Frankly Speaking

Debt Management

Posted by Frank Wiginton on Tue, Nov 15, 2016

As a New Year begins and we all think about resolutions and set new goals be sure to have “paying off credit cards” at the top of the list!

After all the Christmas decorations are taken down and the first set of batteries have died in the kids toys is about the time when your credit card bill arrives in the mail. Take a deep breath, open it, and resolve to tackle your debts once and for all.

The first step is to stop accumulating debt! You have all heard the saying “Don’t buy it if you don’t have the money!”

Build a budget! Start by looking at where you spend all your money. Collect up all your bank statements and credit card bills for the last three months and start identifying where it all goes.

Put yourself on a cash diet. Most people have no clue how much pocket-money they spend. Start with $40 in your pocket on Sunday night. That is all the money you have to spend for the week on discretionary items such as lunches, coffee’s, magazines, taxi’s, etc. So if by Wednesday lunch time you have run out of money you don’t have any more money to spend until the following Sunday night. This will definitely help you to think about spending before you do.

Money is Finite if you spend it over here – you don’t have it to spend over there. Decide if what you are going to purchase is more important to you than the other things you wish to purchase. Rather than buying that top you may wish to take a beach vacation or get a new car.

Is it a Want or a Need? Every time you pick something up when you are out shopping, stop and ask yourself “is this a want? or a need?” if it a want ask yourself “do I want this more than I want a the beach vacation, new car, or being debt free?”. If it is a need ask yourself “does it have value? or can I buy that same top over at Winners for 30% less?”

If you have debt, here are some cardinal rules to help you get debt free:

1) Pay out highest interest debt first! Maybe you have a couple of credit cards with balances on them at 19%, a store credit card 26%, a personla loan from the bank 9%, a line of credit 7.5%, and a mortgage 5%. Start by listing them ALL on a piece of paper with the interest rate from highest to lowest. See example below. Then be sure to pay the MINIMUM on all the debts and on time (more on these later). Then with any extra income left over be sure to apply it all to the one with the highest interest! For example – lets say you have $2000 a month for paying your debts and you go through and write them all down and it looks like this:

Type Interest Rate Balance Min Payment
Store Card 26.0% $1,100 $50
Visa 19.0% $3,800 $114
Master Card 19.0% $2,700 $81
Loan 9.0% $12,000 $218
Line of Credit 7.5% $8,500 $170
Mortgage 5.0% $176,000 $950
Total   $204,100 $1,583

Once you have paid your Min Payment on all debts you will have $427 left over. Take that full amount and put it directly against the store card. This will have you pay out the highest intered card the fastest and save you thousands of dollars in interest!

2) Put your credit cards on ice! If you carry a balance from one month to the next on a credit card you will lose your grace period. If this happens call the credit card companies and ask them how much you have to pay to pay them off in full including all interest. Instruct them to make a note that you will be doing that, that day. Once you have paid them off put credit card in a block of ice in your freezer for two full months! You do this because if you use your credit card at any point in the next two months you will be charge interest starting from the moment you swipe that card. You lose your 20 day grace period until you have gone two complete billing cycles with payments in full.

3) Watch out for rocketing interest rates Many card companies will increase interest rates if you are late with your payments. Be sure to ALWAYS make at least your minimum payment ON TIME. Once you have been late or missed a few payments your lower interest rate cards that you thought were 9% could be as high as 36% or even higher!

4) Lower your limits. Many cards will increase you credit limits every time you use your cards to their limits. This may be useful when you are trying to purchase things but can cost you thousands of dollars in interest charges. Fortunately there are plans to restrict this practice. Pick up the phone call the card company and ask them to reduce your limit to a more manageable level.

5) Avoid taking cash advances. Either from payday loan companies (almost the worst) or from your credit cards. The interest charges start right away and are always very high. Take money from lines of credit, personal loans, or Mom!

6) Avoid promo gimmicks. If you have ever been to a hockey, baseball, or football game, or even just walking through an airport; you may have been tempted or enticed into signing up for a credit card to get a team hat, shirt, towel, or travel rewards. Be careful! Even though you might not use the card – every time you apply for a card it reduces your credit score which ultimately can increase interest charges on loans.

Even with all this advice you may want to get some additional help. Go to www.creditcanada.com They are a leading Canadian charity that provides money management and credit management counselling and education services that help individuals and families prevent and respond to financial difficulties.

Speak with spouse and family and work together as a team to tackle the debt. Ask your financial advisor and put a plan together to consolidate and payout the debt systematically.

Good luck!

Frank

Tags: Mortgage, interest, Credit Canada, creditcanada.com, Payday loan, payday loans, Loan, Financial Planning, cash advance, resolutions, Debt, Line of Credit

How To Effectively Pay Down Debt!

Posted by Frank Wiginton on Tue, Nov 15, 2016

If you have debt and are currently reading this you have already accomplished step 1.

