debt solutions education financial strategies
Our Mandate To educate Canadians in personal money management and the wise use of credit To help individuals and families find solutions to their financial difficulties through unbiased counselling and debt repayment alternatives
Top Reasons We See for Financial Trouble
Top Reasons We See for Financial Trouble 1. Excessive use of Credit or Using Credit for Living Expenses
Top Reasons We See for Financial Trouble 1. Excessive use of Credit or Using Credit for Living Expenses 2. Unemployment / Underemployment
Top Reasons We See for Financial Trouble 1. Excessive use of Credit or Using Credit for Living Expenses 2. Unemployment / Underemployment 3. No Budget / Lack of Financial Education
Top Reasons We See for Financial Trouble 1. Excessive use of Credit or Using Credit for Living Expenses 2. Unemployment / Underemployment 3. No Budget / Lack of Financial Education 4. Injury / Illness
Top Reasons We See for Financial Trouble 1. Excessive use of Credit or Using Credit for Living Expenses 2. Unemployment / Underemployment 3. No Budget / Lack of Financial Education 4. Injury / Illness 5. Separation / Divorce and Family Expenses
Top Reasons We See for Financial Trouble 1. Excessive use of Credit or Using Credit for Living Expenses 2. Unemployment / Underemployment 3. No Budget / Lack of Financial Education 4. Injury / Illness 5. Separation / Divorce and Family Expenses 6. High Student Loan Debt / Education Expenses
Top Reasons We See for Financial Trouble 1. Excessive use of Credit or Using Credit for Living Expenses 2. Unemployment / Underemployment 3. No Budget / Lack of Financial Education 4. Injury / Illness 5. Separation / Divorce and Family Expenses 6. High Student Loan Debt / Education Expenses 7. High Housing Costs
Financial Wellness There s a lot in it for us if we re good with our money: More motivated and better able to focus Improved communication abilities Better ability to get a good night s sleep
Financial Wellness There s a lot in it for us if we re good with our money: Less stress and stress related illnesses Having the energy to make healthy choices, financial and otherwise An increased ability to manage through adversity
Basic Banking A bank account is key for anyone who wants to re-establish themselves and take control of their money. Banks versus Credit Unions Opening a Personal Bank Account Right-of-Offset Income Assistance Exemption Avoiding Cheque-Cashing Stores
Using Credit What are some things we typically use credit for?
Using Credit Things we need! Things we want! Things we didn t plan for!
Use Credit Cards Wisely $5000 purchase on credit card, 18.9% int. (APR) Min. payment of 2.5% ($125 to start) Total Cost of Borrowing:
Use Credit Cards Wisely $5000 purchase on credit card, 18.9% int. (APR) Min. payment of 2.5% ($125 to start) Total Cost of Borrowing: $13068.42 paid over 28 years!
Use Credit Cards Wisely $5000 purchase on credit card, 18.9% int. (APR) Min. payment of 2.5% ($125 to start) Total Cost of Borrowing: $13068.42 paid over 28 years! Same $5000, 2.5% min. payment but at 9.9%? Total cost of $7353.07 over 16.5 yrs.
Use Credit Cards Wisely $5000 purchase on credit card, 18.9% int. (APR) Min. payment of 2.5% ($125 to start) Total Cost of Borrowing: $13068.42 paid over 28 years! Same $5000, 2.5% min. payment but at 9.9%? Total cost of $7353.07 over 16.5 yrs. Repaid at $325/mth for 18 months is (only) an extra $771.17 in interest.
Credit Reporting What is a credit report? A detailed list of an individual's credit behaviour over the past number of years. It is used by a lender to determine if, based on past behaviour, someone is likely to repay new money that they borrow or not.
