Credit card extension for your partner, a terrible idea!

The story always begins with “but I just wanted my wife to have an extension of my credit card, she never signed anything!”  Yes, the gesture always starts with good intentions, but what people fail to see is that banks are very creative at covering their buts when it comes to extending credit.  In fact, every time a client asks for a credit card extension, they smile as they’ve just added another layer of protection on their loans.

Many of our clients come to us looking for help with settling credit card debt they can’t afford. The moment I ask if the cards are joint of single, they sometimes say, single, but I gave my wife an extension.  I then ask, “did your wife activate the card?”  If the answer is yes, then she’s now fully responsible for all the debt if you default.  What people don’t know is that when the credit card extension arrives, it comes with the terms of the agreement with the new card, and in most cases, the fine print will say that the moment you activate the card, you agree to the terms and conditions, which include taking full responsibility for any outstanding balance in the case the primary card holder fails to make payments!

Yes, I know I’m cringing too!

So what can you do to take your partner off as a joint credit card holder?

First, you need to bring the balance to zero, then call the credit card company and ask to cancel the card or report it as lost or stolen.  Then have the extended card holder’s name removed.  Only then can a joint holder be removed.  If there is any balance on the account, then the lender can still go after the joint account holder.

Here’s an excerpt from the Financial Consumer Agency of Canada:

Who is liable?
Anyone who signs the application form can be liable for any outstanding balance. This applies whether or not you incurred the total debt.
For some credit cards, the terms may state that authorized users (secondary cardholders) can also be held responsible for any outstanding balances, even if they don’t sign the credit card application. Read the credit agreement carefully and make sure that you fully understand who is responsible. If you aren’t sure, ask the lender.

If you have any questions around credit card debt, contact me at pablo@vitalfinancial.ca or visit www.vitalfinancial.ca

 

How to choose a debt relief company?

There is an overwhelming amount of information out there about the debt relief industry, as well as several companies and organizations that claim to help consumers deal with their debts.  Like anything, some of it is good and some of it not so good.  So how can consumers protect themselves against the bad ones?

Follow these simple rules and you will most likely fall in good hands:

  1. Are they treating you with respect?

I am appalled to see how in this industry clients are seen as a file and often referred to as “the bankrupt or the debtor”.  The reality is these are people, which in many cases, have had a situation happen in their lives that has put them in a tough financial spot.  So make sure whom ever you deal with treats you with respect first and foremost.  If not, walk away!

  1. Do they understand your current situation and future plans?

It is important that whoever helps you deal with your debts understands your future plans.  Depending on the debt solution that you choose, your credit score could be seriously affected, and can take a few years to rebuild.

  1. Is the debt solution they are proposing a legally binding contract between you and the creditors?

I often get clients that have signed up with a debt pooling company that come to me very frustrated because, after having paid hundreds of dollars to this company on a monthly basis, they learn they still owe the full amount they started with when they approached the debt pooling company.  These are the horror stories in the industry. There is nothing worse than having made a huge effort to pay hard earned money towards a debt solution, only to find out it was a scam.  An easy fix is to NEVER go with a debt solution that you know has been approved and signed by all the creditors involved.  Also always make sure your payments are going directly to your creditors or to a registered Trustee in insolvency.  It is okay to pay a fee to the debt help company, but it should be a one-time fee and no greater than 10% of the total amount owed.

  1. Do they fully explain the pros and cons of your debt solution?

I have had clients who were ill advised to declare bankruptcy for a $10,000 credit card debt.  These clients invariably say they had no idea how this would affect their financial lives. Make sure you fully understand how and what your debt solution will affect.

  1. What are their fees, and how are they paid out?

As mentioned above, make sure you understand how fees are applied by the debt counselling service, as well as any other fees that might exist.

  1. What happens if your debt solution fails?

Ask, what happens if your debt solution is not approved or accepted by creditors. If you have paid any fees, make sure they are refunded, at least a portion of them.  A good debt settlement company should be fully accountable for getting clients results.

  1. Don’t be pressured!

Do not allow anyone to pressure you into a debt solution.  Unfortunately, in many cases when people start looking for help with their finances and debts, they are already in a state of high stress and not thinking clearly.  A perfect state for a good salesman to make a quick buck, so be aware, stand your ground.  Get all the facts and don’t make any quick decisions.

