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

Mortgage Insurance Protection – Get coverage on your own!

Posted by Frank Wiginton on Tue, Nov 15, 2016

I write these articles because I get sick to my stomach every time I see the media or a company mislead the public on a personal finance issue. The latest was an advertising supplement in the middle of the Globe and Mail business section. It was entitled “Mortgage insurance among ‘must-haves’ for first-time homebuyers” and written to look like a newspaper article and did not have an author’s name on it. For good reason, it made the claim that mortgage insurance was a must-have so buy it through your lender! Interestingly enough the article was produced by Genworth Financial Group who sell mortgages and yes you guessed it MORTGAGE INSURANCE.

I agree that people should put proper protection in place for their loved ones but not for their mortgage provider. I believe that you are far better off applying for your own life insurance protection through an independent insurance broker. To understand the reasons why see the article below.

Bank Mortgage Life Insurance: Who Is Protecting Whom?

Buying a house involves more than just looking through listings and visiting open houses. Somewhere along the way, purchasers must apply for a mortgage. I recently met with John* and Susan*, a married couple with two children, ages 3 and 1. They purchased a home, met with a mortgage representative from one of the Big Five Banks and received a $300,000 mortgage. They also opted for the bank’s mortgage insurance.

They told me that they answered no to the health questions and checked the box that read “we would like our insurance to start as soon as our application is approved”. They did this without as much as an afterthought. To them, having insurance meant that if one of them were to die, money would be paid out for the other’s use.

I explained to them that mortgage insurance may be cancelled by the bank if they move to another financial institution, if the mortgage is in default or paid off; and it may not be guaranteed at the mortgage renewal date. They admitted they were not informed of this. I continued to tell them that the bank covers only the value of the mortgage upon death. For instance, in three years time, if the mortgage is paid down to $220,000, upon death, the bank will only cover the decreased balance: $220,000. Meanwhile, the premium amount stays the same; it does not decrease in conjunction with the mortgage.

I told them to pretend that John chose to solely use the bank’s insurance and that three years from now, on his way home from work, he passes away from a sudden heart attack. Devastated and alone with two young children, Susan would contact the bank about the insurance, thinking that it would provide financial protection to her and the kids.

John looked uneasy and admitted that his dad passed away from a heart attack a few years ago. As well, John was diagnosed at the age of 9 with a heart murmur and answered NO to the question “have you ever had or been treated for heart disorder?” simply because he forgot.

I explained to John that the bank performs “Post Claim Underwriting”, meaning medical issues are explored upon claims (i.e. after a person dies). If John did die, his medical records would be obtained and a claim could potentially be denied because he had failed to disclose the heart murmur. This would result in Susan and her family not receiving any money from the bank, thus causing serious financial hardships for the family.

When insurance is applied for using a licensed Insurance Advisor/Broker, all due diligence is performed up front; thorough medical questions are asked and if required, a nurse visits your home or office to perform a physical.

The bank’s insurance product did not do what John and Susan thought they had hired it to do: financially protect the surviving spouse and family. Instead, it only protected the mortgage. Granted, the paid off mortgage is one less expense that Susan would have to worry about but with her not working, the family’s financial future could be in serious jeopardy.

With John’s income lost forever, Susan would have to find a job to pay for childcare, household expenses, daily bills, groceries, car payments, future education, outstanding debts, taxes as well as final expenses for John.

My clients are always advised to look at the bigger picture: insurance should protect more than just the mortgage on a home. When looking for a house, apply for insurance outside of the bank right away – you can lock into a rate at a younger age and continue to fund the policy without having to worry about “what if?” Not to mention, the policy is owned by you…it can follow you if lenders are changed.

Furthermore, structuring a proper insurance plan will allow you to pay a level premium for a set amount of coverage. If monthly premiums are $70 per month for $300,000 of insurance, this is the amount the beneficiary of your choosing will receive, not the bank.

In addition to dealing with a realtor, a mortgage representative, a home inspector, a moving company and all the other types of businesses that are needed prior to moving into a home, always include a licensed Insurance Advisor/Broker on that list. In fact, a number of my clients are mortgage brokers and mortgage representatives with the banks.

