Ask the Expert

Have a financial question? Ask the experts!

Consolidated Credit’s executive director, Jeff Schwartz, is an expert in the financial industry with over 26 years of experience as a business and community leader. As the head of Consolidated Credit, a non-profit organization that has helped over 500,000 Canadians get out of debt, Jeff is well aware of the roots of financial trouble, and he also knows the best ways to get back on track.

In this section, Jeff answers questions from consumers just like you; real people with real financial problems. The answers and advice he provides below can give you valuable insight into your own issues.

If you have a question of your own and would like Jeff’s advice on best financial practices, e-mail [email protected]. Jeff will address your questions and post the answers right here because if you are asking, chances are someone else is asking too!

 

Check out our “Ask the Expert” videos!

Jeff Schwartz breaks down how to go about a school budget, what to look out for, and what to prepare for!
  1. Back To School Budgeting, An A+ Plan

    Back To School Budgeting, An A+ PlanJeff Schwartz breaks down how to go about a school budget, what to look out for, and what to prepare for!

    Ben: Hello. Welcome to another Consolidated Credit Counselling webinar. We’re joined again by Executive Director Jeffrey Schwartz, who I’m going to guess has been through the back to school shopping ringer more than a few times. So, Jeff, thanks for joining me and lending us your expertise, both as a financial expert and a back to school shoppers.

     

    Jeff: Ben, happy to be here. And you are right. Thanks for having me because I have a lot to say on this topic. There are some great tips out there to make this a little bit less of a painful experience.

     

    Ben: OK, good. So today, let’s take a look at what we’re going to look at today. Today we’re going to take some time and talk about planning before we get to the “How do I save money?” part. Now, I know that saving money is an important part of this topic, but there are so many great websites and resources out there that are dedicated to saving money at this expensive time of year. There’s no way we can do them justice in the time we have today. I’m sure you’re all familiar with Google, Amazon, eBay, Kijiji, but you might not be so familiar with budgeting or spending plans. I’ll go out on a limb here today and say that planning is probably the most important part about what we’re going to talk about today. So Jeff, as both a parent and a financial counsellor, would you agree that planning is the first and most important step here?

     

    Jeff: Yes, absolutely. Without a plan, it doesn’t matter how much you save. Credit card temptation, impulse buying, or compulsive spending can happen without a plan. If the kids come with you shopping and you don’t have a list, anything on the shelves for them is fair game. You know what that means – it’s going to be a battle of strength the whole way. Don’t leave the kids at home, but stick to the list. Planning for the shopping season is absolutely critical. There are so many resources out there to help you plan for it. So it’s best to take advantage of that and take the guesswork out of it, even before you leave the house. I’m thinking of school lists, backpacks that haven’t been emptied since June, and online comparison and coupons. All this is going to help you succeed.

     

    Ben: Good. So, there are some great points there that are also going to lead us to the other points on the slide there. Don’t worry, we will be looking at a few proven strategies for saving money, but only after we’ve touched on planning for this expensive time of year. After that, we’re going to look at all the ways that we can use this time of year as an opportunity to teach our children some basic financial skills that they’re definitely going to need later in life. And then finally, we’ll have some time to take some frequently asked questions. For now, let’s turn things over to Jeff, and he can get us started with planning and setting your budget.

     

    Jeff: Planning, I mean, this means making a budget. What do you have available to spend? You want to set a budget and keep that in mind. What do you need? And I mean, what do you need to spend so you can set those limits appropriately? Write that list down, use it as a checklist, no more, no less. A plan is going to help guide you and help you stay on target so you don’t have to overspend or buy things you don’t need. Planning is really important at this time of year because there are so many distractions that will tempt you to spend more.

     

    Ben: Right. We’ll quickly look at some simple strategies to help you plan and budget for this back to school shopping. But they pretty much all start with creating that list. You know, what your kids will actually need – not all the stuff that they want, but the stuff they actually need, because in reality, they may not need everything that’s on their school list this year. So, for instance, according to a recent Angus Reid poll, the average Canadian family spent $883 per household on back to school shopping. In the example here, we’ll use that $883 of the total budgeted amount, and then we’re just going to subtract as we shop. Some simple grade school math here. Just be sure to keep the receipts. This is something that I’ve seen quite a bit with confusion. What to subtract, what not to subtract. For instance, if you go shopping at, say, a Walmart Supercentre, some of the things you buy might not be school-related. It could be groceries or something for your personal needs. But by keeping those receipts, you can select which items were school supplies, which ones were for back to school, what was used for electronics, and you can then subtract those from whatever the budgeted amount is. Now, I mean, it doesn’t have to be $833 – that’s just what we’re using as the average here.

