January 2011 Questions & Answers



Susan wrote: 
Hi there, I tried to comment, but it wouldn't let me, so here I go again..:-)  My husband and I have accumulated over $95000 in credit card debt - not due to spending on shoes or cars or clothing, but a few major decisions that cost us larger sums of money that didn't end up working out for us (business, adoption).  Anyway, we have repeatedly contacted the bank for consolidation - won't allow us - and the creditors themselves regarding interest rates - won't reduce - and lastly, I just recently contacted a debt management company.  With their ideas, we would end up paying $500 MORE a month ($335 of that is their fee) than we are now.  We have never defaulted, we are always on time with our payments, we have brought our debt down by $2500 in the last six months, but somehow, the creditors increased our minimum payments from $1500 per month (Jan/10) to $2100 per month as of July/10.  How is this even happening?  We keep asking everyone involved to help us out by reducing the interest being charged, or letting us consolidate, and we have had NO luck.  I know exactly how much we spend, and on what, we have an excel spreadsheet of our own, we try to put every extra dollar we have on our cc's, yet we're heading backwards in the cash flow department, and making almost no headway on the debt itself.  Do you have any suggestions?  It's looking like we have  to enter a consumer proposal situation and then our credit will certainly be affected.  Why won't anyone help us while we're still in an ok position so we don't get into a NOT ok position?  Many thanks, Gail, I watch your show often, and hope you have some ideas to help!

Gail says: 
When all those creditors were handing you credit, the credit market was in good shape.  Now people are defaulting left right and centre and the credit market is in tatters.  The credit companies are desperately looking for ways to get their exposure (how much they've lent) down, which is why your minimums went up.  Here are some things to think about: 

1.  If you go with a debt-settlement company, not only will you pay a lot of money, but your credit rating will go into the tank.  Ditto credit counselling or a consumer proposal.  If you want to keep your credit rating (if it's still a good one) then you'll have to do this for yourself.

2.  You'll have to get creative when it comes to reducing your costs.  Call each creditor again and ask for a reduction in your interest rate.  Tell them that you're on the verge of insolvency, and you need their help to pay them back what you owe.  Tell them that you're prepared to declare bankruptcy if they force you to since you have to eat.

3.  If you've received any offers of low interest credit, do balance transfers and get that debt paid off as fast as possible.  Remember that once the "enticement period" wears off, the interest rate will likely skyrocket, so don't get caught.

4.  Find a way to make more money and throw it all at the debt, paying of the debt with the highest interest rate first.  Once that's gone, take that payment and apply it to your next highest interest rate. Snowball until it's all gone.

5.  Do you have stuff you could sell to make a payment against the debt?  Every penny that you pay off your debt is a penny that won't accrue interest.

6.  Can moving to less expensive digs free up enough money to get that debt paid off faster?  I have a very good friend who just bit the bullet and moved to an apartment that is half the size and not nearly as great as the one she had, but now she has the money to get her debt paid off.  Once it is, she'll look at her budget and see if she wants to move again.

7.  If you own, could you take in room-mates (yes, even married people sometimes have room-mates) or a border, a student, anyone to help bring in some extra cash?


T wrote: 
Should people re mortgage their houses to pay off their debt?  This is what my hubby wants to do.  We've done it once in the past and are back in the same boat.  He wants to do it again, and I feel we shouldn't.  Please advise!

Gail says: 
Some people use the consolidation of debt into their homes as a way of reducing their interest costs and paying off the debt faster.  Some people do it to give their cash flow some breathing room so they can get rid of their debt and have a life too -- they don't go out and run up more debt.  And some do it simply to fool themselves into thinking they have room to go shopping.  Since you've done this once already and you're back in the hole, I'm going to say you're in the third group.  If you want to be in the second, then you have to make a commitment to NEVER USE CREDIT again.  If you can't afford something, you don't buy it.  If you don't have cash in the bank to pay for it, you don't buy it.  If you want to be in the first group, not only do you stop shopping on credit, but you make the payments you would have made to the debt to the mortgage so you aren't walking around with that debt strapped to your house 20 years from now.  If all you want to do is hide the debt again, well, it's only a matter of time before you run out of equity. 


