September 2009 Questions & Answers

 

 


Dear Gail, I wanted to ask you the best way to start off. I'm in grade 11 will be going to University and I was wondering what is the best way to conserve money while in school. At present I spend money in a way you'd smack me across the face lol. What would be the best policy in terms of buying food at the store for a week without spending over $100. I've seen people on the show manage it but I would like to know how to spend less but at the same time buy food to last a good while I don't want to be in a situation where I can't pay for books because I'm in debt. I also would feel bad to take money from my parents if their already paying for University. Hope you can help

Mark

Mark, the best way to grocery shop on a budget is to have a plan. That means sitting down the night before you go shopping to figure out what you're going to eat all week... it's called meal planning, and if you search on the web you'll find sites dedicated to this concept. Once you know what you're going to eat, you can make a list and shop it, staying on budget. You also need to set aside money for personal care and home cleaning items, so you can't spend the full amount on food. Why don't you start practicing now? Ask your folks to sit and make a meal plan for a week with you, then shop the list and see how you do.

 

Hi Gail! I have copied a section of your article (below) on "how much home you can afford". I am very confused by the below because I thought that the higher the credit card limit the better your credit rating would be if you pay it off in full every month.
I have 1 card. The limit is $15,000. I pay it off every month without fail. Will this work against me when I apply for my mortgage? I have no debt and have been saving every month for a good down payment when the time comes to buy. (hoping for 35 to 40% in the end.)

I also ask the bank to up my limit on my cc every time they can because I thought this was good for my credit score. I try to use my cc for everything that I can, this is how I track my expenses but still never come close to the $15,000 limit.
Thanks for the help, you're advice is fantastic and I love watching you enforce the jars on your show!! :)

QUOTE FROM YOUR ARTICLE:

"I don't carry a balance on my cards," you announce proudly, "so they won't be a factor."
So you think. How many cards to you have in your wallet and what are limits on those cards?
"$4,000, $6,500 and $8,300." So that's a total of $18,600 in credit.

"But I don't carry a balance" you protest. "I pay my cards off every month. Besides I never even get close to those limits."
The lender doesn't care. Since you COULD run those limits to their max, that's all the lender cares about. So s/he adds in the minimum payment you'd have to make to keep all that credit balanced. Assuming s/he used 2.5% (pretty standard for minimum payments), s/he'd add in $465. Hey, wait a minute. That's even more than the car payment so there's no way you'd qualify.

Name withheld

Having a higher credit limit does not do anything for your credit score when you're paying your balance off in full every month. The only time having a higher credit limit works in your favour is if you are carrying a balance and don't want to get too close to the top of your limit. What I said in that blog is true. The higher your limit, the more credit exposure you have, and that's taken into consideration by lenders when they're figuring out how much MORE credit to give you.

 

Hi Gail,
I was just wondering what advice you had for myself and my wife. Both of us are avid savers. We have a mortgage, however we have taking steps to pay it off rather quickly. We both are debt free. We also are contributing to RRSP's and have company pensions (defined benefit plans as Teachers). We also have a substantial emergency fund.

I always hear about what people are doing wrong and how to fix it, but I rarely get a glimpse of what someone should do once they are on track.

We have some goals about what we would like to do but because of our nature we are almost afraid to spend the money to do it.
What do you think?

P.S. My intent is not to brag, or come across as arrogant, but I am really unsure about what to do for the next steps?

Name withheld

If you have a good income, no debt, a sound retirement plan, a healthy emergency fund and enough insurance (which you likely do as a teacher) then you should be having fun. What is it you would like to experience/have in your life? What do you always wish you had done, or could do. It's time to start dreaming, and then turn those dreams into goals. You're in a great place in terms of your financial security. Enjoy it.

 

My wife and I will be getting some money ($30,000 to $40,000) from her mother's estate within the next 6 months. By the time we get the money we will have no outstanding loans (other than $100,000 left on our mortgage. We have approximately $20,000.00 saved in RESPs for our children's education (Our son is 13 and our daughter is 10).