     

    Jeff: So, I think now would be a good time to bring up that old thing called “cash.” Yes, it’s still widely accepted. And it’s great for those people who might get carried away with credit or debit cards and lose track of spending entirely. In that case, you might want to use a cash budget. So, like in the last example, set a budgeted amount for each category, and then go and get the cash. Set it aside, just like the budget indicated, and subtract as you go. This is also a great chance for your kids to see exactly how fast that cash can disappear. As well, by using cash, once it’s gone, it’s gone. The physical nature of cash is a fantastic indicator. However, some will still prefer to use plastic. And if that’s the case, you need to exercise self-control. And a debit card is usually a better option in this particular situation. It’s the closest thing to cash, and once your account is empty, it’s empty.

     

    Ben: Right, I like that idea. It’s a tangible piece of cash. You have it, it’s gone, that’s it. There’s no more. For some people, I can see cash really working. But if you’re like me, and cash doesn’t stick around in your wallet very long, you might want to start looking at your mobile or online banking features. If you’re as big a fan of mobile banking as I am, then you can track your spending almost in real time. Again, sticking with one debit card or one credit card is also going to help keep things a little bit easier. But as all the transactions show up in that account almost instantly, you can then take your budget – in our case, $883 – and use your online or mobile banking information to subtract those transactions from your budgeted amount as you shop from store to store. So, it’s almost like real-live tracking. Now we’ll jump over to saving money, which is something Jeff can help us with.

     

    Jeff: Good. So, now that you’ve got your plan together, you set a budget amount, you decide to use cash or one credit card or one debit card to keep track, you’re all ready to hit the store or the keyboard. The choice is yours, but in my experience, it seems that everyone waits until the last minute. Back to school deals start popping up in stores and online ads in late June. Yes, June. So pay attention, and you may want to shop early to avoid the crowds. If you’re a person who’s easily stressed out, then shopping early is a great way to avoid some of the stress when you go out to the shopping mall, and it will also give you ample time to make sure that everything is purchased and ready to go long before the first day of school. Remember, look for deals wherever you can – bargain bins in-store, coupons in the paper, and even online – this is all going to help on the bottom line.

     

    Ben: Right, and that sounds like my mother in a nutshell. She hated shopping, she hated the crowds, so, pretty much her back to school shopping was finished by June. We all thought she was crazy, but when school day rolled around, she wasn’t stressed freaking out, worried about all the stuff that we’d need. If back to school shopping in June or July isn’t your thing, then maybe you’ll want to wait the week after school starts. That’s when things hit the clearance shelves and you’ll be able to take advantage of the biggest sales and bulk deals. Another advantage of shopping later is you can actually wait and see. Maybe all the stuff your kids are begging you for right now isn’t really needed. Your children might absolutely be sure that they need the newest, trendiest item. They have to have it for the first day of school, but by November, it’s stuffed in the back of a locker, or it’s in a closet never to be seen again. So, if shopping isn’t your thing in general, then maybe like Jeff said, it’s time to hit the keyboard and flex your Google muscles. Take advantage of the discounts and promo codes for back to school shopping, both at the major retailers, but also look at parenting groups on social media. There are listings on Kijiji or eBay. Often you can find unused items that other parents are trying to get rid marked even new with tags. They’re trying to sell them or give them away for free, so that’s a great way to save some money there. And be sure to look into free shipping or promotional offers like Amazon Prime Day. And yes, I know that Amazon Prime Day, Black Friday, Boxing Week – those don’t happen around the start of the school season, but they’re great times to find huge savings on supplies that could be saved for later in September when school starts.

     

    Which brings us to our next couple of points about saving money. The first one is, back to school shopping is an annual event. It’s going to happen every year from kindergarten to grade 12, and then beyond. So, Jeff, you are the budgeting guru here and your experience with back to school shopping, so perhaps you can take us through this slide and just give us your take on how to save during this expensive time of year.

     

    Jeff: OK, thanks Ben. This is an annual event, much like the holidays and March Break, which means that you have plenty of time to save for it. In budgeting jargon, ‘back to school expenses’ could be classified as both flexible and irregular. They could be flexible in the sense that one year, they will need new shoes or a backpack. Maybe even a big-ticket item like a laptop, and then next year they won’t need those more expensive items. So it’s going to vary from year to year. It’s also an irregular expense in that it’s not happening every month, but why not make it a monthly expense starting with your next paycheck? Start with squirreling away $30 or $40 a month and then by the time September rolls around, you’ll have a few hundred dollars to help with you and your school budget so you don’t have to go into debt. If your finances are a little tight, then look at using some of your regular income for this irregular expense. Something like your tax refund, or a bonus at work, or gift money. Something along those lines. And put it away and use it later instead of going out and buying that gift or whatever you think you want to treat yourself, put it away and make that your savings account for your back to school shopping.

