Tag Archives: paying off credit card

Someone Asking for Help – and I’ve Got Nothing…

Welcome to my very depressing day! My 11-year old car has a cracked thermostat cover, which translated to no heat for the last two weeks, and getting to part with $485 today.

But if that seems bad, it’s also the first time an emailer has me really depressed. Others email me and I respond with what I would do in their situation. I have no idea if they ever take the advice or if they were just looking for a quick way out – there never is one.

But this person is in it deep. I emailed him back to first decide if he wanted some painless solutions that’ll just have him in the same financial nightmare in a decade when he’s retired, or if he’s prepared to do what it takes. In other words: Not have a life for the next 18 months to work his way out of a huge hole. Today, I’m actually hoping he doesn’t email me back because this isn’t solvable for five more years. OK, I didn’t mean that, but I can explain why I said that in frustration:

He has a vehicle financed for eight years. Yes, you heard that right: EIGHT years. AND it’s one of the fastest depreciating vehicles around AND it’s a pig on gas. Right now, after two years of payments, his balance is $44,000. The most optimistic sales value today is half of that. Yup – he’s $22,000 in the hole – and won’t be at a balance that equals the value for another five years.

That’s bad enough, but the payments are $650 and $350 gas and $130 insurance and around $70 maintenance. That’s $1,200 a month. So he has to earn $2,000 of gross income, pay taxes, EI, CPP, etc. to have $1,200 left over.

So if $2,000 of his pay is gone right off the top, plus rent, plus food and normal bills, where is the ability to pay off or to pay down a $30,000 credit card, or $25,000 line of credit? With what money? Saving $50 on food won’t cut it. The car can’t be sold in order to drive a $3,000 vehicle for a couple of years, and there aren’t savings on utilities, cable TV or a $50 cell plan.

How exactly am I supposed to help this person? Oh boy, this is depressing. And he didn’t get ripped off on the vehicle – he did this to himself. Again, I’m not anti-new vehicles. I’d love to own one and would love you to drive a new vehicle. But only if you can afford it – and certainly never on the eternal eight year finance plan. The definition of afford it is to be able to write a cheque for the purchase! An eight year loan is not in the definition of being able to afford it!

I’m going to live for the day when someone emails me for help the day BEFORE they put themselves into a situation where there’s no way out!

George Boelcke – Money Tools & Rules book – yourmoneybook.com

27 Years to Pay off That Credit Card

Hurray! Two of the credit card regulation changes are now here and on your statement.

Two months ago, we talked about some of the U.S. credit card regulations coming to Canada. They were effective last month, so you will see them on this months’ credit card bill.

The first one is called a minimum payment notice. On your statement you’ll see a box showing how long it will take you to pay off your balance at minimum payments. I had one faxed to me with a balance of $14,500. But are you ready for this: At minimum payments, it’ll take 27 years and a month to pay it off.

Yes, after the shock of that has worn off, you can react one of two ways:

One way is for you to get so mad when see that box, that you’ll do whatever it takes to pay as much as you can, AND to stop using the card for 90% of the daily crap that runs up your balance the quickest.

That’s the consumable stuff that has no business being financed, such as groceries, gas, restaurant meals, Tim Horton, cigarettes, or a trip to the liquor store. All of those are consumed long before you even get the credit card bill. But they’re all financed now, running up interest, and being owed for years and years. That’s insane. If you just switched those to a debit card, your credit card balance will drop a lot, AND you’ll be paying for things as you’re using them.

The second reaction can be that, well, I never pay the minimum payments. That may be true, but aren’t you also still using your card and increasing the balance? If today’s 27 years seems like a lot, odds are, it’ll increase as your balance goes up.

Paying extra is great, but how much extra do you pay to actually get some traction? This minimum payment warning chart has always been in the back of my: It’s Your Money book. And look at the chart with it. If you keep your payment the same as this month, and add just $20 a month, the 27 years becomes less than four years to pay off the balance. THAT is worth knowing, and worth doing.

The second part of the legislation is that card issuers can no longer just keep increasing your credit limit. That’s a blessing, because this person’s statement I have in front of me is for a $23,000 limit, but that’s more than this person earns in a year! There is a big note at the bottom of the statement now that says: Congratulations! You qualify for a limit increase. To accept this offer, please visit our branch or contact the Call Centre.

Don’t do it. The last thing anyone needs is another limit increase, another temptation to spend more. You know they’re going to contact you, if you don’t get to them. Because the card issuer really really wants you to owe as much as possible to make sure you can only make minimum payments. Why? Because then you really will have to take that 27 years to pay the balance. And that’s how lenders maximize their profits. What? You thought any of them were in business to help you? Get real and wake up.