T wrote: 
I make roughly $20,000/year at present.  I have all most paid off my divorce lawyer, July 30, 2010, and that debt will be gone.  I have a budget for myself and my 2 kids.  I still feel that I'm not doing as much as I should, I do have some child support, that has helped me pay off my lawyer.  I withdraw cash and I spend $100/week on food, $40/gas, I use my bike as much as possible-I hate riding in the rain, my take home pay is roughly $725/bi-weekly, my child support is $1000/mo.

My consolidated debt is $11,156.44 my mortgage is $60,000 with a revolving interest rate.

I don't use any credit, I make my own bread, drink coffee at home, and I make our food from scratch.  I have been looking for another job since I have been in my current line of employment.  I am ticked off at myself for taking a job that isn't/hasn't meeting/met my financial demands. I would like some help to come up with a better plan to pay down my debt, can you help me, please?

Gail says: 
I think you're doing a great job on your income with two kids.  You don't say how old you or your kids are, so I'm not sure how close you are to retirement or how long the child support will last, but based on what you've told me here, you're doing a good job of cleaning up the debt.  I would encourage you to not get so focused on one part of your life (debt repayment) that you fail to have fun and enjoy the other parts of your life (the kids, things you love to do for fun). 
If you want to have a solid plan to pay down you debt, you must first decide how much time you think it'll take to get it paid off.  I am not suggesting you use these numbers, simply giving them to you to see how things change based on what you do.
With $11,200 in debt (yes, I'm rounding) at 7%
If you pay $300 a month it'll take you 42 months to get to debt-free.
If you pay $500 a month it'll take you 25 months to get to debt-free.
If you pay $700 a month it'll take you 16 months to get to debt-free.
There are debt-repayment calculators like this one http://debtmanagers.ca/debt-calculator.php all over the web.  Find one, pop in the numbers you're thinking about and see the results.  Knowing when you'll be debt free can be a HUGE motivator.  Just remember, life is a journey and if you make yours miserable to get to debt-free, you'll be far less likely to stay the course.


C wrote:
Our mortgage will be coming up for renewal later this year. We've always automatically renewed with the bank, but lately I've been hearing a lot about mortgage brokers. Is it worthwhile to renew our mortgage through a mortgage broker? How exactly does it work? Will we have to pay any fees to our present bank, or to the broker, or to the new bank? How do we find a reputable broker?

Gail says:
Mortgage brokers are a terrific idea, but you have to be sure you're dealing with someone reputable. Since most lenders offer a limited variety of mortgage plans, a broker can do the shopping around to find the best rate possible for you, saving you from having to negotiate... something a lot of people aren't really comfortable with. And since repeated credit checks from a number of lenders can actually have a negative impact on your credit score, using a mortgage broker means only credit check is needed. In most cases, a mortgage broker works for you but at no cost to you since they are paid a fee by the lender; but because fees paid tend to be similar, there is little incentive for a broker to favour one lender over another. Here's a link you may find useful: http://www.mortgages4women.ca/ 


R wrote:
My husband and I were reading your article, "Save Money on Your Mortgage". I was wondering if you could offer us some advice. We currently have a $265,000.00 mortgage at 3.68% interest with an amortization period of 30 years. We just started our mortgage payments as of June 2009. We want to pay our mortgage off a lot earlier. We like the idea of putting $100 a month towards our mortgage, but our mortgage isn't 120,000.

How much is a realistic amount to put down on our mortgage on top of what we are already paying? We can afford to put down $200-$300 extra a month, but how much would that cut off our mortgage. We really love watching your show. Although our mortgage is our only debt at the moment, we are still learning a lot about how to save for the future.

Gail says:
You don’t say what your current monthly payment amount is, or how long you’re amortized, so I’m making the following assumptions:
Your amortization is 25 years
Your monthly payment is about $1350
Based on this info, you’ll pay a total of almost $140,000 in interest over the life of the mortgage.