     

    You might also want to use those credit card points. Cash-back cards can be set up to put the cash back into a savings account. Loyalty points can be redeemed for gift cards. Remember, the key is to start now. Even if it’s just a small amount, it all helps.

     

    Ben: Right, and we see that again, you know, with holiday budgeting, right? If you save a little bit every month, it makes it a little bit less of a burden when that time does roll around. Another thing we should mention, and we’ve kind of mentioned briefly, is creating an inventory of what you already have. What can be used from last year? Do they need a new backpack? Do they need a new lunch bag? Just because the lunch bag from last year isn’t plastered with all the characters from the newest Disney movie doesn’t mean it’s any less of a lunch bag. And my personal advice is, always go with Star Wars. It’s both stylish and a timeless option and it works for boys and girls of all ages. And like I mentioned before, parents have a habit of collecting way too much stuff. And then what do they do? They sell it or give it away. So perhaps you want to take a look at some of those options for buying used. Just because it’s used doesn’t mean it might not be brand new. And in that case, you could look at second-hand stores. That’s another great option for saving money.

     

    The next thing we should talk about would be credit. How are you going to pay that credit card off? This could be a great time to earn some extra credit by using credit. But like I said, be sure to ask yourself, how are you going to pay that off? If you’ve budgeted, and you’ve saved, and you’ve stuck to your plan, then you should have no problem paying off the credit card balance. And that could be a great thing. It means you’re using rewards and credit for convenience, not necessity. So go ahead, use the rewards card or the cash-back credit card, and by paying it off on time, you’ll also be building good credit history as well as netting those points or cash back. But, what happens when you have trouble paying those credit cards off? Sometimes it seems like it happens every year in September, and then maybe again in January. Jeff, can you just enlighten us a little bit on what that could mean when you’re having difficulty paying off your credit card at these expensive times throughout the year?

     

    Jeff: Facing difficult times because you’re having trouble paying your credit card bill isn’t something that sits well with anybody. Again, like Ben said, it’s not just back to school. It’s many different things. It’s any time, really, that you’re pulling your credit card out of your wallet, and the idea here is, stop. Take the credit card out of your wallet and remove that temptation. Using that card for back to school shopping just means that you’re going to go deeper into expensive debt. It also means you’re using credit for a necessity like Ben said. And that’s fine if you pay it off, but not so good if you’re carrying it from month to month. It’s time to get that debt under control and start reducing it. Remember, there is help out there for mounting debt and school supplies. Seek the guidance of a trusted financial advisor or non-profit credit counsellor, and they’re going to help you with some creative ideas, not only to save money, but to help you get out of that debt.

     

    Ben: Right, there is help out there, and it could be from a backpack or a school supply program, or school boards themselves, or the city or municipal government. There’s even non-profit organizations that run backpack and school supply drives. So they’re all willing to help, either by providing discounts on field trips, supplies for school, even some help with extracurricular activities, those types of things. Those are often based on income, so you have to look to the school board. So if you’re one of those families that might need a little bit of help, and if cash flow or debt are the issues, then maybe even before that, you want to take a look at your monthly budget. That’s always a great place to start. And if you don’t have a monthly budget, then now’s the time to start.

     

    Jeff: Absolutely Ben. And you know, credit counsellors are also a great place to start. They do an excellent job of providing an assessment, which includes setting up a monthly budget, and that’s something that we as parents need to do, not just for back to school, but all the time. And some of the ideas around how you would get that help is, you might want to speak to a family member or friend in a similar situation and ask them for help and tips. A trusted financial professional you work with, perhaps through your financial institution or your bank, or an employee assistance provider can help. Work with them to clarify your situation. And of course, you can always speak to a non-profit credit counsellor absolutely free. A credit counsellor is going to help you develop that budget, then they’ll send you a snapshot of what that budget looks like, and then they’ll be able to help look for areas that you can save money. If debt is a concern, and it’s a big concern, don’t wait. It’s not just back to school. Contact a credit counsellor now, and they’re going to help you assess the situation and as well as find a way out of it.

     

    Ben: Right, so help is out there. There’s more than one solution for different problems. So, you know, maybe just speaking to, like Jeff said, someone you know in a similar situation or a trusted financial advisor, or maybe you want to speak to one of our counsellors. Those are all great options.