What would be the best thing to do with that money? Do we put it to our RRSP's and then use the money we get back from that the following year to put toward RESP's. Considering the market now what is the best way to handle the money. We watch your show all the time (often in the morning when I am making lunches) and we do watch it with our children. It is an excellent way for them to see the dangers of not paying attention to their money. Thank you very much! Sincerely,

Michael

Michael, you don't mention an emergency fund? I'd make sure I had a bit of money just in case before committing the full $30-40. I would also make sure you were all caught up on the RESP educational savings grants the government gives out for RESP contributions since you're kids are not as far away from post-secondary as you may think... take it from me, time flies. If you have RRSP room and are in a high-ish tax bracket, by all means catch up your unused room and use the refunds to fund the RESPs, if that calculation works.

BTW: how about a little fun too, eh?

 

I am scared beyond belief but need to leave the marriage for my own sanity and emotional stability. I only make $2100 (minimum) per month and I am looking at rent, my own credit cards, car and student loan coming to about $1725.00. I do contribute to an RRSP through work and I have started socking $50 away for emergency.  1/3 children may come because I will give her the respect and time to make her own decision. My husband wants me to stay and will pay (literally) any amount if I stayed; I am tired of selling my soul for the sake of others. Can I do this?

Leona

I am so sorry to hear of your sadness and loss. I cannot advise you because I simply don't know enough. I can tell you that only you can know what you can live with. And I will tell you that you need to seek counselling -- both emotional and legal -- to ensure you end up in the next place you want to be without having to walk through hell to get there. Find a body you can talk to and work through what you want from your life. Find a legal advisor -- one who is focused on mediation, not litigation -- and make sure you know what you're entitled to, and what you're liabilities will be. Don't go off and make big changes because you just can't do it anymore. Then you're acting from emotion (and I know what I'm talking about here) and it will not turn out as you expect. Put the emotion into a quiet place and deal from your head. 

I hope you are blessed with the foresight you'll need to see the change through, and that you get all that you want from your life.

 

I recently watched an episode of Til Debt Do Us Part where you told a couple that they should estimate that they would spend 3-5% of the value of the house per year on house expense/maintenance, or something like that.  Can you tell me more about what exactly is included in that and how you should go about deciding whether it should be on the lower side or on the higher side?

Lesley

Lesley, you use the higher amount when you've bought a house you know is going to require a ton of work, and the lower when the house is pretty great to start with. And the amount you're setting aside is meant to cover everything to do with the house from the yard to painting, from roof repair to appliance replacement. People often think that 3% is a lot, particularly when they live in an area where property values have gone through the roof. If you think that most of the value of your home is in your land, then you might base your 3-5% on the replacement value of the house itself, which you can find in your home insurance policy.


We just consolidated the last of our credit card debt.  We now have a mortgage that is maxed out, a car loan that will be done within 25 months, 1 consolidation loan that will be done in 4 years and another one (the new one) that will take 5 years to pay off.  I have pulled out jars, worked out a budget, taken on more work but I wonder if we'll make it.  You say that one shouldn't take more than 3 years to pay down debt or we could get fatigued by it all.  Were we wrong to take that consolidation loan?  We will be saving 6-10% on interest and I now have an end in sight.

Ruth

Ruth, it sounds like you have a lot of debt. The fact that you've come up with a plan that works for you is great. It's important that you stick with the plan, put away the credit so you don't add more to your mountain, and stay true to your long-term goals. If you do that, taking a little longer is a terrible thing. Just know that you're going to get frustrated, and have some tactics you can use to keep yourself on track. Consider tracking your progress on a chart, and rewarding yourself (with something not on credit) when you hit your milestones.