If you follow the above steps you should be in good shape to have a good debt settlement firm help you deal with your debts.

For any debt advice, please contact me or check out our website www.vitalfinancial.ca  we offer a free consultation.

Rebuilding Your Credit Score

We have talked about how credit score works, now it’s time to explore ways on how to repair a credit score in case it’s not at the “Good” or better levels.  Many of our clients decide to go down the avenues of a Consumer Proposal or a Bankruptcy simply because it was the best solution for them at the time.  After doing a Consumer Proposal or a Bankruptcy, their credit scores were undoubtedly affected sometimes dropping to the 300 levels. They are then faced with the daunting task of rebuilding their credit.  A myth out there is that many people believe they can’t rebuild their credit score until they have been discharged from their Bankruptcy or Consumer Proposal.  This is not the case; credit rebuilding can begin immediately on a Bankruptcy and 60 days after signing a Consumer Proposal.

A very common strategy to rebuilding credit score is applying for a “Secured Credit Card”.  A secured credit card works the same as a regular credit card, except that it requires that you deposit cash in security against the card.  Purchases are charged to your card, and interest are accrued on a month to month basis.  In the event that you are unable to pay off the minimum balance, the bank can then use the cash held in trust to pay off any outstanding balances.  The limitation of a secured credit card is that the account holder can only use up to the equivalent of the secured funds that are being used as collateral, so it actually resembles a debit card more than a credit card with the big difference that it reports to the credit bureau.

This sounds like a great option, but the reality is that getting a secured credit card while in the midst of being in a Bankruptcy or a Consumer Proposal is more complicated. Lately banks have tightened their policies requiring clients to have been discharged from their proposals or debt solutions before issuing a secured credit card. This option becomes pointless, as the normal repayment period of a consumer proposal is 5 years and an average of 9 months on a bankruptcy.

The good news is that we have recently secured an agreement with a local lender that will grant secured credit cards to our clients, even if they’re still in the middle of a consumer proposal or bankruptcy.  You can apply for a card here.

Another interesting option that has recently surfaced is the Credit Rehab Savings Program.  This credit score rebuilding strategy works in reverse of a traditional loan, where clients receive their loaned funds at the end of the loan term.  It acts as a forced savings program, but since it is considered a loan, it also reports to the credit bureau helping clients rebuild credit score and save money at the same time.  You can check these guys out here.

As you can see there are several options to rebuild credit, even if you have had to go through extreme situations.  If you want to explore your options and discuss which credit rebuilding strategy might work best for you, contact me a call. I’ll me happy to help.

Demystifying Your Credit Score

I find it fascinating to see how little people actually know about how their credit score really works. Many of my clients are carrying large amounts of debt, yet they are willing to protect their credit score as if it was a cherished family gem, putting aside their personal needs, even after knowing the tremendous impact that carrying their debts is having on their lives. They are afraid that a debt solution might ding their credit score. Banks have done a great job at inspiring fear to consumers into having a bad credit score.

The first step is to understand where your credit score comes from and how it works, so that you can make educated decisions on what’s truly important.

Your credit score is tracked by Transunion and Equifax both in Canada and the US and both are for profit companies listed in the New York Stock Exchange under symbol (EFX) and (TRU).  Equifax’s revenue in 2015 was US$2.66 billion and Transunion’s revenue in 2015 was US$1.5 billion. In other words, they make a LOT of money.

These well-established profitable companies offer services to banks and governments to see if clients qualify for credit loans of all sorts.  In North America, we are brought up thinking that our credit score has to be good in order for banks to extend us credit, which is true.  But what people don’t realize is that even if you have had a bad credit score for a while, or gone through a bankruptcy, it can be rebuilt. After some time, it can even become a good credit score that qualifies for credit products.

Credit score ranges are as follows:

  • 300 – 559 = Poor
  • 560 – 659 = Fair
  • 660 – 724= Good
  • 725 – 759 = Very Good
  • 760 + = Excellent

To qualify for a loan or credit card, lenders usually require a Credit Score in the Good or above range.  Someone that has declared bankruptcy or done a consumer proposal may find their credit score fall to the 300 level and will be faced with the task of having to rebuild it over time.