     

    Another thing to do that you might want to include is having the kids be part of the conversation when it comes to these budgeting and back to school shopping lists. As stressful and busy as this time of year can be, there are many opportunities to use this as a learning experience. Involve them in the budget for their school supplies and their clothing. That’s a great first step. They’re going to learn that, while they have unlimited and/or endless wants, the money available for those wants is finite. And that’s a great way to improve their decision-making skills. They’re going to have the opportunity to make a choice, but since the money is limited, they’ll also have to live with the consequences.

     

    There’s seemingly an endless opportunity for financial activity when looking at back to school shopping, and I’m constantly hearing about these when I’m out doing these workshops or working with people in the community. And one of the favourite activities I’d heard of was a family, or parents come up with a way to have their kids find online coupons, printable coupons, promo codes for back to school shopping. And then if the mom uses those coupons when shopping, then she would give half of the value of the coupon back to the child on their next allowance. So for instance, their child found a $5 manufacturer’s coupon for pencil crayons. The mother used the coupon and then gave the kid an extra $2.50 on their next allowance. So they saved a bit of money, the product was a manufacturer’s coupon, so they purchased the pencil crayons on sale anyway, so they saved even more money. Other parents with older children have told me they were able to stay on budget by letting their kids know what they would match above and beyond the agreed budget. So for example, one high schooler was insisting he needed a new pair of Nike Air Force Ones. I think they’re like $120, but he was insistent that he needed those for the first day of school. So the dad said he would match his son’s savings. And if he really wanted those new Nikes for the first day of school, then he’d have to fork over the $60 that he’d saved from his allowance. Any experience or things like that you’d like to share that you’ve heard from other parents or your experience Jeff?

     

    Jeff: You know, I’ve done this with my kids. Every step of the way from elementary school to university. And each time that I’ve done it has been a tremendous learning opportunity for both of us. Once they know there is some sort of potential benefit in it for them, they are all over it. And you know, it’s a similar life lesson that we all use. If we want something, we can usually have it, as long as we plan for it. The kids are better at this than we are. And this is a fantastic opportunity for a lesson for them.

     

    Ben: Great. Well, in this case, it turns out the kid wasn’t the best at saving and he did wind up going to school the first day wearing his old Nike Air Force Ones from last year. But he did a really good job cleaning them. So maybe he made a smart financial decision after all. So those are some of the good first-hand tips from parents that I’ve heard. Jeff, you probably have some other tips that you’d like to share when it comes to involving your kids in the annual back to school shopping spree. Is there anything you want to share with us?

     

    Jeff: You know Ben, it’s really quite simple and involves everything we’ve spoken about today. It’s almost like a reiteration of this. But the first thing is, make a plan. And that means what you need and what you have. Recycle and reuse. Scrounge around to see what you already have. There’s nothing like a bit of a windfall when you don’t have to go out and buy something. Because that’s money that you don’t have to spend, whether it’s on sale or not. Involve the kids. They are motivated, they are engaged, and quite frankly, they’re far more creative than we are. And lastly, whatever plan you do come up with, stick to it, because there’s all sorts of temptations outside of that. And whether it’s your child that’s dragging you in one direction or the latest and greatest that you have an interest in, if you stick to your plan, there’s going to be a lot less chance that you’re going further and deeper into debt.

     

    Ben: For sure. I think if there’s one thing anyone takes home today, it’s that you need a plan for back to school shopping and any other sort of financial goals that you have.

     

    So now we have some time to take some questions, and one that has come up quite a few times involves bringing the kids with you when you’re shopping. Jeff, seems like you and your family have some experience in this area. Would you care to field this one? What are your thoughts on bringing your kids with you shopping when you go for back to school supplies or clothing?

     

    Jeff: You know, I happen to think it’s a great idea just because of all the learning opportunities that are available. But, you want to set the expectations and the budget well ahead of time before going out. Winging it around this time of year will end in arguments, disappointment, and overspending. Not the type of experience any parent wants. So, set yourself up for success in advance.

     

    Ben: Great. So, onto the next one. Another question I hear quite regularly is, “How much should I expect my teenager to contribute regularly from his allowance or part-time job for a back to school shopping budget?” Well, I would say as much as he or she can, within reason, of course. I mean, it’s important to have the conversation. Just say, “Here’s what I, the parent, am willing to purchase, and really what I can afford, and then anything above and beyond that, they’ll have to fund with their own income. I still remember begging and pleading with my dad that I needed a MacBook for my first year in university. Even though he’s a born and raised Apple fanboy, he knew that $1,600 was way more than he could afford and probably more laptop than I needed. But he did know that I could get a working laptop for about $700 that could browse the internet and run Microsoft and watch YouTube videos just as well as the MacBook. Despite that, I saved $900 from my summer job and I used the $700 that he had saved and I bought it. I had it. So Jeff, anything you’d like to add in regards to having kids use their allowance or their part-time income for back to school shopping?

