Banks and credit cards

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kurtrules said:
And yes, not LOCs are bad (e.g. HELOCs)

Canada offers Smith's maneuver (look it up) .. back in 2021 when the BOC was 0% and prime was 1, HELOCs made a lot of people a lot of money.
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I’ve looked into it before and it doesn’t work with the type of HELOC that I currently have.

Must be a readvancable type of mortgage.

My broker advised against it simply because it’s leveraged investing. But I know plenty of people that did it and made out like bandits.

I’m too risk averse.
 
mimico_polak said:
I’ve looked into it before and it doesn’t work with the type of HELOC that I currently have.

Must be a readvancable type of mortgage.

My broker advised against it simply because it’s leveraged investing. But I know plenty of people that did it and made out like bandits.

I’m too risk averse.
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Imagine though
Borrow a couple 100 grand, put it all on Gamestop and make out like a bandit

(aka every "i couldve gotten rich" story)
 
LePhillou said:
Imagine though
Borrow a couple 100 grand, put it all on Gamestop and make out like a bandit

(aka every "i couldve gotten rich" story)
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My buddy took out 100k, put it all into a ridiculous amount (30+) of dividend paying stocks, and now is making $800-1000/month in dividends.

Mind you 30+ in stocks is a lot to track.
 
I mean that's the thing, i dont have the nerves or patience to track that many.

I do have a friend who's trying to build his wealth that way, he goes deep into derivatives (options) and leveraged investing and stuff. Need a mix of knowledge and luck.
 
mimico_polak said:
I’ve looked into it before and it doesn’t work with the type of HELOC that I currently have.

Must be a readvancable type of mortgage.

My broker advised against it simply because it’s leveraged investing. But I know plenty of people that did it and made out like bandits.

I’m too risk averse.
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Fair enough. It also depends on time horizon. Not advisable if you need the money in the short term.
 
I’m going to sound like my mom , but there is no free lunch . For as many cashed that cheque , an equal amount F’d thier retirement timeline out a decade . Don’t spend more than you make , learn to love the car that’s in the driveway, not on a lot. Vacations are a treat you pay for when you can pay for them, financing a vacation is not actually a vacation, it’s adding work . Credit is an excellent tool to augment your life , not finance your life .


Sent from my iPhone using GTAMotorcycle.com
 
crankcall said:
I’m going to sound like my mom , but there is no free lunch . For as many cashed that cheque , an equal amount F’d thier retirement timeline out a decade . Don’t spend more than you make , learn to love the car that’s in the driveway, not on a lot. Vacations are a treat you pay for when you can pay for them, financing a vacation is not actually a vacation, it’s adding work . Credit is an excellent tool to augment your life , not finance your life .


Sent from my iPhone using GTAMotorcycle.com
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This 100%
 
mimico_polak said:
My buddy took out 100k, put it all into a ridiculous amount (30+) of dividend paying stocks, and now is making $800-1000/month in dividends.

Mind you 30+ in stocks is a lot to track.
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For real. That's about $3K in each stock.

Also, an average of 10-12% is quite the dividend payout. :oops: These aren't blue chip stocks he's investing in - probably lots of mines in his portfolio.

Then subtract $475 each month (5.7% carrying cost @ current HELOC rates) = $325-$525/month.

Then taxes. If he's in a higher bracket, he's probably looking at ~$200-$350/month net, accounting for carrying cost deductions and whether they're eligible dividends or not.

Not bad.

I'd be worried about the risk factor on the capital though. But spread over 30+ stocks, unless they're all in the same sector, he's probably doing okay there.
 
Lightcycle said:
For real. That's about $3K in each stock.

Also, an average of 10-12% is quite the dividend payout. :oops: These aren't blue chip stocks he's investing in - probably lots of mines in his portfolio.

Then subtract $475 each month (5.7% carrying cost @ current HELOC rates) = $325-$525/month.

Then taxes. If he's in a higher bracket, he's probably looking at ~$250-$350/month net, accounting for carrying cost deductions.

Not bad.

I'd be worried about the risk factor on the capital though. But spread over 30+ stocks, unless they're all in the same sector, he's probably doing okay there.
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He dumped it all into his TFSA. Doesn't trade it, and just holds long term so there's no eyebrows raised at CRA.

Been working well for him, his earnings were lower when interest rates shot up, but he was averaging $300-400/month income at the highest rates after interest (give or take).

Overall...more balls than I have to do that...and I lost one to cancer, so there's that.
 
Lightcycle said:
Ah. That $100K number makes sense now. That's roughly the max TFSA contribution since its inception.
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Yup. I don't ask too many questions, and I have the list of his investments somewhere in my inbox.

Good for him. He didn't tell his wife...thankfully it worked out.

But it did work, and he's cranking on paying back the loans.

My plan was to take 10k, invest in TFSA, pay down 5k, add another 10k, and then rinse and repeat.

I'm just too chicken $hit to do it.
 
mimico_polak said:
Yup. I don't ask too many questions, and I have the list of his investments somewhere in my inbox.

Good for him. He didn't tell his wife...thankfully it worked out.

But it did work, and he's cranking on paying back the loans.

My plan was to take 10k, invest in TFSA, pay down 5k, add another 10k, and then rinse and repeat.

I'm just too chicken $hit to do it.
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You got me thinking now, and I think I made an incorrect calculation.

An average 12% yield just doesn't sound correct to me, especially over 30+ stocks.

