Category Archives: credit issues

Indebted seniors among Canada’s most at-risk sectors

Indebted seniors among Canada’s most at-risk sectors

 

Indebtedness among Canada’s elderly population is on the rise, according to academics and financial experts at an international conference at Ottawa’s Carleton University last week.

Contributing to this trend—not just in Canada, but worldwide as well—are multiple pressures that include easy credit, unreliable pension plans, divorce among seniors, unmonitored spending by people with dementia, and financing the needs of younger family members.

Compounding the issue is a similar growth in the number of people in late middle age who are quitting employment or taking on even greater debt, either to care for their aging parents or to help their adult children buy their own homes.

“There is the worldwide phenomenon of older people who go into debt to help their children,” Carleton University School of Public Policy and Administration professor Saul Schwartz said, as quoted by the Ottawa Citizen.

Earlier this year, a global survey commissioned by HSBC found that 37 per cent of young Canadians who currently have their own homes used the “Bank of Mom and Dad” as a source of funding. Meanwhile, 21 per cent of millennial home owners moved back in with their parents to save for a deposit.

Schwartz, who was one of the conference’s organizers, added that Canadian seniors suffer from a lack of source that provides impartial advice.

“You can talk to your bank. But if the advice is free, it’s probably not unbiased,” he explained.

A study conducted by Equifax Canada and HomEquity Bank last year uncovered that 16.5 per cent of people aged over 55 were carrying mortgages. The average mortgage balance in this demographic swelled from $158,000 in 2013 to $176,000 in 2015.

Bankruptcy trustees Hoyes, Michalos & Associates Inc. have warned that seniors were the fastest-growing risk sector for bankruptcies.

“The share of insolvency filings for debtors aged 50 and over increased to 30 per cent in our 2015 study compared to 27 per cent in 2013,” the Ontario-based firm warned, adding that on average, debtors aged over 50 held unsecured debt of over $68,000 (over 20 per cent higher than the average debtor).

 

Source: Mortgage Broker News – by Ephraim Vecina15 Aug 2017

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Why your credit score matters

And how to improve it

Despite holding multiple credit products (like credit cards or lines of credit) many Canadians don’t understand how debt and their behaviour around it affects their credit score in the eyes of the credit bureau—or why it’s important; on top of that, 47% of Canadians don’t know where to check their credit score.

Your credit score is a three-digit number, between 300 and 900, that measures your creditworthiness. The higher your score the better, as it’s used by lenders and financial institutions to determine whether your credit-worthy or not. In general, a low score could mean you’re declined on a loan or receive a higher interest rate, while a higher score allows for lower interest rates and better options when it comes to things like getting a mortgage and borrowing money. Your credit score number essentially indicates how likely your are to repay money you borrow, based on how you’ve handled past financial obligations.

How is your credit score determined?

Most lenders want to see two forms of active credit for at least two years. The longer the history reporting, the better.

Your credit score is made up of the following:

  • 35% payment history. It’s important to make your payments on time. Missing a $4 dollar payment on a credit card could be as bad a missing a $400 payment, so don’t skip the minimum payment. This also includes collections. Some creditors (even city parking ticket collectors) may report that you haven’t paid them to your credit bureau, or even use a third-party collection agency to get their money back. These collections on your credit bureau can lower your score.
  • 30% utilization ratio. This is your level of indebtedness, or how much of your total available credit you’re using.
  • 15% length of credit. The longer you have an account open, the better. It shows you’re capable of managing credit responsibly.
  • 10% types of credit. It’s good to have a mix of different types of credit (revolving credit like credit cards and lines of credit are riskier than personal loans so it’s better to have fewer of those in your mix) to show that you can handle your payments.
  • 10% inquiries. These happen every time you agree to a “hard credit check”. Hard checks usually happen even when opening a chequing account with a bank or a new phone plan.

3 things that can help improve your score:

1. Practice good utilization ratio habits

A relatively fast way to improve your credit score is to start practicing good utilization ratio habits. Once you start doing this, it could improve in as little as 30-60 days. If your credit card limit is $1,000 and your balance is $1,000, your utilization ratio is 100 per cent — and this not good in the eyes of the credit bureau. Credit bureaus base credit scores on behaviour with credit. If you’re constantly maxing out your credit cards, it could imply that you’re not far away from defaulting on your minimum payments. It looks like your income is stretched. Set an imaginary limit of 70 per cent and don’t go over that. Doing this will keep your credit score healthy. For example, if your credit card limit is $10,000, don’t borrow over $7,000.

