August 2013 Questions & Answers


P Wrote: I currently have about $25,000 in LOC debt, plus a $17,000 car loan. Recently I started a new job which came with a new company car. For the company car I only pay taxable benefit on the value of the car payments. However, it looks like I will have to sell my existing car for about $6,000 less than my loan amount.

The shortfall to pay out the loan would then go on my LOC. Is it still better to sell the car and use the savings to pay off the shortfall (11 month payoff), or try to increase my salary and give back the company car?

Gail Says: That company car comes with a BIG tax bill. You should find out how much more tax you'll have to pay if you accept the company car. If it's going to cut into your take home pay substantially (which if very well might) you may choose to decline and ask, instead, for a "car allowance" to cover the cost of using your vehicle for work-related travel.


K Wrote: Is the Canadian RSP more similar to a traditional IRA, or a 401K in the US? Any plans to have your new series, or even the old series, available online in the US? We got rid of TV. I just sent my daughter the link to your talk at Red River College, She goes to MIT, but is totally averse to numbers when it comes to her money. Money is so psychologically loaded, when it should be as simple as adding and subtracting. (She can't read a map either-I am convinced smart phones make smart people dumb.) She is grateful and will watch it this weekend. And you are completely right about our credit score system in the US. It's not a responsibility score, it's a sucker score.

Gail Says: Our RSP is like your IRA. We also have company pension plans for some workers that are like your 401Ks. The network decides whether to put stuff online so write to CNBC and ask them.


B Wrote: I have a quick question that I think a lot of former students may have. I have recently paid off my student loans ~ yeah for me! I have an RBC bank account as they were my loan provider - and I have not used that account for any else really, other than paying my student loan. I have had the account for roughly 20 years - I went to college 3 times - and it is in good standing.
Here is my question: I use two other banks for my daily and personal banking and I don't want to pay fees on an account I am not using regularly. Will it harm my credit score to close it? Should I consider keeping it open because of the history?
I don't own a car - will be buying one this year...and I currently rent, but I hope to own a house at some point.

Gail Says: Closing a bank account will not affect your credit history. Your "account" isn't reported on your history, only your "credit" use shows up there, so go ahead and close the account.


S Wrote: I have enjoyed many of your shows and have gone through a year of all my statements and set up my money jars. I have $11,000 in RSP. $160,000 mortgage with Manulife One, $60,000 in equity in my duplex. This is the only debt I have. I am living with my boyfriend and pay him a $400 a month for utilities as it is his house. I have a renter in my duplex. I have received $30,000 from my brother’s estate. I am thinking of putting $25,000.00 on my mortgage and saving $5000 for emergency fund. I am 55. My thoughts are to have the duplex paid off and that would be my retirement money. What are your suggestions? I am working full time with take home of $2200 net.

Gail Says: Sounds to me like you have a great plan. Well done on being so organized and clear-thinking. With very low living expenses I hope you're also maxing out your TFSA so you have some cash for retirement.


M Wrote: Hi Gail, you have so many tips on avoiding bankruptcy but I haven't seen any tips on restarting life after bankruptcy.
Discharging soon and I've worked out the math in paper, I am putting away $1,200 each month (more than 10% of our income) for ING savings, ING TFSA, regular bank savings, regular bank US acct savings, RESP, and increasing our work RRSP (our employer matches our contribution); add all that up and it comes up to $1,200. Does this look sufficient to rebuilding financial stability? What are wills and estate is this something we need to look into now that we have a 22 months old baby? Lastly, is obtaining a credit card to re-establish credit truly necessary? The BK was a painful process and we wish not to go back there so why rebuild credit? We are currently renters and looking to purchasing our own home in 5 years.

