Debt Management

Banger

Banger

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I was wondering if anyone can share some suggestions on consolidating credit card debt and such. I have 2 credit cards with high interest that I want to pay off sooner so that I can start focusing on purchasing a house in the near future. I have a loan with Prudent Financial that will be paid off this year and I am wondering if I should expand on it, use it to pay my credit cards and pay off the loan at a cheaper interest rate. Managing finances is my weakness and I am sure there are people who know far better systematic ways to pay off debt cheaper and faster then myself.
 
Banger said:
I was wondering if anyone can share some suggestions on consolidating credit card debt and such. I have 2 credit cards with high interest that I want to pay off sooner so that I can start focusing on purchasing a house in the near future. I have a loan with Prudent Financial that will be paid off this year and I am wondering if I should expand on it, use it to pay my credit cards and pay off the loan at a cheaper interest rate. Managing finances is my weakness and I am sure there are people who know far better systematic ways to pay off debt cheaper and faster then myself.
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Which banks are the credit cards with? Can you see if they have any other credit cards with lower interest? If they do then switch the card to those cards. If it has an annual fee then just pay it because in the end you will save more money.

Another suggestion is to get a line of credit if you are able to get one. If you can get someone to co-sign and pay off the credit cards with it you can pay off debt with a low interest rate.

Lastly, see if you can qualify for an MBNA master such as smart cash or platinum plus. A lot of these cards allow 1% or 0% balance transfers of upto $5000 or more for 1 year. This may bring you some relief as you pay off debt.

Afterwards make sure you have a line of credit that's available to you which does not exceed 7%. This way if you do need money temporarily you have that option instead of paying high interest rate with some of these cards.

General rule is if you can pay off the entire balance then don't use the credit card.

Also, start putting away 5% of your gross income as an emergency fund. This should be mandatory rule you have that will help bring you financial stability.

Edit: If you want to save money, the best way to save money is to cut back on entertainment items. If you can cut out on eating out, buying book/music/misc. things for 6 months you'll be amazed at how much money you have been able to save. If it isn't a necessity then don't buy it. Coffee isn't a necessity, neither is that cute top or something you're craving. Get out of debt first!
 
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^^ sounds like good advice. Ultimately you want to find a way to consolidate your debt at the lowest interest rate possible and then put in place a disciplined regiment to make regular payments towards paying it off. You should also be putting money away so that you aren't perpetuating the debt cycle by dipping into credit when you need money. High interest rates result in you paying a lot more over the long run and credit cards generally have the worst interest rates barring special limited offers that are meant to lure you in and then trap you at the higher rate if you don't manage to pay off the debt by the time the "special interest rate period" ends.
 
Banger said:
I was wondering if anyone can share some suggestions on consolidating credit card debt and such. I have 2 credit cards with high interest that I want to pay off sooner so that I can start focusing on purchasing a house in the near future. I have a loan with Prudent Financial that will be paid off this year and I am wondering if I should expand on it, use it to pay my credit cards and pay off the loan at a cheaper interest rate. Managing finances is my weakness and I am sure there are people who know far better systematic ways to pay off debt cheaper and faster then myself.
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Firstly,

Yes, consolidate into the lowest interest rate loan you can get. There are CCs that offer a 5 % rates (with no rewards) and lines of credit you can usually get about 4.5%. (may be higher depending on your credit).

Ditch your rewards cards, I use them because I always pay off every month, but if you carry any balance whatsoever, rewards cards are a ****** deal.

With respect to saving.

Consider throwing your savings into a TFSA or a RRSP account, the main reason for this is that its a pain to withdraw. That helps you keep it where it belongs.

And lastly

control your spending, this isn't really about tips or tricks, its just about your lifestyle. I personally have a house and a wackload of savings, but i also drive a car thats 12 years old and worth 6 grand ( maybe ).
 