Your Credit Report What is on your credit report? Personal information Spousal info (if applicable) Hard hits (who you have applied for credit with) Soft hits (checking your own, creditors pulling info about their products) only shown to you Public records (collection items, government and insurance debt that s in arrears, judgements, bankruptcy, debt restructuring) Consumer statement Trade lines (your credit accounts and borrowing activity)
Credit Rating What do the trade lines mean? R: revolving debt (e.g. credit cards, lines of credit) I: installment debt (e.g. car loan) O: open debt (e.g. cell phone contract, insurance, gym membership) Information will include creditor name, account number, credit limit, last paid, balance, date of last activity and status
Credit Rating What do the Ratings Mean? Too new to rate 0 Paid as agreed 1 Paid late but within 30 days 2 Paid up to 60 days late but not more than 90 days; 2 3 payments past due Paid up to 90 days late but not more than 120 days; 3 payments past due Account is at least 120 days overdue but not rated 9 yet 5 Making payments under consolidation order, debt repayment or similar arrangement Repossession 8 Bad debt; placed for collections; settled debts 9 R / I / O 4 7
Your Credit Score Your credit score is a predictor that lenders use to see how likely you are to pay back your debts Credit scores range from 300-900 The higher the score, the more likely you are to pay back your debts
Your Credit Score
Payment History (35%) Have you paid on time? For how long? Have you made late payments? If so, how late? Are any debts in collections?
How Much is Owed (30%) How much do you already owe? Total amount owing Percentage of available credit Your current payments will determine if you can manage any more payments in your budget
Length of Credit History (15%) When did you first obtain credit? How old are your accounts? Good or bad, most information will be automatically removed from a credit report after 6 7 years
Types of Credit Used (10%) Do you only have credit cards? Do you have a mix of credit products?
New Credit (10%) A measure of how many times you have applied for credit in the past few years New applications will remain on your credit report for 3 years Frequently applying for new credit can signal financial difficulty
Credit Reporting Agencies Equifax www.equifax.ca 1-800-465-7166 Transunion www.transunion.ca 1-800-663-9980
Your Credit Report Who is interested in your credit report? Landlords Employers Insurance companies Lenders banks & credit unions vehicle financing companies cell phone companies
Credit Report Facts It s free to check your credit report 1x/year Checking your own credit report does not affect you negatively; it s not a hit Creditors choose what they report to each agency, so you should check your own report with both companies If there are mistakes on your credit report, it is up to you to get them fixed Statute of limitations is provincially determined
Myths Around Credit What are some myths out there around credit?
Credit Myths Making minimum payments I need a lot of credit cards Racking up my credit card & paying it off builds credit I use my credit card for points I need high limits to build good credit I pay my credit card as soon as I use it Good credit is everything!
TRUE or FALSE 1. I can afford the minimum payment so it s ok to buy this. 2. I need a lot of credit cards to build my credit score. 3. Racking up my credit card & paying it off builds credit. 4. I use my credit card for points so I put everything on it. 5. I need high limits to build good credit. 6. To build good credit, I pay my credit card as soon as I use it. 7. Good credit is everything.
TRUE or FALSE 1. I can afford the minimum payment so it s ok to buy it. FALSE 2. I need a lot of credit cards to build my credit score. FALSE 3. Racking up my credit card & paying it off builds credit. FALSE 4. I use my credit card for points so I put everything on it. DEPENDS 5. I need high limits to build good credit. FALSE 6. To build good credit, I pay my credit card as soon as I use it. FALSE 7. Good credit is everything. FALSE
Making Minimum Payments Making minimum payments is required to have your credit product rated as a 1 1 means: paid as agreed However the cost of making minimum payments is significant!! $5000: 19.9% interest, declining balance, paying 2% of balance = $22,416 total interest 65 years to pay off!
A Lot of Credit Cards Builds Credit More open credit = more risk for your lenders which decreases your credit score Having lots of credit available can be very tempting to most of us! You can build credit with 1 credit product You can also build credit with a cell phone contract or a secured credit card To build credit, you need to make payments on time each month You can make a purchase every few months and pay it as agreed to build credit
Rack Up/Pay Off You do not need to rack up your credit product every month to build credit In fact, by exceeding around 60% of your credit limit on a regular basis, your credit score will be negatively impacted WHY IS THIS?