If you increase your payments by $100 a month, you’ll save over $16,000 in interest and be done a couple of years early.
If you increase your payments by $200 a month, you’ll save almost $30,000 in interest and be done in about 21 years.
If you increase your payments by $100 a month, you’ll save over $40,000 in interest and be in 18 years, knocking 7 years off your mortgage.

This assumes your interest rate remains the same for the whole time. There are a number of calculators on the web that you can use to do these calculations for yourself. As you can see, even a small increase in payments done consistently can have a huge impact. If you’re not already doing so, I suggest that at the very least you should use an accelerated weekly payment to make your payment dollars work hard for you.


L wrote:
My question pertains to buying vs. renting a home. My parents are constantly harping at us to buy a home, despite the fact that we feel we are not financially stable enough to do so at this time. We are in our 40s, and up until about 10 years ago, we were totally debt free. Unfortunately, due to a long-distance move, and a subsequent health crisis, we are now looking at around $40,000 of consumer debt which we are trying to unload. We have two children - 15 and 11 - who eat up a good chunk of our disposable income. Our gross family income is approx. $100,000/yr, but with debt payments and our children's expenses, we seem to be living cheque to cheque. We have RESPs for the children, and my husband has a good pension, but we have no savings or RRSPs to use as a downpayment on a home. My mother says "No matter....you can sometimes buy with $5000 or even $0 down." To me, this seems like playing Russian Roulette. If we buy when interest rates are low, and can barely get by, we will surely be "hooped" when rates start to climb back up, no? And what about money for unexpected repairs? We can barely afford to fix our car, never mind a roof. Help, Gail! Are we just too cautious?

Gail says:
No, you are sensible. I have the same concern for a lot of people who have over-extended themselves. Your priority should be to build up an emergency fund so that another "emergency" like the one you had doesn't push you further into debt. And you've got to get your debt paid off. Then you can start saving for a home. I have some blogs that deal with how you prepare for home ownership. Go read those. And stick to your guns. You are wise and shouldn't give into familial pressure.


Rebecca wrote:
I recently finished paying my trustee for my personal bankruptcy (January 4, 2010). My bankruptcy has not yet been discharged by the courts. I was told this may take anywhere from 2-6 months to actually take place. I am ok with that. I have not been able to find a straightforward answer to this question in any of the research I've done online-bankruptcy websites, credit rebuilding websites, etc.-WHEN CAN I START REBUILDING MY CREDIT BY APPLYING FOR A SECURED CREDIT CARD? I've read answers that appear to state "as soon as you've made the last payment to the trustee", to "when your bankruptcy has been FULLY DISCHARGED", to "you should have had that secured credit card even before you saw the judge to get your final amount to pay to have your bankruptcy discharged". I'm confused, and I don't want to do anything to jeopardize my discharge, but I don't want to waste any time in rebuilding my credit either. I am 37 years old, married (my husband was not affected by my bankruptcy), no children, a decent paying job, and my debt consisted mainly of student loans, with some credit card debt and loc debt. I am not looking to get back into debt by getting another credit card! Believe me! This has been a very long road and I am NOT interested in traveling it again! I want to have the secured credit card to use if I need to rent a car, to book a hotel room, and to pay for my grocery delivery (my convenience card has been compromised several times so using a credit card is an easier way to avoid that circumstance). And again, just to get started in rebuilding my credit from an R9 rating to something respectable.

Any insight provided is greatly appreciated and thank you for your show. My husband and I both watch and usually take something away from every episode.

Gail says:
You're supposed to wait until your bankruptcy is discharged to apply for any credit...although some people short-cut the process, I wouldn't recommend it. The good news is it'll only take about 2 years to reestablish your credit. Start by telling your banker what you're trying to accomplish. If (s)he won't help, you'll have to look elsewhere. Open a savings account and start making regular contributions to it by setting up a pre-authorized debit for as little as $50 a month. Aim to save 5-10% of your income to demonstrate you're serious about taking control of your money. (Ultimately, I'd use a TFSA for an emergency fund and an RRSP for long-term retirement savings, but for now stick with a savings account for the next step to work.)

Next, take out a small loan using the savings account as collateral, and then pay it back.