Ideally you don't want to go into debt to pay off debt, but if your loan with Prudential has a lower interest rate, then this may your best option right now. Also, consolidating your loans into one payment can be easier to manage and focus on, instead of throwing your money here, there, and everywhere trying to get a handle on your finances. Once you've consolidated, do as others have suggested and stick to a monthly payback plan that is manageable (i.e. you aren't being to be broke every month) and has a clear time frame.

Credit cards can be a ***** (and I'm certainly not immune). With the high interest rates, I *always* underestimate what my balance is. Unless you can pay your balance off each month, don't use it at all. My wife and I have a 6% line of credit that we use to make bigger purchases, which we then slowly pay off afterwards.
 
My wife (banker for over 40 yrs) says you are looking in the right direction.Who is "Prudent"? You might be better off at a bank.Check the interest rates.
 
Consolidate your debt into the lowest-interest credit you have (or can get)... it's fairly straight forward, no?

And if you're gonna be a first time home buyer, start throwing your savings into an RRSP now.
 
Rules for getting out of debt (I've been in debt because of school for a long time but it's shrunk significantly because I've made this religion)
1. Find out what your total minimum payments are right now. Can you afford that, even if it hurts your lifestyle? If no then you are going straight to bankruptcy, whether now or later. You can attempt debt consolidation or credit counselling, but that will probably delay the inevitable. Known fact: people who consolidate usually go further into debt because it's a stop gap measure that doesn't change behaviour.
2. Recognize debt is a curse and it must be killed (forget the good debt/bad debt arguments for now. If you have bad debt, which credit cards, vehicle financing, etc is, you don't get to talk about good debt).
3. Good debt is only debt for a mortgage you can afford and borrowing for investment/business purposes. It produces income that exceeds it's cost.
4. Do not accumulate any further debt. Change whatever parts of your life that you have to do this. Clothing, snacks, gym memberships, all that stuff you drop on the card without thinking, forget about it.
5. Make your minimum payments.
6. Take all the extra money and put it to the debt with the highest interest rate.
7. If you have cash sitting in a TFSA earning interest, use that to pay off debt NOW. You can put it back in your TFSA next year and it is not earning as much interest as you are paying.
8. If you have any room on lower interest cards/accounts that let you, pay off the higher interest with that, but still hammer at your debt. Once you wipe out one, it provides great motivation for wiping out the next one.
9. Pursuant to above, get an MBNA no fee cash back card. If they like you will they will send you cheques for 0% +1% fees. That fee works out to 12% per year if you pay off too fast (this is math so I'm leaving it out), but if you just make the minimum payments on that until the special offer expires, it's pretty much just 1%. Suckers pay the 1% and pay it back right away. Don't use this card for anything but paying off higher interest debt.
10. Do what others said above. Try to get lower rate and lower fee cards etc. Negotiate a line of credit. If you have a mortgage at your bank, they will probably get you under 7%. It's good to have in emergencies.
11. Forget rewards cards until you are out of debt. Interest and fees cost way more than any rewards are worth. I have rewards cards, but I had them before I was in debt. They are not my primary cards. I don't know how many times in the past I bought dumb **** at Metro on my Amex just because they gave me bonus Airmiles. Airmiles for one are not worth the difference you pay at Metro.
12. On that note, if you do hit expensive stores like Metro or Sobeys, switching to NoFrills or something is a quick solution. Beans and rice until you are out of debt my friend.
13. Do the math on every purchase. I'm aware most people hate confronting the cold hard numbers, but you will get it with practice. My example, today I was buying chicken breast, so I sat there and figure out which particular pack gave me the most meat per dollar. Pull out your phone if you can't do it in your head, it has a calculator.
14. Further to that, look at every purchase you are about to make. Is it a want or a need? HINT: if you "need" something because it will make you feel better, it's actually a want. If you don't buy it, then your life will end shortly, then it is a need.

That's all I can think of for now. That all comes from my own experience and I intend to be out of debt some day...
It's all about the interest rate. It has been for thousands of years.
 