However, nothing could ever be more important than you and your finances, no matter how much you believe your credit score is worth. If you’re carrying debt that is being difficult to handle, take care of it first and let your credit score fall where it may.  There are many techniques for rebuilding your credit score to perfection afterwards and I will be doing a post around how to do this shortly, so stay tuned.

Both Transunion and Equifax offer services for monitoring your Credit Score.  Just keep in mind you don’t want to be pulling your score too often as it can hurt your rating even if it’s done by you.

Is your bank your friend?

One of the things I hear most when talking with clients that are looking for a debt solution is their concern about how they may let down the bank clerk that helped them get their loan or credit card.  “They worked so hard to help me get my loan,” they say.  Clients don’t realize banks and clerks don’t have their best interest at hand; they are not their friends. The bank clerk that worked so hard at getting them that business loan or credit card makes a commission on every product they sell.  So their motivation is purely financial and not empathically driven.

I believe it is essential for consumers to understand that banks have the clear objective to get consumers into as many debt products as possible at the highest interest rate possible. This is how they make money and they make a lot of it!

I very frequently hear from clients how, when they approach their bank to try to move from a high interest credit card to a lower one, the bank clerk tells them he or she will have to check first if they qualify. Qualify!  What’s there to qualify?  The bank has already given them a credit card at an interest rate of 19% or more.  They had to do a credit check to see if they qualified at the time they applied and they did a debt to service ratio analysis.

It’s clear that banks hold a very good grip on how they control the debt game and how there is no incentive or interest in helping consumers manage their finances.  Why would they when it’s so profitable to earn 19% to 29% on their money?  Did I say their money?  Let me correct that. Did you know that the money banks are lending you at 19 to 29% is actually your money?  The money you deposit into your saving and investment accounts that pay you less than 1% in most cases for a high interest savings account, the banks then turn around and lends it back to you at 19 to 29%. If you think about it, the banks’ cost of money before expenses is zero.  Not a bad business model!  Yes, I know it’s unsecured debt, but still 29% in some cases is a bit over the top.

Clients that have a credit card at 19% interest rate or more that are carrying a balance and making the minimum payments are a dream client to banks.  Which is why they make it so difficult for them to move to a lower interest consolidation loan or credit card.

If you think about it, banks are constantly bombarding us with deals to lure us into getting more in debt.  These come in various forms.

  • Balance transfer with low interests for 3 to 12 months.
  • One-month minimum payment holiday.
  • Cash advances at low initial rates.

The list goes on, but the strategy behind these incentives borders on the perverse.  What banks are counting on is that as consumers consolidate their credit card balances onto one initial lower rate, they are speculating on the client not being able to pay down the balance in the promotional term and end up paying even higher rates after the promotion is over.

So there it is, if you think banks are your friends, think again.  Banks are the best business in the world and have serious control over our finances.  Being educated about how banks work is the first step for consumers to take back control of their finances.

For debt free solutions contact me for a free consultation.  Visit www.vitalfinancial.ca and set up a free consultation.

Good luck out there!

Why is budgeting so hard?

Budget
Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Let’s face it: creating a budget isn’t that difficult, especially with today’s technology. Yet most of us don’t like doing it. According to Practical Money Skills, a free financial literacy program to help Canadians understand the fundamentals of money management, only 47% percent of Canadians use a budget to plan their spending.

So what is it about creating a budget that is so difficult?  The answer goes deeper than the actions involved. There are dozens of apps, spread sheets, and online tools to help us create budgets, yet we still don’t do it or we’ll do it for a few days (even weeks) and then the process just gets sent to the back of the to do list.

The reality is that budgeting has more to do with emotions than with actions.  And since our emotions control our actions… well there we have it.

Emotions around money can run very deep and they are very dependent on beliefs and experiences. Budgeting will most likely take us to a good or bad place which will trigger a certain feeling based on our belief system. If our beliefs around money are negative, budgeting will trigger those uncomfortable feelings and undoubtedly we won’t want to go there. Some people believe money is hard to come by, their internal voice might say “Money is bad, rich people are greedy and dishonest. Money only comes if I work hard, I haven’t worked hard enough. I’m not good enough to have lots of money. I don’t deserve it.” The negative voice can go on forever. Others believe money comes easy, money will always be there or they deserve having money, and sure enough it does!