Step 1 – Make the decision to tackle your debt once and for all!

This is a critical step to getting your debt under control. In our consumer based, got to have the latest STUFF, no matter what the costs, society it is no wonder many are living beyond their means and racking up the debt. So if you are ready to truly deal with your debt and give yourself a better quality of life repeat after me: I have more than enough stuff! I want rid of my debt, high interest charges, stress, and frustration! I AM READY FOR A BETTER QUALITY OF LIFE!

Now repeat it again!

Step 2 – Make a list of ALL your debt!

Gather up all your bank statements, credit card statements, store credit, car loans, personal loans, lines of credit, mortgage, etc. Now on one piece of paper (if it is a long list use legal length paper) or in a spreadsheet list each creditor, the amount outstanding, the minimum payment, outstanding available credit, and the rate of interest. If you don;t know or can’t figure out how much interest you are paying – then pick up the phone call them and ask them to tell you! If you have a “DO NOT PAY FOR 18 MONTHS” kind of loan then learn how much the interest is and be sure to pay it all off before it comes due.

EXTRA: If at this point you have debt payments that total more than 40% of your gross income, you should contact Credit Canada at 1-800-267-2272 or visit their website at www.creditcanada.com . They can help educate and organize you to pay off your debt. They will show you how to communicate with your creditors to stop interest charges and reduce your payments. They can also help you to protect your credit rating and prepare to the future.

Step 3 – Organize the debt from highest interest to lowest interest

Rewrite or sort the spreadsheet from highest interest to lowest interest. Example:

Creditor Amount Outstanding Minimum Payment Available Credit Interest
Department Store Card $      2,200.00 $     66.00 $ 300.00 28.0%
MBNA Card $      4,850.00 $   145.50 $ 250.00 24.5%
Master Card $      3,300.00 $     99.00 $ 700.00 19.9%
Visa $      5,275.00 $   158.25 $ 725.00 19.5%
Personal Loan $     11,000.00 $   220.00 $     - 12.5%
Line of Credit $       8,850.00 $   265.50 $ 1,150.00 9.5%
Car Loan $     14,825.00 $   450.00 $      - 6.5%
Mortgage $   248,000.00 $1,250.00 $  12,000.00 4.8%

Step 4 – Pay out highest interest debt first!

Be sure to make the minimum payment on all debt first. This will help to protect your credit rating. Then any money you have left over take and put it all against the highest interest debt to pay it down as quickly as possible. Now look at the bottom of your spreadsheet where you have listed the debt with the lowest interest rate. Do you have any available credit at these lower interest rates? If so I want you to max out these accounts to pay off the higher interest debt as soon as possible.

Step 5 – Close your credit!

For many once you have paid off the debt it is far too easy to rack it back up! Once you have paid off the debt (highest to lowest interest) close the credit. This will help you in the future to qualify for other credit, improve your credit score and make it easier for you to stay on track for debt elimination.

Be aware that for many it may take four or five years to payout debt. The secret is that once you do start and you see those balances going down rather than up it will make you feel better and help motivate you to stick with it. By using the services of a credit counselor you may be able to save thousands of dollars in interest and having someone to talk to and work with you to accomplish this goal can make all the difference. Call or go to Credit Canada’s website www.creditcanada.com to learn more. Be sure to check out a number of great tools they have on their site that can help you to pay off your debt faster and save you more money http://creditcanada.com/financialtools.asp

Watch for my book “One Day A Month To Financial Success” due out October 2011!

Tags: Budgeting, credit card, debt consolidation, Mortgage, interest, Credit Canada, creditcanada.com, Loan, Financial Planning, car loan, Credit Cards, financial tools, Debt, Budget, Line of Credit

The 4 Most Common Budget Mistakes!: Budgeting 101

Posted by Frank Wiginton on Tue, Nov 15, 2016

When building a budget many people get to the end of the process and are surprised by the amount of money they spend, and or are surprised by how much money they should have left over every month! This is primarily due to the fact they are not calculating their budget properly.

Mistake #1 – Not everything is paid or charged on a monthly basis!

This is the biggest error. If you get paid $2000 bi-weekly you don’t make $4000 a month! You actually make $4333.33 a month! Your hydro bill comes every two months so if you didn’t account for it in your monthly budget you will be short $200 in your budget to pay for it. If you did account for it but included the entire amount in that month, your budget will show you spending more than you really are!

Solution: Identify how often something is paid – to you or by you!