I have never bought anything in my life on my credit card that I did not immediately cover from my debit account. The only reason I have a credit card is so I can buy things online and have protection as well as the perks that come with particular cards.

I was never raised to spend money I didn't have. I actually cannot even fathom how some people can live day to day putting purchases on a credit card that can't be immediately re-imbursed from their debit account. How are people ok with paying 19% on some **** they don't really need?

Amazing.
 
Some good advice and you don't have to be making a lot of money to buy a house in the future. It's all in how you spend your money. I own 2 houses, drive a 1993 Nissan Sentra in the winter, put fire and theft on summer and ride my scooter. Insurance is less than $200 for both. Gas is neglible. Don't eat out often but can still enjoy life with coffee and beer once a week.

I've been carrying 30% balance on my cc but slowly paying it off. As long as you're comfortable paying the interest a month having a balance on the cc is not the end of the world. Just pay it off to a manageable level and save your cash for the downpayment on the house. That's how I got my 2nd house.

It's like how government operate. First try to control the deficit and any surplus goes to paying off the debt.

OpenGambit said:
Firstly,

Yes, consolidate into the lowest interest rate loan you can get. There are CCs that offer a 5 % rates (with no rewards) and lines of credit you can usually get about 4.5%. (may be higher depending on your credit).

Ditch your rewards cards, I use them because I always pay off every month, but if you carry any balance whatsoever, rewards cards are a ****** deal.

With respect to saving.

Consider throwing your savings into a TFSA or a RRSP account, the main reason for this is that its a pain to withdraw. That helps you keep it where it belongs.

And lastly

control your spending, this isn't really about tips or tricks, its just about your lifestyle. I personally have a house and a wackload of savings, but i also drive a car thats 12 years old and worth 6 grand ( maybe ).
Click to expand...
 
I put plenty of stuff on the credit card. But, the account is set up to automatically pay the entire balance every month. This way I am using the credit card interest free for a month or so. It's mostly a convenience thing to do it this way but it also allows me to use the benefits of the card - extended warranty, insurance on rental cars, etc. I've always done this from the first time I ever got a credit card. I hate debt.

Get your money's worth out of anything that you buy. I pay plenty to sustain the motorcycle passion. But my car, which is the first one I ever bought new, is approaching 400,000 km, and I'm going to keep right on driving it as long as it remains reliable.

Big reasons why people are burdened with debt ... living in a house that is beyond their means (just because the bank will give you a mortgage, doesn't mean you should take it), and leasing a new car every three years whether they need it or not. And that's on top of the everyday stuff, like eating out all the time, overspending on Starbucks or cigarettes or whatever, etc.
 
Develop a budget. Track your expenses and then see how much you are spending per month on food, shelter, clothing, personal services, entertainment, and whatever other categories you can identify. Look for ways to boost savings by either making more money or cutting your expenses. Check out Gail Vaz-oxlade's sight for budgeting advice and tools.

Make a plan. Not just your budget but think where you want to be in one year, three years, five years, and so on. Try to extrapolate what you will need to retire on based on your budget. You should look for a financial planner but stay away from the ones that sell particular products. They are commission sales people and they will try to sell you high fee mutual funds. Kill them; eat their young; cut out their tongues. OK, I am kidding but don't beleive a single word that a mutual fund salesperson says. Investor's Group is the worst. TD has a fairly good service but be careful about what they recommend. Always look for the lowest fees and the highest returns.

If you are getting married and want to raise a family, then a house is not a bad idea but to be honest, houses are very expensive and you actually come out further ahead and will be able to retire sooner if you rent instead. You also have the flexibility to move to where jobs and opportunities are. You are going to get a lot of advice to buy but you should really crunch the numbers. You have to allow for maintenance of a house whereas with rent, that is already factored in. For maintenance, depending on how much you do yourself, you could be spending thousands of dollars per year. For example, a new roof can cost eight to ten thousand dollars on a suburban bungalow. If you need a new furnace, you could be looking at six to ten thousand dollars.
 