Rack Up/Pay Off You do not need to rack up your credit product every month to build credit In fact, by exceeding around 60% of your credit limit on a regular basis, your credit score will be negatively impacted Your lenders will assume that you re over extending yourself financially
Credit Cards for Points If you are putting your expenses on your credit card for points, it is crucial that you are paying it off in full each and every month Otherwise points are expensive because of the annual fee and interest accumulated If you end up in arrears and/or can t pay your card, you can lose the ability to redeem the points
High Limits High limits, even with no or low balances means more risk for your lenders which lowers your credit score Example: 4 credit cards with a $10,000 limit each means RISK for your lender because you could get into $40,000 of debt tomorrow Open credit may hinder how much more credit you can apply for (e.g. mortgage) Reduce your limits to a manageable level
Pay As Soon As I Use If you use and pay, you aren t building credit This is because a balance owing has to hit your credit report before a payment goes through, or it always shows you owing nothing Buy your item with your credit card, wait for the bill and then pay it off this will build credit
Good Credit Is Everything Good credit is good to have, however not at the expense of: High debt loads Making only minimum payments Money stress Money fights with your family Self-worth
Improving Your Credit You can improve your credit but it takes time Make all of your payments on time Pay off your credit card in full every month Consider a secured credit card with a low limit You don t need to make several purchases every month to build credit Cell phone contracts can build credit
Final Thought If it sounds too good to be true, assume it is! Your credit score and report can only be improved with time and good financial behaviour!
Types of Debt Open Cell phone, utilities Unsecured Credit cards, loans, line of credit, overdraft, payday loan Secured Mortgage, vehicle loan, loan, HELOC Government CRA, medical plans, insurance, student loans, municipal debt (taxes, tickets)
Payday Loans A Warning Estimate of Interest of Payday loans v.s. Other financing options Pay day loans: 60% Credit Cards: 18% Bank Overdraft: 21% Line of Credit: 10%
Pay Day Loans Small loans (less than $1500) due on next pay day Easy access and quick decisions High interest
The Pay Day Loan Cycle Pay Day Lender A Loan $300 Fees $69 Total $369 Due Date: October 1 In Alberta & Saskatchewan, pay day loan companies are allowed to charge a fee of up to $23 for every $100 you borrow. This works out to an annual interest rate of 599.64%
The Pay Day Loan Cycle Pay Day Lender A Pay Day Lender B Loan $300 $369 Fees $69 $85 Total $369 $454 Due Date: October 1 October 14
The Pay Day Loan Cycle Pay Day Lender A Pay Day Lender B Pay Day Lender C Loan $300 $369 $454 Fees $69 $85 $104 Total $369 $454 $558 Due Date: October 1 October 14 November 1
The Pay Day Loan Cycle Pay Day Lender C Loan $454 Fees $104 Total $558 Pay Day lenders can charge up to $25.00 plus up to 30% of the total balance for late payment! Due Date: November 1 Late payment charge Late payment interest $25 $175
The Pay Day Loan Cycle Another view... 800 700 600 500 400 300 Interest and Fees Original Loan 200 100 0
Breaking the Pay Day Loan Cycle Know your responsibilities: permission to withdraw money from your account when the loan is due and/or past due up to the total amount you owe Open a new bank account: have all of your money deposited in your new account so that YOU control your money and when payments are made
Breaking the Pay Day Don t re-borrow: Loan Cycle The late fee and interest can only be charged once. Make payment arrangements instead of taking on new pay day loans to pay old ones Always communicate with your lenders if you are having trouble making your payments
Dealing with Debt Consider your current circumstances Do NOT ignore the debt! Seek reliable advice about your debt You have more options if you get help sooner rather than later!