     

    Jeff: I totally agree with this approach, and we’ve talked about it earlier in the webinar in that it teaches kids unbelievable decision-making skills. And we did the same thing in my house when my daughter wanted an Apple product. I said, “Yes you can have it, absolutely, but you’ve got to save for it.” And she did. And she saved for it and was so proud of it. And I also suspect that when you have more skin in the game, and perhaps with you as well, that that MacBook probably lasted far longer than it would have otherwise. And it was the same thing with my daughter and her Apple product. It was something that she treasured and I think it’s probably still around the house somewhere even though it was many years ago.

     

    Ben: Yeah, you’re right there. I certainly got my money’s worth out of that laptop. I used it in some of my post-graduate classes, and in fact, we’re still using it. It’s kind of become the household jukebox, mp3 storage, I guess.

     

    That looks like it’s all for today. Thanks again for listening, and hopefully you’ll have a better idea of how to handle back to school shopping season: this one, and the ones that are to come. And if you have any questions, please feel free to reach out to the counsellor at ConsolidatedCredit.ca email and we’d be happy to field any more questions. And if you or someone you know is need of some knowledge or financial education, or if you’re interested in learning how our wellness financial platform, KOFE, can help you or your organization combat financial stress, please contact me for a free demo. You can step into the credit dojo, learn the ways of the credit master, you can even chat with a financial coach, or sign up for a webinar. It can all be found at KOFETime.ca.

     

    So Jeff, this will conclude the webinar, and thank you again for taking the time to speak with us, and I hope you have a great day.

     

    Jeff: Pleasure, all the best.

     

     

     

     

     

     

  2. How Does a Debt Management Program Really Work?

    How Does a Debt Management Program Really Work?Debt management programs might sound unrealistic but our Certified Credit Counsellors have your best interest in mind!

    When I tell people there’s a proven program that can possibly reduce their total monthly credit payments by up to 30 or even 50 percent, they sometimes laugh at me. They say…

    “That’s impossible, Jeff. It can’t be that easy!”

    There are people who promise to wipe out your debt entirely — and they want to charge you a fee BEFORE they do it. Well, I’m here to tell you: When you call Consolidated Credit, you get a FREE debt analysis. And if our trained counselors recommend you for a Debt Management Program, you pay NOTHING up front.

    We work with both you and your credit card companies to eliminate interest charges and stop future penalties and fees. We’ve helped hundreds of thousands of Canadians, and if you want to know more about the FACTS of a debt management program, you can make a free call RIGHT NOW.

  3. How Does Debt Consolidation Affect Your Credit Score?

    How Does Debt Consolidation Affect Your Credit Score?Debt consolidation might be the right plan of action for you, but how will it affect your credit score? Watch Jeff Schwartz from Consolidated Credit Canada break it down.

    Debt consolidation is a simple concept: You take all your high-interest credit card balances and roll them into one simple monthly payment – at a lower interest rate. How do you do that? A number of ways. You might take out a personal loan, then pay off your credit cards and pay back the personal loan at a much lower interest rate. You might roll over your high interest rate cards onto a low-interest rate card or if your credit score is good you could get a zero-percent interest rate credit card. Other options could be borrowing from your retirement accounts or even get a home equity loan.

    Whatever you do, your credit score will likely take a hit, but it won’t be a big hit. Why? Because whatever debt consolidation method you choose, it’ll probably cause a “hard inquiry” on your credit. A hard inquiry is when a lender is checking up on you, seeing if you’re a good credit risk. Your score dips temporarily because the agencies that calculate your credit score figure you’re looking to get new loans and lenders get nervous when you acquire new debt.

    Of course, they don’t know you’re doing this to PAY OFF debt, not creating more of it. So, the dip doesn’t last long, because if you do this right, you’re paying off that new, lower-interest loan each month. That means your debt-to-income ratio is getting better and when that happens, your credit score rebounds.

    The bottom line is, paying down your debts by whatever works best for you will eventually RAISE your credit score! If you want to know more, call Consolidated Credit today for a FREE debt analysis. Our trained counselors will help you find the perfect debt solution for you.

     

  4. How to Pay Down Credit Card Debt on Your Own

    How to Pay Down Credit Card Debt on Your OwnPeople struggle everyday with Credit Card debt in Canada, watch Jeff break down some simple steps to take so that you're not put into a sticky situation.