2. Think twice about closing an unused credit card

It may seem like a good idea to close a credit card that you’re not using, or have paid off and are trying not to use. But, closing a card, or leaving it inactive can negatively affect your credit score. This goes back to the length of credit factor that the credit bureau reports on which makes up 15% of your credit score. Rather than closing the card, consider using it for a monthly subscription, like Netflix or Spotify, and set up an automatic monthly payment from your bank account to ensure it’s covered. This trick will also improve your utilization ratio and payment history, since you’ll be staying far under your limit, and making on-time payments.

3. Consolidate credit card debt

Credit cards are considered revolving debt; meaning when you pay them down you can keep borrowing against them. This type of debt is psychologically proven to keep people in debt. Many revolving credit products allow you to pay back only the interest, which is a major reason why so many people find themselves stuck in what feels like an endless cycle of debt. If you’re like 46% of Canadians* and you carry a credit card balance every month, you could benefit from a personal instalment loan to help get out of the revolving debt cycle. Unlike credit card debt, an installment loan has a specific term and requires you to pay back interest and principal in every payment, which means you have a set deadline for paying it off and getting out of debt.

The first step in improving your credit score is knowing it. Mogo offers Canada’s only free credit score with free monthly monitoring. Check your score at mogo.ca.

Source: Special to Financial Post | May 6, 2017 |

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Pros and Cons of Joint Credit Cards

CoupleUsingCreditCard_ImageSource_DigitalVision.jpg

When two people have a joint credit card account, both people can make charges to the credit card and the card’s history is included on both people’s credit report. Both people are also liable for the credit card payments. When the payments become delinquent, the credit card issuer can go after either cardholder for payment.

If you’re thinking about getting a joint credit card with a partner, spouse, or child, knowing the pros and cons will help you decide whether it’s a good idea.

Advantages of Joint Credit Cards

You share a bill. When you and the other person, your spouse for example, have one rent, one electricity bill, one cell phone bill, it seems only natural to share a credit card bill. Having one less bill to pay can let you make the most of your income. Plus, when it’s time to pay off your debt, you’ll have an easier time deciding which card to pay back first.

Help one person get better credit. Adding a spouse or family member with bad credit to your credit card can help them get better credit. But it will only work if the credit card is managed right – the bill is paid on time and the balance is kept low.

Help one person get a credit card/good interest rate where they otherwise wouldn’t. Being added as a joint user might be the only way to get your spouse a credit card, or to get her a low interest rate.

Disadvantages of Having a Joint Credit Card

Both people are legally responsible for making the payments. That means the credit card issuer can take legal action against you for charges you might not have made.

You could even be sued and have your wages garnished.

Credit card disagreements could cause relationship problems. In a 2008 poll conducted for CreditCards.com, 19% of respondents who shared a credit card said they had arguements with the other person about the account. Seven percent said they’d cancelled a shared credit card because it caused relationship problems.

Breakups or divorce make it hard to manage the credit card. No matter what a divorce decree says, the credit card issuer holds you to the original credit card agreement. So if your ex-spouse isn’t paying his or her share of the credit card bills, your credit can stil be affected. It’s even harder to manage the credit card bill if you sever ties with someone you were dating or even a friend or family member.

One person could use the credit card to hurt the other. It sounds childish, but it happens, often after a breakup. One cardholder could go on a revenge spending splurge, leaving the other cardholder with the bill. If the revenge-seeker already has bad credit, she (or he) has nothing to lose from a maxed out credit card or a few more late payments.

Should You Share a Credit Card?

It’s wiser to keep separate credit cards. Before you make the decision to get a joint credit card, evaluate your reasons for sharing a credit card. In the CreditCards.com survey, only 9% of respondents said they felt closer to the person after sharing a credit card.

Similarly, 9% said they felt more in control of the relationship.

Discuss the pros and cons of having a joint credit card. Make sure both people understand the effect a breakup could have on your credit history.

Source: TheBalance.com – Updated September 10, 2016

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When your mortgage is more than you can handle

On paper, you could afford your mortgage. Your lender even approved the paperwork. But now that you’re settled in your home, maybe you’ve incurred some unplanned-for monthly expenses, such as higher-than-planned utility bills, property taxes that have risen (as they tend to do), or increased insurance premiums, and find that you’re unable to make your mortgage payments. If you’re not sure what to do, the first thing is not to panic. All hope isn’t lost, and you don’t have to let your home own you. You do, however, have to confront the issue head-on in order not to lose control of your finances.

If you think your mortgage is too big, here are some options and avenues to consider going forward.