My grandfather has one rule in life, if you don't have the cash for it don't buy it.
 
Freestyle72 said:
I have never bought anything in my life on my credit card that I did not immediately cover from my debit account. The only reason I have a credit card is so I can buy things online and have protection as well as the perks that come with particular cards.

I was never raised to spend money I didn't have. I actually cannot even fathom how some people can live day to day putting purchases on a credit card that can't be immediately re-imbursed from their debit account. How are people ok with paying 19% on some **** they don't really need?

Amazing.
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While I agree with the above and it's been my style as well, the concept is easier said than done. We are constantly bombarded with ads saying "Have it now". Unlike in generations past one is not scorned for carrying debt.

The first step is an accurate evaluation of financial commitments. This too is easier said than done because we justify wants as needs.

Set acheivable goals and keep track of progress. You have to dig yourself out of the hole first.

One has to treat debt as a sin. Every time I spent money on a treat I reminded myself that the money could have been put against my mortgage.

Keeping an open mind, one doesn't want to go into a financial coma and awaken five or ten years down the road rich but without friends or experiences. Determining your fun money level is difficult and a bit like dieting. How badly does the person want to change their habits?
 
Hey OP, Good on you for asking the question. That's the first step of many to financial freedom.

Saving, Budgeting, Spending on needs versus wants is not an easy thing for many as evidenced by our culture and current global situation. Credit is the easiest way to get what you want relatively sooner than you would have normally. However if you plan on living for a long time and not filing for bankruptcy, one day you will have to pay your creditors back in full.

It's important to stick to the golden rules such as...
1. Spend less than you earn. (Self explanatory)
2. If you can't afford it don't buy it. (Credit cards should only be used to defer payment for 30 days or prevent you from carrying loads of cash in your pocket.)
3. A penny saved is a penny earned. (Save a little for a rainy day.)
4. Understand the difference between Needs and Wants. (Need shoes? Want Prada?)
5. Understand the difference between Assets and Liabilities. (Assets earn you money, Liabilities cost you money. For example a mortgage is a liability. Far better to rent and use the extra money that would go into a mortgage to work at making you money.)

Like riding a motorcycle, there are certain basic skills required to practice such as budgeting and knowing where money is being spent before thinking about credit, loans or mortgages. I used to use spreadsheets and Quicken software in the past. There are now many free apps like Mint.com that can help alert you to where you are spending most of your money. You'll be surprised how much coffee and meals can accumulate to hundreds of dollars a month. Start there and categorize your spending into Needs and Wants and be more conscious of every time you use your credit card or cash.

One of the biggest hurdles our society has to overcome is the thought of having to keep up with the Jones' or fear of being thought of as cheap or not owning the right brands. What's more important at the end of the day? Being debt free and having what you need or having what you want and your creditors owning everything?

IMHO continue your path, set small achievable goals and seek advice or read some books such as The Wealthy Barber or Rich Dad Poor Dad among other great books to help you better understand ways to financial freedom.

Good on you for taking the first step, all the best with your future.
 
Im in the same situation as you... sad part is i work for a bank so you'd think id be on top of all that stuff.

Lots of insightful advice here.

If you have a smartphone, get the app Mint
It helps you keep track of your spending, seeing where you're putting the money etc.
Sensitises you to your spending and where you can possibly cut back.

If your loan is at a resonable rate (sub-10%) then yes, try to consolidate both your credit cards onto it and arrange a payment that works for you. If you have extra money, PUT IT ON THERE and save money :)
 
Instead of consolidating which might take time why not switch to the lowest interest rate card the bank offer? You can transfer your balance of the card to the new card. It'll be a no frills card, but you'll be paying lower interest than you are now. This can be done very fast where consolidating might take time. Just look at your bank's website to see what they offer which is the lowest interest rate.
 
I handle money the old fashioned way. Use cash. Hasn't failed me yet.
If I don't have it, I don't spend it.
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