all of that money to my RRSP (assuming I have RRSP room). My point is that while parents save for their kids' education, if those kids don't show the right kind of focus, there is NO POINT in throwing away the money. And this is what I've made clear to Alex. So she must a) have the right grades, b) get into a good program (I'm not paying for a "general BA") and c) keep her focus through her university experience to keep getting the money from me. If she just wants to piss away a year, she can pay for it herself. I've worked too hard (for the money, and to teach her what is important) to slack off now.

 

Gail - Love your show and I feel you are the one to answer the following question - I am leaving my husband (of 26 years) in a few weeks. We have always had joint accounts, taken out loans jointly and contributed equally to the family income. I have for most of the years have been in charge of the bill payments with very little problem. I recently went to the bank to set up accounts for myself and to talk about a line of credit, credit cards, etc. and was very surprised to discover that I have a poor credit rating. I was told that my husband would be the one with the good credit rating because he was the primary on all the accounts/loans. Is this correct? Do I now have to start from scratch in building up my credit rating or is there someone I can contact to assume a credit rating equal to my husband's? The bank has not been of much help.

Any advice you can give me will be appreciated as moving day is coming soon.

Name withheld

Sadly, it probably is correct. A little known fact (which I have written about) is that whomever is signed first on the application gets the credit history. The only thing you can do now is get credit in your name only and use it wisely to build up a good credit history. A credit card is the best tool since you don't actually have to carry a balance and pay interest (which would be affected by a low credit score) in order to build a history. Use the card for everything, and pay it off in full every month, and in six to nine months you'll be gold!


My husband & I earn a good income.  We have a home with a mortgage that is comfortably within your suggested housing ratio.  We have little debt outside of our car payment and mortgage.  We have purchased a cottage but it is partially mortgaged.  Should the cottage payments and expenses be included with housing or debt?   

Name withheld  
    
Good question. Technically it's "housing", but it's also "asset building" and "vacation" isn't it? Hmmmm. Where to put the cottage? You could make a line on your budget for "cottage" and create a new piece of the LIFE PIE and call it "real estate assets," but you'd still have to trim out of the other PIE segments to come up with the room for it; you might have to lower "housing" to 30% and "life" to 22% to come up with the 7% that now belongs in the "real estate asset" segment. See what I mean. Let me know what you decide to do. I'm curious.


Hi Gail,
I filed for bankruptcy in 2007 and was discharged in 2008. I'm now wanting to rebuild my credit and am wondering what I can do to rebuild it as best I can? I was approved for a secured Capital One card and was advised to use it once a month to show it being used once a month (and pay off the balance each month). Someone else recommended that I use the card to buy everything including small amounts and pay it all off. Is using it for everything better than only once a month? Is there anything else I can be doing? Thanks very much,

Beth

Beth, use it for everything that you can afford to repay at the end of the month. Make sure you keep track of everything you put on the card, and only charge what you can afford to pay off in FULL at the end of the month.


Hi Gail:
First may I say I am a fan and I use your show to help my girls understand money. They are in their 20's and by not lecturing them but by having the show on they are watching and get interested when they see other people problems. So they learn and I'm not a nagging  dad.

My question is related to retirement. You have mentioned in your show that you need about 70% of your income. I am just around the corner from retirement and wanted to know if this percentage changes dependent on the amount you earn. I have build an Excel work book to study the issue, tried to take all issues into account and think I can do so with 56%.

I only get to decide to retire once (no turning back) and want to make the right decision. Do you have a formula or work book on this? Are any programs planned on this?
Thanks

Bert      

Bert, the 70% is just a rule of thumb. You have done the very smart thing and actually figured out what you will need. I don't have anything to offer you right now, but have a browse through New Rules of Retirement: What Your Financial Advisor Isn't Telling You is written by Warren MacKenzie and Ken Hawkins I haven't read it yet, but I've heard good things.


Do you actually like Banks? Do you honestly, deep in your heart believe in them? Do you think it is a service that is overrated?