As you know, applying for a secured credit card is a great way to rebuild your credit rating.  As you make regular payments your credit history looks better and better; make sure you pay your credit card balance on time and in full.

Shop around for your secured credit card. Some places have more stringent rules or demands. Check out Peoples Trust which has a minimum deposit of just $500 and offers a credit limit is 100% of security deposit, There is a one-time set-up fee of about $50, and an ongoing monthly fee, but the security deposit will earn a tiny bit of interest, and just about everyone get approved.


S wrote:
My husband and I declared bankruptcy in 2006 individually and started building our credit since 2007. I have a car loan since 2007 and we have a joint credit card with Horizon plus. We have been living off the jars since our bankruptcy to control our finances. We managed to save money to buy a house. We have 5% cash down plus the 1.5% of closing fee. My question is : Is it possible to buy a house within the 7 years that we declared bankruptcy? I tried to research that information and talked to a few mortage specialist but no one has experience with bankruptcy and couldnt tell me what I need to do to buy a house. I would like to get pre-approved to buy a house.

Gail says:
Legally, there is nothing to prevent you from buying a home after you have filed for bankruptcy. However, if you acquire property while bankrupt, it is possible that the trustee would seize it. So the simplest thing is to wait until you are discharged before attempting to buy a home. If you do decide to go ahead, you may find it difficult to find a lender who is willing approve you for a mortgage. Most lenders want to see 2 years of clear credit history since the bankruptcy is filed. No doubt you’ll pay a premium in terms of a higher interest rate on the mortgage if you do find a lender willing to give you a mortgage.

Book an appointment to see a mortgage officer at your local bank and ask what interest rates the bank is charging its customers for mortgages before you talk about your bankruptcy.

Then talk about your bankruptcy and ask them how long it might be before the bank would approve you for a mortgage.

Then ask what interest rate they would charge you for a mortgage right now, before you re-establish your credit.

The extra cost is the premium you would be paying to buy your house today, instead of waiting to re-establish your credit. If you are willing to pay the extra money then go ahead and buy the house.

If you don’t want to waste gobs of money on interest, a better idea would be to have some patience. Set aside the “extra money” every month that the lender would have charged you as your “bankruptcy premium” and add it to the down payment that you’re saving. Once you’ve re-established your credit history, you can put down a bigger downpayment. It will also let you to test whether or not you can afford the extra cost of owning a home before you actually are stuck with the payments.

Go read this blog: Ready for Home Ownership? At http://gailvazoxlade.com/blog/archives/476


Terry-Lee wrote: 
Hi Gail!  I am a big fan of your show and recently purchased your book.  I have set up a budget for my family and we've been tracking our spending faithfully.  However, I have one question: how do you treat spending when it's going to be reimbursed later in full?  For example, if I take some clients out on a business lunch and spend $80 that will be expensed to my company (but I won't be reimbursed until next month), do I subtract it from my entertainment spending that month and then when the reimbursement arrives, credit it back in?  Same question for insured medical expenses like massages.  Thanks for all your good advice in your book, on your show and website!   

Gail says: 
I’d set up a separate “jar” or “category” on the budget and allocate a float for expenses.  So you might decide that you spend up to $120 on expenses a month.  Put that into your jar.  When you spend the money, it comes out of that jar.  When you’re reimbursed it goes back into that jar.  So if you’re using a spread sheet for your budget, you’d debit your spending and credit your reimbursements.  The money would then have virtually no impact on your overall budget except for that initial pull to “fill the jar”.


C wrote: 
Thanks to you because by following your ways we are out of credit card debt of 21K in 15 months.

My question is both of us are immigrant to this country and are not settled yet.  Is it a right time to buy a house?   We both are living in Toronto, renting for $860/month and were thinking of buying a house in outskirts like Barrie for less than 200K townhouse, have no kids.  Our parents might give us down payment of 36K however we are not settled in our careers.  Should we move outside and commute to Toronto or wherever around GTA we get work in our professional careers as now we are doings things to carry our everyday life?  Or should we just focus on making ourselves successful in our careers and then think of buying vs. renting?