He must have DRIPed those divvies over a few years and $800-$1000 is his current return on his initial $100K investment, compounded over time. Even if the yields remain the same, his payouts will keep on increasing with every payout. That Tax-Free growth really helps in that respect.

Dual edged sword though. Carrying costs on TFSA can't be deducted.

In any case, good on him for taking the risk. Nothing ventured, nothing gained.
 
I helped a relative who was maxed out on 3 cards and paying all sorts of fees and penalties every month to the tune of $100 - $150, aside from interest.

Couple of things............

* Always pay the minimum payment. Failing to do this means a financial penalty. Make this payment manually initially and contact bank to set up an automatic payment for the minimum payment so you never have to worry about it in the future.
* There is a penalty for exceeding the authorized limit of the card. By the time you get your statement you have also exceeded your limit in the next statement period as well. Pay down this card so you're under the limit and manage new spending so you remain under the limit. If you have multiple cards over the limit focus on paying them down as above one by one to minimize fees.
* Avoid doing cash advances from your credit card. Interest is payable immediately at a higher rate and also payable until until the full balance is paid off. Also, there are fees for making a cash advance. Don't take out $40 four or five times a month as you'll be paying $5 - $8 per transaction.
* Once the fees and penalties are under control there are several methodologies for paying off credit cards. We elected to pay down the card with the highest interest rate first.

The other critical thing, of course, is to look at the actual spending line by line to determine what can be eliminated. The amount of funds spent on discretionary items was very high. Starbucks, fast food, dinners out, clubs, clothes etc......... Presenting a credit card was fast and easy and the payable balance went up dramatically month by month until it all collapsed and realization kicked in. It took 30 months to pay everything off.
 
raginduck said:
It's my understanding that you risk having the CRA rule that your home is no longer exempt from the capital gains tax.
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The Smith Maneuver does not remove your primary residence Capital gains exemption.

This is not new or novel, Smith Maneuver is what investors do when they borrow money against their house to buy an investment rental property.

It can also be applied to any investment that is supposed to generate income, but not to investments intended to generate capital gain.

In today's investment climate, fit's only building their property base that would think of using Smiths.
 
Lightcycle said:
You got me thinking now, and I think I made an incorrect calculation.

An average 12% yield just doesn't sound correct to me, especially over 30+ stocks.

He must have DRIPed those divvies over a few years and $800-$1000 is his current return on his initial $100K investment, compounded over time. Even if the yields remain the same, his payouts will keep on increasing with every payout. That Tax-Free growth really helps in that respect.

Dual edged sword though. Carrying costs on TFSA can't be deducted.

In any case, good on him for taking the risk. Nothing ventured, nothing gained.
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If he's getting 12% on a set it and forget it's a dividend package, you need to share his name with me!
 
Mad Mike said:
If he's getting 12% on a set it and forget it's a dividend package, you need to share his name with me!
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Lots of stocks yield 12% divvies... right after getting a massive haircut due to poor outlook. And right before cutting their divvies.

Case in point, BCE is sitting at 12% dividend right now... after a 33% drop in stock price.

And you could argue that BCE *was* one of those set-it-and-forget-it stocks. Until it wasn't...
 
ReSTored said:
I helped a relative who was maxed out on 3 cards and paying all sorts of fees and penalties every month to the tune of $100 - $150, aside from interest.

Couple of things............

* Always pay the minimum payment. Failing to do this means a financial penalty. Make this payment manually initially and contact bank to set up an automatic payment for the minimum payment so you never have to worry about it in the future.
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There are 2 ways to do this:
1) Have the bank take the payment, they will usually do it 21 days after the statement cycle date.
2) A better solution for most people with credit trouble is to divide the min monthly (you may need to calculate that) and arrange for an equal portion to be paid automatically on paydays.
ReSTored said:
* There is a penalty for exceeding the authorized limit of the card. By the time you get your statement you have also exceeded your limit in the next statement period as well. Pay down this card so you're under the limit and manage new spending so you remain under the limit. If you have multiple cards over the limit focus on paying them down as above one by one to minimize fees.
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Call your bank and ask them to disallow over-limit spending for your account. Could be embarrassing but save the $30+ mo fee.
ReSTored said:
* Avoid doing cash advances from your credit card. Interest is payable immediately at a higher rate and also payable until until the full balance is paid off. Also, there are fees for making a cash advance. Don't take out $40 four or five times a month as you'll be paying $5 - $8 per transaction.
* Once the fees and penalties are under control there are several methodologies for paying off credit cards. We elected to pay down the card with the highest interest rate first.
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Ask your bank to exchange your credit card limit for consolidation term-loan credit. This will be a way lower interest rate and will reduce your balance to zero over time. Most banks let you have a low-limit credit card and term loan.
ReSTored said:
The other critical thing, of course, is to look at the actual spending line by line to determine what can be eliminated. The amount of funds spent on discretionary items was very high. Starbucks, fast food, dinners out, clubs, clothes etc......... Presenting a credit card was fast and easy and the payable balance went up dramatically month by month until it all collapsed and realization kicked in. It took 30 months to pay everything off.
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Bingo!
 
Lightcycle said:
Lots of stocks yield 12% divvies... right after getting a massive haircut due to poor outlook. And right before cutting their divvies.

Case in point, BCE is sitting at 12% dividend right now... after a 33% drop in stock price.

And you could argue that BCE *was* one of those set-it-and-forget-it stocks. Until it wasn't...
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I'm looking for the flock of 30 unicorns @mimico_polak speaks of -- the ones that never lose value!
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