How to Manage Debt with Inflation on the Rise

Debt Management with Inflation

You’ve likely felt the effects of inflation already. Your grocery and gas bill probably felt it first. Suddenly it costs a lot more to feed the family or fill your gas tank, but these are things we need so we have to adjust elsewhere, right?

One area many people struggle is managing debt during inflation. If your wages don’t keep pace with inflation (most don’t), then keeping up with your debts may feel impossible.

Here are a few ways to help you manage debt with inflation rising.

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You can Conquer your Debt

Conquer Your Debt

If you’re sitting on a lot of debt right now, first know that you aren’t alone. The pandemic wreaked havoc on most people’s finances. Now that we’re seeing life get back to somewhat normal, you may wonder what you should do with your debt or if it will just hound you the rest of your life.

The good news is there are ways to conquer it. Here’s what you can do.

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Canadians are Postponing Retirement to Help Their Adult Children

Couple-postponing-retirementHalf of Canadians surveyed are willing to postpone retirement for their children according to a study by BMO Wealth Management. Even more worrying is that 24 per cent said they’d be willing to go into debt to help their children succeed. Ironically, one of the top reasons parents cited for their financial concern about their children is that they will incur debt that they can’t manage.

According to Statistics Canada, today’s youth are more educated, staying at home longer and putting off their entry into a treacherous labour market where unemployment rates for young adults are twice the national average. This is daunting information but not insurmountable. Parents and their children can find a way through the morass by learning about how to manage their money better.

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Creditaid Hosted the Jewel 100.5 FM Office Tour This Week!

Jewel 100.5 and Creditaid

All of us at Creditaid were very happy to welcome Dan and Leslie Michaels from local radio station Jewel 100.5 FM to our office this past Wednesday. We always love to have visitors, and even more so when they come bearing coffee and doughnuts!

Our staff was very happy to be this week’s winner of Jewel 100.5 FM’s “The Office Tour Contest“. With coffee, doughnuts, good conversation, and lots of laughter, we think Dan & Leslie might have wanted to stay all day! They described their experience in the following day’s broadcast, click below to listen:

Thanks to Jewel 100.5 FM for sending over such great company and tasty treats, it made our week! If you’re looking to brighten up your work week, enter their contest, because you never know when it will happen to you.

And if you’re looking for help to manage your debt, rebuild your credit, or just find some financial clarity in your life, call Creditaid today – we can help.

A Habitat for Humanity Home Gives Families a New Start

Creditaid is proud to support various community initiatives and has been an important supplier to Habitat for Humanity Manitoba in their support of low income working families for many years.

As credit counsellors, we have the skills and experience to aid this wonderful charity by providing budget strategies to new Habitat homeowners to help them prepare for home ownership and budget effectively for a lifetime of financial success.

The financial education they receive helps to instill a sense of accountability and pride in their new home ownership status.

We are happy to be part of the Habitat for Humanity family, and seeing videos like this one makes us even bigger fans!

Online Survey Finds Half of Respondents are within $200 of Being Unable to Pay Bills

If you are struggling to make all of your payments or are already unable to make your required monthly payments, Creditaid can help. Whether you need to rebuild your credit, undergo credit counselling, tackle your credit card debt, reassess your finances following a divorce or a move, or any other challenge that life brings – we’ve seen it all and we have a program that will suit your needs.

Reposted from the Winnipeg Free Press online edition February 16, 2016.

CALGARY – A new poll suggests nearly half of Canadians surveyed last month are within $200 per month of being unable to pay for their bills and make their debt payments.

The Ipsos Reid survey also found about one-quarter of the 1,582 people who responded to the poll were already unable to cover their bills and debt payments.

The online poll was done between Jan. 27 and Jan. 29 for MNP Debt, which provides licensed trustee services in six provinces, from Quebec to British Columbia.

MNP says the poll found that 31 per cent of respondents said any increase in interest rates could move them towards bankruptcy.

Ipsos Reid conducted the poll about a week after the Parliamentary Budget Office issued a report on Jan. 19 that said Canada has seen the largest increase in household debt relative to income of any G7 country since 2000.