    I lead one of Canada’s largest credit counselling non-profits and we’ve helped hundreds of thousands of people pay off their credit cards. But some Canadians want to do it on their own, and I applaud them for that. If you’re one of those DIY people, let’s talk about two tactics you can take by yourself. First, there’s a personal loan. That’s right, you’re taking out a loan to pay off your credit cards. The thing is, a personal loan’s interest rate is much lower than the sky high rates on your credit cards. So while you’re still paying off a loan, you’re actually saving money. You’re also paying off one loan instead of trying to juggle a bunch of credit card statements. Forget to pay one of them and you face steep finance charges.

    The other tactic has a long name but a simple concept: introductory 0% balance transfer cards. These are credit cards that feed on other credit cards. They want you to transfer all your credit card balances to their card and while they often charge you a small fee to do so, they lure you in with an amazing offer. Pay no interest for 6, 12 or even 18 months. What’s the catch? Simple. Once that introductory period expires, you pay full interest once again. So if you can pay off your balance within those few 0 interest months, you save big. But if you don’t, well you might actually pay even more interest than you did before.

    Even if you want to do it yourself, I urge you to call consolidated credit for a free debt analysis from one of our trained counsellors. It’ll help you figure out all your options, whether its DIY or with expert assistance, then you can choose. The call is free and unlike those 0% introductory offers, our help never expires.

  5. How to Budget Without Getting Bored

    How to Budget Without Getting BoredFinancial Expert Jeff Schwartz breaks down how even though budgeting can seem tedious, there are financial tools at your disposal to ease the stress of budgeting!

    Let’s talk about budgeting, you’re excited aren’t you? Who’s not excited about creating a monthly budget of income and expenses? I’ll tell you who isn’t, me! And I’m a financial expert who’s running Canada’s leading credit counseling agency for more than a decade. Now don’t get me wrong, I budget my own life and I encourage everyone to do it. It’s good for you. But like broccoli to a child, it doesn’t necessarily taste good. Back in the old days I remember sitting down at the kitchen table with a pen and a paper, riddling through a stack of receipts and pay stubs, now that was boring!

    But today you can let technology take the headache out of budgeting. There’s secure online tools like Mint, downloadable spreadsheets like Tiller and online calculators like those on consolidatedcredit.ca. These technologies allow you to easily figure out what you’re spending and in which categories. Better yet, they allow you to tap a few keys and see what would happen if you say spend a little less on dining out and a little more on a retirement fund. The best place to start, check out your bank or credit union’s website. They often offer these high-tech tools to their customers for free! You’d be surprised at how painless setting up and sticking to a budget can be!

  6. How Does Debt Consolidation Affect Your Credit Score?

    How Does Debt Consolidation Affect Your Credit Score? Jeff talks about how debt consolidation affects your credit score.

    Debt consolidation is a simple concept. We take all your high-interest credit card balances and roll them into one simple monthly payment at a low interest-rate. Now, how do you do that? A number of ways.

    You may take out a personal loan and pay off your credit card, and pay back the personal loan at a much lower interest rate.

    You might roll over your high interest rate credit cards onto a low interest rate credit card. Or if your credit score is good, you can get a 0% interest rate credit card.

    Other options include borrowing from your retirement accounts, or even getting a home equity loan.

    Whatever you do, your credit score will likely take a hit, but it won’t be a big hit. Why? Because whatever debt consolidation method you choose, it’ll probably cause a hard inquiry on your credit.

    A “hard inquiry” is when a lender is checking up on you, seeing if you are a good credit risk. Your score will dips temporarily because the agencies that calculate your credit score figure you’re looking to get new loans, and lenders get a little nervous when you acquire new debt.

    Of course, they don’t know you’re doing this to pay off debt, not creating more of it. So, the dip doesn’t last long, because if you do this right, you’re paying off that new lower-interest loan each month. That means your debt-to-income ratio is getting better, and when that happens, your credit score rebounds.

    The bottom line is, paying down your debt by whatever works best for you will eventually raise your credit score.

    If you want to know more, call Consolidated Credit today for a free debt analysis. Our trained counsellors will help find the perfect debt solution for you.

  7. Ask The Experts - How Does Debt a DMP Really Work?

    Ask The Experts - How Does Debt a DMP Really Work? Jeff Schwartz encourages Canadians to get their finances on track through a Debt Management Program.

    Myth Versus Reality.

    When I tell people there’s a proven program that can possibly reduce their total payments by up to 30% or even 50%, they sometimes laugh at me. They say, “That’s impossible, Jeff. It can’t be that easy.”

    There are people who promise to wipe out your debt entirely and they want to charge you a fee before they do it. Well, I’m here to tell you that when you call Consolidated Credit, you get a free debt analysis. And if our trained counsellors recommend you for a debt management program, you pay nothing upfront. We work with both you and your credit card companies to eliminate interest charges and stop future penalties and fees.