Name withheld      

Yes, I actually do like banks, particularly Canadian banks. While they have people who do really dumb things sometimes, and while they often forget why they exist (it's not about shareholder return, boys, it's about your clients), the structure and stability of our banks is awesome. We're lucky in Canada to have a national banking system... so if you move from Halifax to Vancouver, you can keep your bank account. And we're lucky to have the regulations in place to keep our bankers honest (which they don't have in the U.S. to the same degree.)

We have to stop hating our banks and, instead, hold them accountable. They do some damn stupid things sometimes, and we need to tell them. And when they get all bully-ish, we need to slap 'em back into place. But as a whole, I believe our banks are solid, and I don't sweat it at night that my money is in their four walls (again, unlike the U.S., where bank failures are not unheard of.)


Hi Gail.
I am a huge fan of your show and have been trying hard to implement your strategies for saving and reducing debt. I even have the jars set up in my kitchen! My problem is that I am a partner in a law firm where I receive bi-monthly pay cheques based upon the profits held by the firm at the time of payment. My pay is not consistent and I never know until the day before what I will be receiving. Particularly in today's economy, I worry that the pay amounts will be lower and lower each month.

I tried to create a budget based upon my annual salary from last year that would get me out of consumer debt in two years (I currently owe about $45,000.00 on a secured line of credit), but based upon my pay cheques so far this year, I have barely been able to meet my monthly expenses let alone put my debt reduction plan into effect.

I suspect that your answer to this situation will be that I have to create a "float" and an emergency fund out of my larger bi-monthly draws to cover my expenses for the smaller ones. The problem is, however, that I don't have anything to get started with given the recent smaller pay cheques. I have had to go to my line of credit again just to make ends meet in the meantime.

Finally, as partners we do not have our income taxes deducted at source and I have to pay quarterly instalments to the government. I am supposed to be saving for these instalments, but I have always had great difficulty doing so particularly when I am trying to pay down existing debt. Do you have any advice on how to handle this?

Thanks Gail!
Name withheld

When you find yourself making less money, the only solution is to cut back on expenses, at least until you can fill the income gap. You need a tiered budget. Your essential expenses are your Tier A budget. When you have more money, you can meet more of the Tier B expenses. And when you're really flush, you get to check off your Tier C expenses. As for the taxes, you do need to be setting them aside from each pay so you have the money to make your monthly instalments. As for where to find the money? Taxes are a Tier A expense. So there may be little or no money for the Tier B "entertainment" expense column when things are short.

 

Hi Gail,
Huge fan, post often on your site, but now I have a question that I'm having a difficult time figuring out for myself.

I have the opportunity to work full-time as gov't employee at a job I know I'll despise.  The pay cut from my current work as a contractor will be about 40%, but I'll have holidays, vacation, etc.

I also have the opportunity (which looks 99% positive) to work on a new contract for at least a year, possibly 4-5, that is with a great group, good project, and I already have my feet wet in there so I think I'd really enjoy it.  The bonus is it's about $150 more per day than I make now.

My problem is, do I look at the security of the full-time gig and give up being a contractor during these tough times for the security, albeit misery, of being a f-t employee?  No, I haven't really set up an emergency fund, but I've been diligent at paying off debt which should be gone by June of this year and I am putting money into my emergency fund religiously.  Could I bump it up so the panic of losing the contract isn't so hard?  Maybe, but I've been paying about $4K per month on debt so I can be credit and loan free at the end of this contract.

This has been weighing me down far more than I want it to, so I really need some 'outside' eyes to help me figure this out.  If you want to post it to the group, that'd be fine...I'd like their take on it as well.

Name withheld    
  
So you want me to tell you whether it would be better to lose 40% of your income and be miserable so you can have holidays and be "secure" (Really?) or make $150 more a day in a job you think you'll love with people you've already worked with? Hmmm. I dunno. It doesn't seem like that big a test to me.

M'girl, there's no such thing as "secure" anywhere. And if you're really good at what you do, why would you settle for something that will make you miserable?

I'm not going to tell you what to do. That's your job. But I don't see how this is a hard decision to make.