When the mortgage agent at the bank tells you it’s a good idea to buy the bank’s mortgage insurance and asks you to check the box reading “I/we would like our insurance to start: as soon as my/our application is approved”, check the “initial to waive Life Insurance” box instead. If the Bank or Mortgage broker asks why, you’ll already know the answer.

*Names in this article have been changed.

Tags: Mortgage, health insurance, mortgage life insurance, Financial Planning, Insurance, life insurance, mortgage insurance, mortgage protection, mortgage refinance, term life insurance quote, Debt

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

What Is A Budget and How To Get Started?: Budgeting 101

Posted by Frank Wiginton on Tue, Nov 15, 2016

The dreaded ‘B’ word! There is absolutly no reason to fear preparing a budget. I think the reason why many people do is that they feel it is a lot of work, they don’t really know how to do it, and those that have tried have never been able to keep it (likely because it was done wrong).

Yes! It does require some work. The good thing is that with today’s technology it is getting less and less.

So what is a budget?

Simply: a budget is a record or projection of all the money coming into the house and all the money going out of the house. Another name for it is a cash flow statement. This makes it easier to visualise. Money flows in and money flows out, and flows out, and flows out…

Why is a budget important?

A budget is paramount to financial success! You need to know how much you have and what it is being spent on to be able to prioritise spending and allocate funds towards different goals. Whether it is retirement, traveling, buying a new car/house/boat, the kids education, pay off credit card debt, or maybe a wedding – you need to understand where you will be able to get the money to pay for these things.

How do you get started?

First – prepare yourself that in order to prepare a good (i.e. accurate) budget you (and your partner) need to set aside 4-5 hours of time to complete it.

Secound – Gather up at least the last three months bank statements and credit card statements! ALL THE CREDIT CARD STATEMENTS! Not just the ones you tell your spouse aboutsmile .

Third – Use this Budget Worksheet as a guide to identify the various categories to seperate out your spending. It is important to understand how much you spend on various items so you can identify where you may be overspending and can cut back.

Forth – Start going through all your statements line by line noting the category that each one belongs.

Fifth – Start fillling in the spreadsheet to determine how much you earn and spend every month!

Sixth – Once you have tallied up the income and subtracted off the expenses ask yourself this: I SPEND HOW MUCH?!?!

Be sure to read The Most Common Budgeting Mistakes!

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

Tags: Budgeting, credit card, debt consolidation, Mortgage, Loan, Financial Planning, Debt, Budget, Line of Credit

Why get a financial plan?

Posted by Frank Wiginton on Tue, Nov 15, 2016

planningPeace of mind and a better quality of life are simple answers.

I have been asked many times “Why should I get a financial plan? What questions can I get answers to?”

Many are not even aware of the array of questions they have when it comes to their personal finances. When I sit and chat with people about finances and mention some of the area’s to address they frequently respond with “I never thought of that before!”

To get a start here are just a few of the questions that can be answered by preparing a proper financial plan.

A financial plan will give you the answers and solutions to the following questions:

  • When can I retire?
  • Will I run out of money?
  • What should I invest in?
  • How much do I need to save?
  • Should I participate in my company’s pension or RRSP plan?
  • Should I pay down my mortgage or contribute to my RRSP?
  • Should I contribute to my RRSP or the TFSA or both?
  • Should I borrow to invest?
  • Should I have a fixed or variable mortgage?
  • What can I do to reduce my taxes?
  • How much and what kind of insurance should I have?
  • What is the most effective way to transfer my estate to my children?
  • How should I set up and or structure my business?
  • What is the most effective way to give to charity?
  • Am I on the right track?
  • Am I taking too much or too little risk with my investments
  • and many more!

To start your financial plan or to learn how we may be able to help you please contact me.

Tags: Mortgage, Charitable Giving, certified financial planner, Financial Planning, RRSP, Insurance, Personal Finance, Investment Management, business health insurance, defined benefit plan, life insurance, Debt, Line of Credit, income splitting, Tax Planning

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