The survey also followed Bank of Canada’s decision to keep a key lending rate at a historically low level of 0.5 per cent on Jan. 20, as the central bank lowered economic growth estimates for 2015 and 2016.

The polling industry’s professional body, the Marketing Research and Intelligence Association, says online surveys cannot be assigned a margin of error as they are not a random sample and therefore are not necessarily representative of the whole population.

Credit Score 101 – A Refresher Course

We all know that we need to be careful with credit – because it’s easy to borrow money, and wind up owing as much, or more than we can pay. We all know what it feels like when there’s “too much month left at the end of the money”.

And there’s this vague fear of a negative impact on our credit history that can affect us in the future. The more we know about credit reporting, the more we can work to improve the way potential lenders see us, and then we can leverage a good report to get favourable terms when we borrow money.

What is a Credit Score?
In Canada, a credit score is assigned by one of the two large credit reporting agencies – Equifax or TransUnion. The score is a number between 300 and 900 (900 being perfect) that represents Credit-Report-illustrationthe aggregate of all of the information that the bureau has on file about us. Most interactions that you have with lenders, either positive (payments made on time) or negative (late payments, collections, bankruptcy) will affect our score. Anyone who has ever accessed any form of credit has a file with the credit bureaus. Potential lenders use your credit score, with your permission, to determine whether or not you qualify for credit, and sometimes they use it to set the terms of borrowing (interest rates, etc.).

Who Can Access My Credit Report?
Any lender can provide information about your loan, payments, etc. to the credit bureaus. You give them permission to do so in the agreement you sign when you begin to access credit with them. Any potential lender with your permission (usually in the application) can access your report and score. You can (and should) access your own credit report with both bureaus. Make sure that all of the information that they have on file is accurate.

By knowing your own credit score, you can demonstrate to potential lenders that you are a responsible borrower. You may be able to negotiate more favourable terms as a result.

If you’ve got questions about credit, or have found yourself in some trouble, contact Creditaid anytime online or by telephone at (204) 987-6890 or (877) 900-2659. We can help you take those important first steps toward a debt free life.

Second Time Around

Republished from the Winnipeg Free Press print edition June 6, 2015 B13

Hoyt and Summer knew home ownership wouldn’t be easy. After all, the former Money Makeover participants were told as much by a financial counsellor their first time around.

Phil Hossack / Winnipeg Free Press

In 2012, they graduated from university and were interested in jumping into the condominium market. Both having landed full-time jobs with good pensions, they believed home ownership would help them get ahead.

“We had been renting about five years,” said Hoyt, a civil servant in his early 30s. “We had a lot of debt, so we thought we could buy a condo, live there a few years, and after selling it, we could hopefully find some way to alleviate the debt we had.”

“Boy, were we wrong,” said Summer, an administrative worker in her late 20s.

At the time, the couple had about $21,000 in debt, largely the result of earning university degrees.

They did have some savings — about $17,000, including $11,000 from their parents for a down payment. Moreover, they had steady income, earning a combined $75,000 before taxes a year. Eventually, they purchased a renovated two-bedroom condo for about $187,000.

It didn’t take long before they realized it was more than they could handle.

“The debt just kept ballooning because we couldn’t keep up with the mortgage payments, the condo fees and everything else that comes along with it,” Hoyt said.

The expenses that hurt the most were large, unanticipated repairs: a sewer backup, burst water pipes and a leaky roof — to name a few. Soon their reserve fund was empty and they were paying out of pocket.

“We had rose-coloured glasses on and seeing what friends were doing with their lives, we thought ‘this is something we should be doing, too’ not realizing we were not financially in a place to do it,” Summer said.

So late last year, they sold at a $20,000 loss and were relieved to be renting again. Now Summer and Hoyt owe about $42,000, including a $6,000 no-interest loan from their parents, and they have almost no savings.

Still, they have hope.