Gail Says: Now that you have a baby you definitely need a will and powers of attorney for both personal care and financial. You should also be looking at life insurance to make sure baby is protected if an income suddenly goes away. And while you're young, disability insurance is also much less expensive. As far as rebuilding your credit, you say you want to buy a home? You'll need a mortgage for that. And you'll need a credit history that's nice and shiny for that. BTW, after a bankruptcy that record stays on your file for 7 years, so don't set your sights on a home of your own too soon or you'll be disappointed. Get a credit card, a secured one if you must, and use it for your groceries and gas. Pay it off in full every single month. That'll get you back to rights in a few years.


C Wrote: Our mortgage is up for renewal this coming June 2013 at the TD Bank. We completed many upgrades to our home this past year including kitchen, bath, roof, soffits, fascia and some windows which we had the cash for about half of it and utilized $30,000 of an equity loan for the remainder. Our intent from the beginning was to roll any outstanding balance into our mortgage at renewal time. We currently have over 30% equity in our home. Our present mortgage is a Standard Charge Mortgage however if we refinance with TD we will be forced to use their only mortgage product right now, the Collateral mortgage. In your opinion would it be wiser to just roll over our existing mortgage at 2.99% with TD and pay off the equity loan apart from the mortgage or move it all from TD and consolidate with a mortgage elsewhere (broker)?

Gail Says: I am NOT a fan of the collateral mortgage, and I don't like the idea that it's the only option being offered by some lenders. Collateral mortgages allow lenders to change the interest rate and/or loan more money to qualified borrowers after closing. All you’ll likely have to do to trigger an increase in interest rate is miss a payment. That’s can’t happen with a traditional mortgage. But since the collateral mortgages are being registered with rates as high as prime + 10% (regardless of what they initially offer you), lenders will cover their potential losses by juicing the rates if they get a whiff of potential default. Another problem rears its ugly head at renewal. The Bank can offer you whatever rate they choose and your options are to suck it up or pay significant legal fees to get out of the collateral mortgage. Also be aware that under Canadian law a lender may seize equity to cover other debt you have with the same lender. So, in essence, you’re securing all your loans – be they credit cards, lines, car loans, or overdraft – that you may have with The Bank with your collateral loan.


J Wrote: I am 26 years old and about six months away from finishing a master’s degree. I have a student line of credit totaling $28,000. At present the interest payment is $108 per month (these are made on time without fail), but this will be raised to $200 per month shortly after I graduate. I have no other debt. I have a TFSA with $9,768 in it (it started out as a one-off $5,000 deposit originally and grew to its current amount over the past few years while I've been studying).

My question is how should I go about paying off my student loan debt and start saving? When I graduate and am able to start working full-time should I focus my efforts on paying off the student line of credit only, OR is it better to start making student loan repayments and start making contributions to grow my TFSA at the same time? Also, if the latter is the way to go, what percentage of my income should go towards debt repayment and to the TFSA?

Gail Says: When you graduate you'll want to focus most of your money on getting that line of credit gone before interest rates rise. But don't stop saving completely. I suggest you keep putting $25 a month into your TFSA and focus your energies on getting rid of the debt. Once the debt is gone, redirect the money you were spending to pay off debt to your savings until you feel like you've "caught up" your savings, and then split the diff, sending half to savings and the rest to your cash flow to have some much deserved fun.


V Wrote: I have a friend, whose husband is dying of cancer. He is 42, she is 36, and they have a 5 year old son. When he passes will she receive the death benefit, survivor benefit, orphan benefit and a percentage of her late husbands CPP? Some people say she will get all 4, but some say she will not get his CPP.

Gail Says: I'm not sure why anyone would say she wouldn't be entitled to benefits unless he hasn't been contributing to CPP. If he has, then she'll get the CPP death benefit, which is a one-time, lump-sum payment made to the deceased contributor's estate. If there is no estate, the person responsible for the funeral expenses, the surviving spouse or common-law partner or the next of kin may be eligible, in that order. She'll also get the CPP survivor's pension but it'll be cut back because she's so young. She'll get 37.5% of her husband’s retirement Pension, but since he is so young that may not work out to a lot of money. There's also a CPP children's benefit that is paid to a child that is either under age 18, or between the ages of 18 and 25 and in full-time attendance at a school or university.