    We’ve helped hundreds of thousands of Canadians. If you want to know more about facts of a debt management program, you can make a free call right now.

    management program, you can make a free call right now.

  8. How to Improve Your Credit Score

    How to Improve Your Credit ScoreIf you bruised your credit with late payments or accounts that have been sent to collectors, the first thing to do to improve your credit score is to get both copies of both credit reports. In this case, the only credit bureaus in Canada are Equifax and TransUnion. Fill out their request forms which will ask for a mandatory photocopy of government ID. Within 15 to 30 days, you'll receive the report. Often, banks provide a credit score or report for free that will be most likely from one of the two credit bureaus. So make sure to get a copy from both. From there, your credit score improvement journey begins.

    How To Improve Your Credit Score

    Ben: Hello everyone, and welcome to another fabulous Consolidated Credit webinar. We have our Executive director here Jeffrey Schwartz, and he’s joined by our industry expert Ryan Watt from Climb Credit.

    Today we’re going to speak about building or improving credit, and then highlight some strategies and some tools that you can start using today to help do that. We’ll kick things off with Jeff.

    Jeff: Hi everybody. Right out of the gates, whether you’ve bruised your credit with late payments or accounts that have been sent to collectors, or you just want to get the best interest rate on a loan or mortgage, the first step you need to do is get copies of both of your credit reports.

    Ben: Yes, you need to get both. You see that there are two credit bureaus in Canada: Equifax and TransUnion. It’s a good idea to check both reports and to know both of your scores. But we’ll cover that more in a second.

    Every Canadian is entitled to one free copy of their credit report per year through the mail. You simply go to the bureau’s website, download the request form (it’s a PDF), then you’ll have to fill it out and include two photocopies of government ID. Then in about 15 to 30 days, you’ll receive a paper copy of your credit report, and that’s when the work can start.

    Jeff: You also may want to check with your bank. Often, banks will give you your credit score or report for free. Often this will be from one of the bureaus, and not both, so be sure you get copies from both TransUnion and Equifax.

    You can also get both your scores from the bureau websites. Just beware that they’re likely going to charge you a fee. And there are some other credit monitoring and loan brokerage websites you can find on the web that will also give you free scores and some information on the accounts in your credit report.

    Ryan: Yes, and whatever way you choose to get your credit reports, it’s important that you look at both scores and both reports. Now, they may not be the exact same, and that’s OK. What you want to look for is large gaps between the scores.

    Let’s say you have a score of 700 at TransUnion and a score of 600 at Equifax. You want to examine both reports and find out why there’s such a difference. It’s especially important when you’re looking for larger loans as most lenders will look at the average of both scores. The closer they are to each other, the better. In the last example, the person with a 700 score and a 600 score would actually average out to 650. This could mean you’re paying a higher interest rate than you deserve.

    Jeff: In order to have good credit, you need to use credit in a positive way. Being debt free is a great financial goal to have, however, most of us will need to take on some type of debt in our lives, whether it’s to finance education, purchase a car, or work towards homeownership. Having debt isn’t always a bad thing. On the other hand, having no loans at all to repay means you’ll have nothing to report to the credit bureaus and therefore nothing to build or improve your credit score on.

    Ben: That’s a good point. It’s also important to note that not all debt is bad debt. And in some cases, debt can be a great tool for convenience, and it can also help improve your financial situation. Some examples of this would be taking out a student loan. Typically you’re younger, it means you’re interested in finding a good job. And by paying off that student loan once you’ve graduated, you’ve started building that credit at a young age.

    Another popular example of using credit for convenience would be using one of those cashback or reward credit cards every month. As long as you pay it off, not only does this help improve your credit, it also helps you get some free perks, like gas, or groceries, air miles, that type of stuff. There are some good reasons to use credit regularly.

    Jeff: Great points Ben. But just because you have to have a credit card to build a credit score doesn’t mean that you need to accept every offer and credit card thrown your way. We’ll talk a little bit more on that later.

    It’s important to understand how having a mix of credit types can work in your favour as well. Revolving and installment credit are two of the more common types of credit and are called “trade lines” on your credit report. Having a good mix of them can help you build your score faster.

    Revolving credit examples include credit cards where there can be a revolving balance and limit. Installment, on the other hand, is pretty self-explanatory, meaning you pay in installments. Things like car loans or student loans would be considered installment loans.

    Ryan: That’s right. A good example of a healthy credit mix would be a person with a car loan, a student loan, perhaps two credit cards. In that case, lenders can see that they can handle two different types of installment credit (the car loan and student loan), and two types of revolving loans (the credit cards). Now, don’t get me wrong. Any of these loans will hurt your credit quickly if you start paying late or if you default on them.