Hi Gail, I just learned of your website from a posting at OPRAH.com.  I know you will probably state who is this idiot, but here goes. I am a single mother of two, and I have $45,000 in credit card debt, as well as a $10,000 car loan, $25,000 second mortgage.  I am definitely at my wits end because each month I am practically borrowing money to make the mortgage payment, $1002.  I am definitely drowning and would love to pay my debts as I accumulated them.  But, because I am overwhelmed, I am considering bankruptcy.  I already have agreements with the credit card companies and they have closed my accounts that has caused two of them to report an adverse reaction on my credit rating that up to now was excellent.  I applied for a refinance, but because of the two adverse records, my interest rate would be 8.25 percent for 30 yrs.  I owe eleven yrs on my home as of today. Because of a late payment on one of the credit cards, my interest rate defaulted to 27.99%.  I don't know what I expect you to say, but please if any words of wisdom or encouragement you can provide would be grateful. Thank you,

Name withheld

First you have to decide if on your income it is feasible to expect to be able to repay the debt. If you have more debt than you can handle -- if you cannot pay for your roof, your food and your debt -- then bankruptcy may be your only option. With your crappy credit rating and interest rates skyrocketing, putting off the decision isn't going to make it easier. There are tools on my website to help you make a budget, a debt repayment plan, and a life that you're in control of. But you have to do the work: read the words, do the math, and come up with a plan. I'm not sure what more I can say at this point. Only you know if you have the ability to get out of debt... I don't know enough about your situation to make that call. And only you  know if you have the gumption to stick to a plan.


My fiancé  and I have been living together for 5yrs or so, and I've only just got him to start paying 1/2 of the housing bills monthly, it’s been a battle but we're there.  Now someone has told me it should be proportionate to earnings, he earn more a month than I do, should he be paying more for his portion of mortgage, utilities etc.?

My other question is this:  He has his own personal debt of $30K or so and I have $5K, I saw on one of your shows that his/her debt became "their" debt.  Why would I suddenly need to start helping him with his?

Maggie

Maggie, proportionate is more "fair" but since you've only just made inroads, I wouldn't be diddling with the plan too soon. As for the debt, his debt is his debt as long as you're not signed for it. But his debt also affects any joint assets you may have, and any plans you may have to borrow together in the future.


Dear Gail,
I absolutely love your show. It is one of my favourites to watch on slice!!!.  I have more of a plead than a question.

My sister is going to fill out your online money test in order to be on the show at my request. They have no cable anymore due to bills so they have not seen your show.  My sister knows of it but that's it. My plead to you is this.... My sister and her husband are great people. Neither one of them seems to know how to handle money. I'm not one to talk but I am doing well. I am not behind.  I came to the house today to look after the kids (most of us, me, my mom, his mom) all do it for free when I noticed a BUNCH of past due bills on the counter. (Fido $275.11, hydro $189.71, M/C $8130 min payment $352.18, Gas $564.57,Bell $434.18, dentist  $400) Not to mention their other credit cards that I know about...one has a balance of over $17,000!!!!

They are constantly in debt and Tim constantly borrows money from his family in order to bail themselves out. My sister is at her wits end trying to juggle all the bills on her own as up until lately he barely knows about them.   Sheri gets everything in order for the automatic payments to come out and Tim decides he needs gas so TIM GETS GAS. No consideration as to whether or not they can afford it. They have 2 small kids ages 4 and 5 and just keep creeping deeper and deeper into debt. Every time they are bailed out, it comes back again.  Tim constantly starts projects around the house that do or don't need doing and spends money whether they have it or not. Can you PLEASE PLEASE PLEASE teach them how to live properly within their means especially seeing as they have 2 small kids.  As far as I know, they have no savings, no RRSP's no emergency funds and probably no funds for kids going to school.   Please help them.  A VERY concerned sister.      

Denise

Denise, I often get request/pleas like this on behalf of other folk. It is hard to watch our friends and family commit financial miss-steps without being able to help. I know it can be frustrating. But I can only do so much. People have to start taking responsibility for their own money and digging themselves out of the hole.