  1. Budget
The first solution is the most obvious: Cut back on other expenses to try and make up for the shortfall. If you got a mortgage without properly budgeting, then it’s better late than ever. Be honest with yourself and keep track of everything you spend for one month – or even better, categorize all of your spending that took place last month so you can get a jump-start on the process. Quicken, Mint, and YNAB (you need a budget) are popular tools for tracking your spending and creating a budget. By tweaking your lifestyle and spending habits, you might be able to close the gap between the amount of money that you need for your mortgage and housing-related expenses and how much you’re spending elsewhere.

 

  1. Refinance
Refinancing is when you go back to your lender (or a new lender) and renegotiate your mortgage contract, based on your current balance and the current interest rates, before your mortgage term has expired. Note that if you refinance, you’re almost certainly going to end up paying a penalty for breaking your mortgage contract, even if you stay with the same lender. But the upside is that if you refinance at a lower interest rate than the one that’s currently being applied to your mortgage, then you can save money on your monthly payments. Another option would be switching from a fixed rate to a variable rate mortgage during a refinance, since variable rate mortgages tend to have lower interest rates than fixed mortgages. But since the interest rate on your mortgages fluctuates with the market rate, this tactic could also end up backfiring on you if interest rates go up; you’ll be forced to pay the higher interest rate and payments could end up being higher than you were previously paying. Refinancing can also be used as a tool in conjunction with budgeting, so that you withdraw some of the equity in your home to consolidate and get on top of your debt while better managing your cash flow going forward.
  1. Sell, sell, sell
It is always an option to sell your house and get a smaller one. While selling your home and pocketing the profit may seem like a good idea, the profits might not be as big as you’d expect. Between land transfer taxes, the penalty of breaking the mortgage, fees for real estate agents, and other selling expenses such as staging and/or making small repairs, you may find that your profits will be eaten into at such an extent that you can’t sell your house while generating enough cash to pay off the mortgage. Reasearching your housing market and having a frank conversation with a realtor when it comes to how much you could realistically expect to get for your home will be a big factor in determining whether or not you should sell, as well as using online calculators so that you know how much those other incidentals will impact your bottom line.

 

  1. Rent it out
Renting often gets a bad rap as the doomed fate of the poor, the irresponsible, or the nomadic. But the thing is, it’s a fiscally responsible option for many people. If your housing market isn’t favouring sellers, or you aren’t getting any response to your house being on the market, considering whether it may be an option to rent your property to a tenant and live in a less costly option, whether that be smaller or located in a less desirable area. The sale and rental markets are related, so what’s happening in one will impact the other. If your area is experiencing a slow housing market and fewer people are buying homes for whatever reason, then there may be more people who are renting, or open to the idea. Ideally, your income from the rental will cover the costs associated with your home, and all you’ll have to pay for is your new rent, which you would find at an amount that you could actually afford.
  1. Get a private loan
This is not a fail-safe option and the private lending space isn’t for undisciplined borrowers. That being said, if you have a plan, a private loan can be a good way to consolidate other high-interest debt that could free up some money that could go toward your mortgage payment if you’re suffering from a temporary setback such as making ends meet during a period where you had a loss of income, or went through a divorce.
  1. Talk to your mortgage broker
It’s all about knowing your options in this situation, and whether you want to refinance your mortgage, switch lenders, sell your home, you need to know exactly what each option is going to mean in terms of your current mortgage, which means you need to know how much the penalty is going to end up costing you in the long run. Remember, talking to your broker is free, and even though they’re not a financial planner or advisor, they can advise you as to what loans and mortgages would work best for you in your current situation.

Whatever you decide to do, you do have options. They may not always be the best options, but there are ways for you to get your head above water, even if your mortgage is too big for you. If anything, once you get on top of your situation or the next time you buy a house, you’ll know better how to anticipate your true expenses and budget for them going ahead.

Source: WhichMortgage.ca By Kimberly Greene | this page was last updated on the 25 Jan 2017

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Nearly half of homeowners unprepared for job loss or other emergency

The poll released today by Manulife Bank finds that 24 per cent of those surveyed don’t know how much is in their emergency fund, 14 per cent have not put away any funds and nine per cent have access to $1,000 or less. (GETTY IMAGES)

An emergency fund is meant to be there in times of need, but a new survey suggests nearly half of Canadian homeowners would be ill prepared for a personal financial dilemma such as job loss.

The poll released Thursday by Manulife Bank found that 24 per cent of those surveyed don’t know how much is in their emergency fund, 14 per cent admit to not putting away any funds and nine per cent only have access to $1,000 or less.