Options for Dealing with Debt Unable to pay Self-Administered CCS-Assisted Legal Solutions
When Unable to Pay 1. Consider all income & expenses
When Unable to Pay 1. Consider all income & expenses 2. Consider secured assets that may be at risk Seize and/or Sue law
When Unable to Pay 1. Consider all income & expenses 2. Consider secured assets that may be at risk Seize and/or Sue law 3. Be aware of the Right of Offset
When Unable to Pay 1. Consider all income & expenses 2. Consider secured assets that may be at risk Seize and/or Sue law 3. Be aware of the Right of Offset 4. Communicate with creditors
Self-Administered Do It Yourself Conventional financing (e.g. consolidation loan, line of credit, refinance mortgage) Sell assets (e.g. car, house, household goods) Get help from family or friends
Self-Administered Do It Yourself Increase income and/or decrease expenses
Self-Administered Do It Yourself Increase income and/or decrease expenses Ask for lowered interest
Self-Administered Do It Yourself Increase income and/or decrease expenses Ask for lowered interest Create a pay down method Cut up/close all credit products but 1 List all of your debts in order of highest interest first (or lowest balance) and pay it down Make minimum payments on all other debts until the largest is gone, then move to the next
Pay Down Method Credit card ($5000) Line of Credit ($5,000) Month 1 $1000 $150 $450 Month 2 $1000 $150 $450 Month 3 $1000 $150 $450 Month 4 $1000 $150 $450 Month 5 $1000 $150 $450 Month 6 Paid off $1300 $450 Month 7 Paid off $1300 $450 Month 8 Paid off $1300 $450 Month 9 Paid off $1300 $450 Month 10 Paid off Paid off $1750 Month 11 Paid off Paid off $1750 Month 12 Paid off Paid off $1750 Student loan ($35,000)
Self-Administered Influx of Money: if you get a bonus, tax refund or other sort of lump sum of money, you can put: 40% towards debt 40% towards savings 20% towards guilt-free fun
Self-Administered Conventional financing (e.g. consolidation loan, line of credit, refinance mortgage)
Self-Administered Conventional financing (e.g. consolidation loan, line of credit, refinance mortgage) Sell assets (e.g. car, house, household goods) and pay off debts
Self-Administered Conventional financing (e.g. consolidation loan, line of credit, refinance mortgage) Sell assets (e.g. car, house, household goods) and pay off debts Get help from family or friends
CCS-Assisted Debt Management Program Consolidates unsecured debts into 1 payment Creditors reduce/eliminate interest rates Debt-free within 5 years Learn essential budgeting skills
CCS-Assisted Debt Management Program Consolidates unsecured debts into 1 payment Creditors reduce/eliminate interest rates Debt-free within 5 years Learn essential budgeting skills Rebuild credit after successful completion
Other Solutions Legal Solutions: Referral to a trustee for a bankruptcy or consumer proposal Referral to other professionals: Mortgage broker, counsellor, realtor, lawyer
Signs That You Need More Help Feeling constantly stressed about money NSF charges Constantly in your overdraft Using credit to pay other credit Fighting with your family about money Collection calls Can t sleep due to money stress See no other way out except bankruptcy
Seeing a Credit Counsellor Do your homework, not all credit counselling organizations are the same Ask about the following: Is the organization non-profit? Are they accredited? Through whom? What kind of training do the credit counsellors go through? Are there fees? If so, for what? Are there any complaints with the BBB?
Seeing a Credit Counsellor Appointments can be done in person or by telephone You ll go through a full financial analysis: Income, assets, liabilities, monthly expenses and debts You ll review your options with a counsellor You ll walk away with more information and resources to make a decision about your $$
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How We Help Confidential, no-cost credit and budget counselling Toll-free telephone counselling, 1.888.527.8999 Debt repayment programs and alternatives Consumer workshops on credit and money issues Online assessments and information Referrals to other community and professional services Helpful money management tips on our websites: NoMoreDebts.org MyMoneyCoach.ca