Identifying the emotional blocks around money

The first step is to identify what’s going on emotionally. Ask yourself the following questions:

  • Growing up, what did your parents tell you about money?
  • How did money make you feel?
  • Was it talked about openly?
  • Did your parents struggle with money issues or was it plentiful?
  • Did they fight around money issues?
  • How do you feel today about money?
  • Are you carrying any beliefs around money that are not yours? If the answer is yes, to whom do those beliefs belong to?

Transforming the emotional blocks around making a budget

If you’re having trouble even thinking about doing a budget, ask yourself, what is going on:

What emotion comes up when you think about money? Is it stressful? Is it painful?

I know this sounds like a lot of work and hard to even consider looking into. If you think about money or doing a budget and you get a negative feeling, then you really have to dig deeper because, chances are, those feelings are what have you struggling financially in the first place.

Find a quiet spot and start paying attention to what happens in your body when you think about money.  Whatever emotion comes up, just observe it.  Don’t judge, just observe.  Allow it to take space and shape.  Start a journal if it feels right.  Some people really benefit from writing in a journal.

Think of it as whole project: you don’t have to figure it all out in one go, it’s a process, an ongoing process. With such an emotionally charged subject, it would be almost impossible to tackle in one go. But the good news is identifying your emotional blockages around money is the hardest part, making a budget is the easy part after that.  Working with a life coach can be very helpful.

Here’s are two you might want to try:
– David Curry from David Curry Counselling
Gina Best

New Year, new financial start!

New Year 2016
Image courtesy of Viacheslav Blizniuk at FreeDigitalPhotos.net

One interesting aspect of Christmas holidays is how we are sucked into the vortex of having to buy gifts for our loved ones; both businesses and banks have some very creative ways of alluring us into spending as much as possible, while us, consumers, are thinking we’re getting a good deal.

Don’t get me wrong, there are some great deals to be had on Boxing Day, but does it fall within your true spending reach and budget? You might get into a panic and think, “Wow, what a great sale, I’ll put it on my credit card and deal with paying it off later.”

January comes along and the credit card statements start marching in and you find yourself unable to pay the full amount owing, so you start carrying a balance.  The reality is that now the great deal you got is being financed at 19% to 30% interest, depending if you put it on a store card such as BestBuy, Nordstrom, or your bank VISA. Store cards are usually higher interest cards than bank cards. So much for the great deal!

Let’s break it down and see a rundown of what carrying a balance actually looks like:

For this example I’ll use a flat Screen TV we bought for $1,000 after a 20% discount that we would finance over 12 months.

Loan Amount: $1,000Graph1
Interest Rate: 19%
Loan Term: 12 months

Payments:
Monthly Payment: $92
Total Interests: $106
Total Paid: $1,106

 

As you can see from the example above, the 20% discount is now down to 10%, and that’s without including the lost earned interest on the $106 you paid in interest costs.  But I don’t want to get too deep and make this example to complicated.

So now that the deed is done, what do you do?  Well, you have a few options.

  1. The obvious one, pay off the balance on your credit card and avoid any interests.
  2. If you just can’t afford to pay the balance off and if you have more than one credit card, move the balance to the lowest interest one. I would even go as far as applying for a new low interest Credit Card, the savings can be significant,  some banks offer 0% interests for 12 months.
  3. Consolidate your credit card balances into a line of credit that is a few points above prime. With interest rates being so low, this is still a good time to consolidate at lower rates.  The savings can be substantial.  Make sure it’s unsecured, which means don’t attach it to your home or mortgage.
  4. If you’re too far stretched and having trouble making the minimum payments, then it’s time to give me a call.  We offer a a variety of debt free solutions and a free consultation to discuss your options.  Book your appointment here.

There are many options other than letting credit card interests eat you up. One common mistake is to ignore it and hope it will go away, until you are making only the minimum payments and keeping the banks happy. Managing your debt will take a huge load of your back and it can be done with a few simple steps like budgeting and guidance.