The remainder of those surveyed have up to $10,000 saved, with the average amount being $5,000.

Manulife Bank chief executive Rick Lunny says not having three to six months of expenses set aside can lead to desperation if a situation arises where you need to access money right away.

“The risk here is when they don’t have that money, and an unexpected event happens like you need a new furnace or a car repair, many of these people don’t have a choice but to lean on high interest cards,” he said.

Lunny noted that instead of taking advantage of the current low-interest rate environment to save money, the poll suggests that many homeowners are using it to buy more expensive homes.

“They’ve taken on large mortgages and as a result of that, they’re stretched in many ways,” he said. “Because of that, maybe they haven’t had the financial discipline to put aside rainy day money.”

Manulife says among those polled, homeowners had an average of $174,000 in mortgage debt, with an average of 28 per cent of their net income going toward paying off their home each month.

About half (46 per cent) of those polled say they would have difficulty making their monthly mortgage payments in six months or less if their household’s primary income earner lost his or her job.

Sixteen per cent say they would have financial difficulty if interest rates cause their mortgage payments to increase.

Mortgage data has been a hot-button topic in recent months as the federal government takes steps toward reducing the risks in the Canadian housing market, particularly in major cities like Toronto and Vancouver.

Earlier this month, Finance Minister Bill Morneau announced that stress tests will be required for all insured mortgages to ensure that borrowers would still be able to make their mortgage payments if interest rates rise or their financial situations change.

Last year, Ottawa raised the minimum down payment on the portion of a home worth over $500,000 to 10 per cent.

Lunny applauded the changes but says it doesn’t change the financial situation of current homeowners, who may already find it difficult to make mortgage payments.

The poll by Environics Research was conducted online with 2,372 Canadian homeowners from June 28 and July 8 of this year. Survey participants were between the ages of 20 to 69 with household income of $50,000 or more.

The polling industry’s professional body, the Marketing Research and Intelligence Association, says online surveys cannot be assigned a margin of error because they do not randomly sample the population.

Source: LINDA NGUYENTORONTO — The Canadian Press Published Thursday, Nov. 24, 2016 

The poll released today by Manulife Bank finds that 24 per cent of those surveyed don’t know how much is in their emergency fund, 14 per cent have not put away any funds and nine per cent have access to $1,000 or less. (GETTY IMAGES)

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Nine steps to a better credit score

(Photos.com)

My husband and I are pretty competitive, always trying to one-up each other.

It was to my chagrin, therefore, when I learned that although my credit score is excellent, his is better. I have never missed a bill payment, never carried a balance, so what could be holding me back?

According to author and former financial adviser Kelley Keehn, there are lots of innocent things that can affect your score. For example, most people don’t realize there are two important dates when it comes to paying off certain credit cards: the due date and the statement date. The statement date is when the card issuer reports your balance to the credit bureau, not the due date. So even if you pay your balance in full and on time each month, your credit score may not reflect that.

“Let’s say my due date is Dec. 8 and I have a $10,000 limit. I pay it in full before the 8th and won’t be subject to any interest,” Ms. Keehn says. “But, let’s assume my statement date is Nov. 15 – that’s a very important date as it’s the date the credit card company reports to the credit bureau, not the due date. Let’s assume I make a big purchase on the 14th, say for a reno at my home, not thinking anything of it, and pay for some hardwood costing $9,000. The next day the credit card company would report that I’m 90 per cent extended on my credit card.”

If you’re not sure of your credit rating, you can get a free report from Equifax.ca or Transunion.ca that will include your credit history and current credit outstanding. For a small fee, they will include your credit score as well. A good score is 760 or higher, and anything less needs work to improve it, Ms. Keehn says. (To order a free credit report from Transunion, click here. To order from Equifax, call 1-800-465-7166.)

She advises taking these steps to protect and improve your credit score:

1. Know your score. The score range in Canada is 300 to 900 – the higher the better – and reflects a person’s credit history over the past six years. Only 5 per cent of Canadians have a score of 850 or better. Checking your score periodically can alert you to mistakes as well as credit fraud.

2. Pay your bills on time. Making a credit card payment even one day late will hurt your score. If you’re paying online, send the payment at least three banking days before it’s due to allow enough time for the transaction to be processed. Setting up a small automatic payment to your card issuer each month will ensure you never forget to pay at least the minimum.

3. Never exceed your credit limit. If you’re close to being maxed out, make sure you pay more than the minimum or the interest due could push you over your limit. Going even $5 over your limit could lead to a costly fee from your credit card company and will hurt your score each month it happens.