Once you have identified this apply the following formulas to determine the monthly budget amount:

Weekly = $amount  X  52  /12

Bi-weekly = $amount  X 26  /12

Monthly = you don’t need to do anything here just plug it into your spreadsheet

Semi-monthly = $amount  X  6  /12

Quarterly = $amount  X  4  /12

Semi-Annually = $amount  X  2 /12

Annually = $amount /12

Mistake #2 – Not all pay cheques are equal

Many people who have salaried positions will have an easier time with this. Although there are still mistakes made. The most common is that your deduction for Employment Insurance and Canada Pension Plan max out at a certain point (depending on your income). So if you used pay cheques from the first part of the year to calculate your income, you may have underestimated the amount of income you have coming in. Bonuses, commission income and irregular hourly work can also throw a wrench into the numbers.

Solution: Use last years tax return to identify exactly what income you had.

This won’t work for everyone as variable income is hard to predict but try to identify how much you expect to make in a year and divide it by 12.

Mistake #3 – Double counting.

This is typical when people have money taken off their pay cheque for pension or RRSP or other savings. They will tend to list it again when they fill out their budget as it is top of mind! Other examples are when you include eating out or ordering in under entertainment, but also under “food” (i.e. groceries).

Solution: Be sure to start by categorizing each expense only once as you go through your credit card statements and bank statements. Do not start filling in the budget spread sheet until this is completed. If there isn’t a categorie that it will fit into than create a categorie for it. Even more so – be patient and dilligent in preparing this important document.

Mistake #4 – Not including everything!

Without going through a full years worth of statements, it is very easy to miss or forget about some items. Especially those that you only pay once a year! Maybe it is an annual dividend that is paid, or association membership, professional dues, or annual insurance premiums. What ever they are they can really throw a budget out of whack.

Solution: Build an annual payment section to your budget!

This may include memberships, dues, insurance premiums, magazine, newspaper, and website subscritptions, car registration, kids school fee’s, etc.  Once you have grouped them all together take the total and divid it by 12 to add to your monthly budget.

Watch for my book “One Day A Month To Financial Success” due out October 2011!

Tags: Budgeting, credit card, debt consolidation, interest, Financial Planning, Personal Finance, Debt, Budget

What is a financial plan?

Posted by Frank Wiginton on Tue, Nov 15, 2016

I have met many people who tell me that they have a financial plan. When I ask to see it they say ” I don’t have it written down.” or they will show me one or two pages with a chart or graph showing the asset allocation of their investment assets. When I start asking question about their taxes, goals, real estate, estate plan, insurance, etc. they inevitably have little to no answer.

So what is a financial plan? and what should it cover?

Let’s start by saying what a financial plan is not!

A financial plan is not: a two page document that you get after spending 15 minutes sitting with someone at the bank that tells you how much you have to put away every month into the banks balanced mutual funds. AT BEST this may be considered a retirement goal plan – but not really.

A financial plan is not: spending an hour or two with an investment advisor at a brokerage firm review the investments you have and building a new investment portfolio strategy after answering a two page questionnaire to determine your ‘risk profile’. AT BEST this may be considered an investment plan – but not really.

A financial plan is not: sitting with an accountant to figure out how to reduce your taxes this year. AT BEST this is a tax plan – but not really.

A financial plan is not: working with a life insurance agent to get a bunch of different insurance policies and segregated funds that claim to give you retirement at 55. AT BEST this may be a combination of an investment plan, and a protection plan – but is REALLY not!

A financial plan is not: dealing with an advisor whose only solution is to offer you investments in mutual funds and GIC’s and talks of big returns! AT BEST this is an investment plan – but not really.

A financial plan is definitely not: buying lottery tickets, getting advice from Dad, hoping to sell a business, flipping real estate, gambling at the casino, or trying to pick the next Google stock! AT BEST this is entertainment – but not really.

Financial Planning is a process where you and a Register or Certified Financial Planner (RFP, CFP) go through many aspects of your life and your finances to identify and change areas to improve and achieve the goals set-out.

Through preparing a financial plan you will:
Identify and understand where and what you spend your money on

  • Understand, organize, and structure debts efficiently
  • Understand where and what your money is invested in
  • Set goals that are specific, measurable, attainable, realistic, and time limited
  • Learn effective way to reduce your taxes every year and over your lifetime
  • Develop solutions to further reduce taxes and increase personal wealth
  • Identify areas of personal risk and develop solutions to protect against them
  • Determine investment returns needed and structure asset allocation
  • Identify and structure income efficiently to reduce taxes
  • Develop solutions to protect and reduce liability
  • Learn and understand effective ways to donate to charity
  • Learn how and when to draw income from various sources such as RRSP, CPP, trusts, etc.
  • Develop income splitting strategies to reduce taxes and avoid government benefit clawback.
  • Learn ways to get money out of RRSP’s effectively tax free

Most importantly: Achieve peace of mind through having a solid understanding and confidence in your finances!

Tags: Budgeting, Mortgage, Charitable Giving, interest, health insurance, certified financial planner, employee benefits, investing, Financial Planning, RRSP, Insurance, Rants, Investment Management, Debt, Budget, benefits, Tax Planning, tax deferral