I really pray you reply to my email as it will be a dream come true as you are a perfect person to ask this question.

Thanks so much.  I really appreciate your work.

Gail says: 
The words you use like "not settled yet" and "not settled in our careers" lead me to believe that YOU don't feel ready to take this next big step yet, and so you should not.  It's is generous of your parents to offer a down payment, but that's only the beginning.  I think you need to take some specific steps:

1. See if there are houses where you plan to live in your price range.  Are these houses you would be happy buying?
2. Calculate the carrying costs (mortgage, taxes, hydro/heat/water, maintenance) and practise living without that money in your budget right now.  So if the carrying costs on your house would be $1200 and you're currently paying $1000 in rent, you'd put the extra $200 into savings to get used to your reduced cash flow once you're in your house.
3. Don't forget about things like closing costs and new stuff (furniture, appliances, etc.) for the house.
4. Make sure you calculate in your commuting costs and TIME to be completely aware of how this will impact your budget and your life.

Once you've done your homework and practised for a while, you'll know whether you can take this next step confidently.  I have some good stuff on buying a home on my website and in my old blogs. Go read it. 

D wrote: 
I am a huge fan of your show.   I watch it all the time whether I have seen that episode before or not.
I am 32 years old (will be 33 this summer) and my husband is 37.  We are thinking about having a baby but we want to be sure to be prepared financially.  That being said, I am also aware of my age and I would really like to have a baby by the time I turn 35 if possible.   I have read your previous Q & A related to family planning and I have a good idea of the things we will need to purchase for a new baby.  My main question is what can do to best prepare for being on maternity leave.   We make a decent income but my employer does not offer top up for maternity leave so I will get the maximum EI benefit of about 800+ bi weekly.  My husband may take the last 6 months and he will get a little less than the maximum.    I have read your suggestion of living on this amount now to get used to the drop in income.  I am looking for suggestions as to how to do this.  I unfortunately still have about 34000 in student loans.  We have a smaller amount of other debt that I am sure we can take care of over the next few months prior to trying to get pregnant.  My big concern is being able to live, pay bills and have money needed for a new baby and still pay my debt while on maternity leave.  We are both overall fairly frugal we plan to cut out our gym membership and reduce our cable plan.  We have already reduced our eating out and entertainment.  Any other ideas as to how we could manage this situation and plan for a baby?

Gail says: 
Wow, cudos to you for thinking ahead and looking for ways to make this work.  The first thing to do is to use the money you're currently not spending (because you're pretending to live on your mat leave income) to get that "other" debt paid right off.  Then you'll want to stash away that "extra" money for two purposes:  to build up your emergency fund and to create a pool from which you can pay your student loans without impacting your much-reduced cash flow.  So if your monthly student loan payments are $500, you'll need to stash away $6000 for your year of mat leave so that you're not paying your student loans from what you're getting in mat leave benefits.   I take it you've made a budget.  Each time you find a way to save some bucks (like cutting cable) make sure you transfer this money automatically to your "baby savings account" so that you don't end up just reincorporating it into your cash flow and spending it.   You might also want to consider a couple of part-time jobs before you find yourself in the family way to build up that "student loan repayment fund",  if that's what it will take.
The best of luck to you.  You are about to embark on a wondrous adventure.  Have a ball!


F wrote:   
Hi Gail, you always say to pay off the highest interest rate credit card first and this is what we have been doing.  But what to do when you have a credit card that has a promotional rate for a limited time?

We have a balance of $15,000 on a credit card with 19.99% interest (I know!).  We have been offered a credit card with $10,000 limit and 1.9% interest for 9 months (19.9% after the 9 months).  We want to transfer $10,000 to the new card with the promotional rate and still have $5000 balance on the other card.

So, which one should we try to pay off first? Your help is much appreciated.  Thank you!

Gail says: 
You want to take full advantage of that lower rate, so I'd make the minimum payment on the $5000 card and put every extra penny I could scrape together on the promotional card to get it paid off before the interest rate went back up.  Then you can focus on the other card.  Hey, if you have to take a second job to get this sucker paid off in 9 months, do it.  It'll be worth it in the end.