They earn more than before: more than $90,000 combined a year. And they are determined to get out of debt as soon as possible, particularly since they want to return to school so they can upgrade their career options and earn more money so they can become homeowners again.

“We are really a cautionary tale for others like us thinking of doing the same thing,” she said.

Brian Denysuik is a local credit counsellor and a registered insolvency counsellor at the for-profit debt-management agency Creditaid in Winnipeg.

He said many first-time buyers find themselves in financial trouble because — like Summer and Hoyt — they underestimate or even overlook the costs of ownership, particularly with respect to condominiums.

“The repairs and the (loss of the) reserve fund frightened them so understandably they decided to cut their losses.”

Now, Hoyt and Summer must become debt-free to move forward. Yet while they have been trying to track expenses and make regular debt payments far above the minimum requirements, Denysuik said they will have to bear down on the budgeting process to make meaningful progress.

“I asked them if they are working from a spending plan and tracking their expenses and the answer was ‘we have a hard time keeping up after a week or so.’ ”

But if they were tracking costs, they would realize they have more free cash flow than they think.

“Three years ago, they had a combined gross income of $75,000, but today they have a combined gross income of $94,446, an increase of 26 per cent,” he said, adding their take-home pay has increased to $4,640 from $4,088 a month.

While their debt has doubled, they do have the cash flow to pay it down faster than their current pace.

In 2012, their discretionary spending was $850 a month when they were advised to cut costs if they decided to buy a home.

Today, they’re spending more than $950 a month on entertainment, coffee, clothing and dining out even though they are focused more on debt reduction than they were before.

“At this point, even if they earned an extra $20,000 a year without changing their habits, they will just keep spending more.”

The upside here is they make enough money to become debt-free in less than five years without taking more drastic measures such as a consumer proposal or bankruptcy. But they must become dedicated budgeters to make it happen.

Hoyt and Summer have to closely track their expenses to understand their true cost of living. This is the only way to find where they can cut spending to increase cash available for debt payments while building up emergency savings so they’re not forced to go back into debt when things go sideways.

Already, they’ve done some good work, paying more than $1,000 a month on debt while saving $165 a month for emergencies. Still, they could do better because about $466 a month of income is unaccounted for in the budget.

Moreover, they could increase the effectiveness of their efforts using the ‘avalanche method’ of debt repayment — something Summer is already doing. This involves paying the minimum amount on the lowest interest debts while making the largest payments against the highest interest debts.

“In this respect, Hoyt should look at reducing his line-of-credit payments — at seven per cent — from $300 a month to $100 and increase payments on his credit card payment — at 20 per cent — to $400 a month from $200,” Denysuik said.

“This way they can have their unsecured debt paid off in 40 months with another five months to repay parents.”

Yet with a few more tweaks, they could be out of debt even faster.

“If they reduced their discretionary spending by $400 a month, increasing emergency savings from $160 to $200 and pushing $300 more to debt repayment, they can be out of debt in 30 months,” he said.

Another benefit of this strategy is their cash flow would increase to more than $500 a month from $466 a month simply because their money is being managed more efficiently. This extra cash could be used to save for a home, tuition or pay debt faster.

“All of this is dependent on monthly tracking of expenses and making adjustments,” he said.”That means keeping all receipts and once a month sitting down together and sorting the bills and adding up each category.”

And it need not be a grim task either, he said.

“Make it a date night at home where you cook supper, have a little wine and summarize the tracking and compare it to plan.”
— — —
Summer and Hoyt’s finances:

INCOME:
Summer: $49,500 ($2,340 net a month)
Hoyt: $43,900 ($2,300 net a month)
MONTHLY EXPENSES: $4,173
DEBTS:
Summer line of credit: $15,000 at 3.5 per cent
Hoyt line of credit: $10,500 at 7 per cent
Summer credit card: $7,070 at 19.99 per cent
Hoyt credit card: $4,300 at 19.99 per cent
Loan from parents: $6,000
ASSETS:
Summer TFSA: $90
Hoyt RRSP: $1,300
Savings: $800
NET WORTH: – 40,680