As for the application, more people than just lil ol' me have a say in who gets on the show. There's a casting director, an executive at the network, my producer and me, and the app has to get through all the screening to be successful. I hope I get to work with your sister. And perhaps we'll meet. But it's more important that your sister and her husband recognize that if they don't make the cut, that's not the end of the world. There are tools available that they can use to figure out a path to get from where they are now to where they want to be.


Hi Gail   I have a question and a comment.  I have been hesitant to post this because I am afraid it might be really dumb.
I am probably being very simplistic in my thoughts because I do not know much about how big finance works (am struggling enough with our little finances) but I wonder what would happen if for a couple of years the interest rate on all loans, mortgages, lines of credit and credit card debt was reduced to 5 or 3 %?  For Everyone.  Personal and business.

For example - 5% on $1000 of debt is $50.  19% on $1000 of debt is $190.  Believe me, if that $140 dollars (multiplied by all the debt in North America) was still in our hands we (the millions of tax payers) could really stimulate the economy, create jobs and businesses and/or stave off foreclosure and bankruptcy.  And the lenders would still be getting something – which is a lot better than the nothing so many can no longer pay.

Would this not give many the breathing space that is needed to stave off more foreclosures and bankruptcies?  Would this not act as a grass roots stimulus package instead of robbing from the tax base and our children’s future?  I do know what an enormous difference it made to our lives when we were able to renegotiate all of our credit card debt down to 5% interest a few years ago.  We are debt free and have some savings for the first time ever.  Multiply what we were able to do by all the people who are in the same situation that we were in and I think we would see some real change.  I honestly think that we the people could do a much better job of rebuilding our lives and the economy if just given a break. 

I am still so mad at the way we have been used by the big players in the financial markets that I am actually seeing red as I type.  Of course the financial institutions will say that the cut in interest rates will destroy them and cost jobs but they have already destroyed themselves (are only being kept afloat by the tax payer) and cost us millions of jobs and homes already.

The Banks and credit card companies have made billions with their exorbitant interest rates and tricky penalties.  Through their greed, incompetence and immoral practices – can’t call it illegal because they did a beautiful tight rope walk - they have destroyed the banking and credit systems – not to mention people’s lives.  And yet they are being bailed out.  With more of our money.  Maybe it is time for them to pay the price instead of us.  If we have to do without and suffer through this recession perhaps they should as well. P.S.  Just saw one of the new shows.  You look fabulous.  Must be doing something very right.

Maureen     

Maureen, you're very right when you say that a significant reduction in interest rates would help people not only get out of debt but create enough cash flow to help stimulate the economy. I received an email the other day from someone who tried to consolidate all their debt with one of our biggest banks only to be offered an interest rate of 16% -- this when prime is at 0.5%. It is frustrating to watch. I've actually blogged about the fact that I think there should be a sliding scale implemented... take a three year consolidation loan and watch your interest rate come down semi-annually if you keep your monthly payment plan.

But it would take some imagination and a willingness not to walk lock-step with everyone else for this to happen. In the meantime, I hope people are learning the lesson that borrowing at any cost is NOT a good idea. Maybe there are enough lessons in these tough times to make people wake up. And maybe those companies that do right by their customers -- I'm thinking of the credit unions as an example -- will be rewarded with loyal customers over the long term.

 

I moved into my boyfriend’s condo about a year ago. Currently I am only helping with the bills and have nothing to do with the mortgage. We are trying to figure out a fair way of me to pay into the condo so that I am able to build some equity. He bought the condo for about $200,000, has been living there for 3 years, and has put in about $50,000.  We talked about the possibility of either splitting the amount put in and then calling it even from there, or me taking out a separate mortgage of 1/2 of what the condo is worth so we own equal shares.  Any recommendations? Thank you!

Name withheld

Either of the options you suggest would work, but the first is probably the more practical. Come up with $25,000 to buy in, if that's what you both believe is fair, and then work together to continue building equity.