4. Don’t apply for store credit cards. Even if you’re just after a one-time discount for signing up, these cards, with interest rates as high as 29 per cent, are viewed negatively by the credit bureau and drag down your score.

5. Spread out your spending. The percentage of available credit you’re using each month affects your score, so it’s better to have two charge cards at 50-per-cent capacity each than one that is maxed out.

6. Prioritize your payments. Important as they are, mortgage payments generally are not reported on Canadian credit reports, so it’s more important to make your credit card, loan and lease payments on time.

7. Beware of closing accounts. Even if you’re in a dispute with a lender, make your payments. A missed payment will show up on your credit report, can really hurt your score and is very hard to fix. When closing an account, get it in writing that it was closed with a zero balance.

8. Don’t close unused credit cards. If you have a low-interest card you don’t use, keep it open and use it periodically. Having a zero-balance credit card actually helps to improve a low score.

9. Don’t apply for too much credit at once. Don’t lease a car, sign up for a new cellphone and apply for a loan all in the same month or two. The credit bureau sees this as a sign of financial trouble. Beware, also, of being preapproved by several lenders before you’re ready to buy. Although you can check your own credit rating without penalty, preapprovals from lenders count against your score.

Source: DIANNE NICE The Globe and Mail   Published Monday, Nov. 22, 2010 6:39 AM EST  Last updated Thursday, Aug. 23, 2012 4:08PM EDT

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Should You Sell Your Home to Pay Off Debt?

for-sale-sign-house-home

Home prices have literally gone through the roof in Canada in recent years. If you’re lucky enough to have entered the market a few years ago, you’ve built up some equity. But what if you have other, not so good debts, like credit cards, overdrafts and tapped out lines of credit? How should you use the equity in your home to deal with this debt?

If you do have equity in your home, you have three potential options to pay off excess unsecured debt:

  • Sell your home, cash in the equity and pay off your debt.
  • Use the equity in your house to support a debt consolidation loan to amalgamate multiple old debts into one new, hopefully lower cost, debt.
  • Depending on how severe your debts are, consider something called a consumer proposal.

Each alternative comes with its own pros and cons and choosing the best alternative means doing a cost-benefit comparison based on your individual situation. Let’s look at some of the considerations.

Can you afford to maintain your home?

The very first step is reviewing your budget to see if you can afford the ongoing costs of keeping your house. If your unsecured debts came about because of other spending problems or you were out of work temporarily, but things have returned to normal and you expect you can now keep up with your mortgage payments, selling your home may not be the best option.

If, however, your home is one of the main reasons your budget is now out of balance, perhaps because your income was permanently reduced due to retirement or a job change, then you need to make the hard decision to sell and downsize. Dealing with old debts, while continuing to pile on more to make ends meet each month, doesn’t make long-term sense.

Will you realize enough to pay off all your debts?

Let’s assume you can afford to keep your home. The next question becomes should you sell anyway in order to pay off your other debts and effectively start over? This may only make sense if you truly are able to begin again without any other unwanted debt.

If you owe $50,000 in credit card debt and only have $35,000 equity in your home, selling your home won’t solve all your problems. Once again, you need to look at your budget and decide if selling your home and relocating (you have to live somewhere) will save enough that you’ll be able to repay the additional $15,000 you owe in a reasonable period of time.

Interestingly, this is the same analysis you need to make when considering a debt consolidation loan. If taking out asecond mortgage on your home doesn’t consolidate all of your existing unsecured debts and balance your budget, then it might not be the best choice.

Are your debts too large to deal with on your own?

Finally, if selling your home (or taking out a debt consolidation loan) won’t cover all of your debts, and repaying the excess will take too long, then it’s time to consider options that will help you eliminate all of your debts now.

If you have equity in your home, a consumer proposal filed with a bankruptcy trustee is a way to use that equity to negotiate a settlement agreement with your creditors. In a consumer proposal, you’ll end up paying less than you owe, yet all of your unsecured debts are eliminated.

So in our original scenario you may be able to negotiate a payment plan with your creditors to pay them $35,000 to $40,000 and walk away from $50,000 in debt. In a consumer proposal, you can keep your house if you decide you can afford to or you can sell your home and make a lump sum settlement offer. The point is, your debts are eliminated no matter how much equity you have. So if you owe more than the equity in your home, this is a great option to consider.

The best approach is to talk with a professional such as a bankruptcy trustee. They can help you review the numbers and choose the right solution for you.

 

Source: RateHub.ca by Doug Hoyes November 13, 2015

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