    Ben: Good point. That brings us to our next slide here, which is “understanding your credit scores.” Understanding the credit score calculation can help you get the best credit score. Two of the biggest factors in that calculation are what are called “utilization” and “payment history.”

    For the payment history, 35% of your credit score is made up of your history of paying accounts. That means if you’ve paid off every credit card bill, every loan payment without fail for the last seven or eight years, you’ve probably got really good credit. Excellent even. Also, if you never carry a balance month to month, or on the rare month that you do happen to carry a balance – January is a popular time for that – or if it’s very low, then you probably have great credit too.

    The way you want to think about utilization rate, is it’s just a way to look at how in debt you are. Staying below 20% to 30% of your limit when carrying a balance month to month is the best way to maintain a strong credit score.

    Jeff: Great points Ben. Let’s take a look at that example. It’s one we see quite regularly. Let’s say you had a $10,000 limit on your credit card, and due to some unforeseen emergency, you had to put a charge of $5,000 on it. Doing the math, you’re now 50% utilized, which is well over that 20% to 30% we mentioned. If that card gets paid off by the end of the month, then it’s going to be seen as positive information on your credit report. But what happens if you can’t pay that card off by end of the month?

    In order to lessen any negative impact on your score, you’ll need to make a payment of, let’s say, $2,000 on the card. But even better would be a $3,000 payment. Making a payment of $2,000 to $3,000 would bring the balance down enough to fall within the 20% to 30% utilization rate that we mentioned and not negatively affect your credit if you’re unable to pay the card off in full by the end of the month.

    Ben: It looks like that was a popular topic. We have a question now, and I think it would be a good time to answer it. This one’s for Jeff. They’re asking, “Does keeping cards overutilized or maxed out month after month lower my credit score, even if I make the minimum payment?”

    Jeff: Yes, definitely. With only paying the minimum, the majority of what you’re paying goes to interest and fees anyway before being applied to the balance. There are some easy ways to prevent missing a payment or paying late. Setting up reminders to pay on your phone, or even better, setting up automatic payments through your bank will help ensure that you don’t miss any payments. Just be aware that there could be penalties for missing a payment if there’s insufficient funds in the account resulting in those NSF fees.

    Also, overdraft on these accounts can include some pretty hefty interest rates as well. So make note of the amount and what day the payment comes out so you don’t get dinged with any unnecessary fees. And like we said earlier, you really don’t want to over apply yourself. Making the distinction between “soft” inquiries and “hard” inquiries can save you from losing some of those valuable credit score points.

    Ben: Good. That’s something I hear quite regularly in my workshops. So I think now would be a good time to cover that question, probably for Jeff: “Does checking my credit score affect my credit?” I hear that quite a bit.

    Jeff: Checking your own credit report once a year through the mail does not impact your credit score, and neither do any of the online soft checks on many of the websites and also on your online banking. But if you’re unsure, make sure you ask the lender before you attempt to pull.

    The bottom line is, don’t overapply yourself. Next time you go to the grocery store, someone may offer you a free box of cookies, or some steak knives for setting up their new rewards credit card. But just know the cookies or the knives aren’t free. Once you sign that agreement, you’ve given permission to do a hard pull on your credit and your score will dip slightly as a result of that.

    Ryan: That’s right. Now, there’s an exception to this rule often found with mortgage lenders. When shopping for a large loan or mortgage, you’ll be able to have five credit checks done with different mortgage lenders. And for the purpose of your credit score calculation, the bureaus will only count it as one single mortgage inquiry.

    Ben: That’s a good point to note. So, shop around, especially for the biggest purchase of your life. After you’ve received the copies of these credit reports, you’re going to want to start going over it with a fine tooth comb and you want to start looking for mistakes, inaccuracies.

    What needs to be fixed? Personal information, collection accounts, credit information. According to a national survey put out by the Public Interest Advocacy Centre, nearly one in five Canadians found a mistake on their credit report. So, take a close look at all these things. And if there are accounts in collections, make sure they’re yours. Take some time to govern all of those inquiries and make sure you recognize all of them.

    Did you open that credit card? Did you get that free box of cookies? That sort of thing. If you do see any inquiries that you don’t recognize, check it out right away. That’s a really good sign that there’s an identity thief trying to open an account in your name, maybe a cell phone or credit card. Something like that.

    Jeff: These are all excellent points. What people need to know is that the dispute process is pretty straightforward if you have found an error. You can fill out the dispute form they send you when you receive your free credit reports. You can also call the bureau directly or even do it through their online dispute center.

    If the bureaus are unable to correct the mistakes found there, your next step is to contact whoever legally owns the debt, whether it’s the original lender or the collection agency the debt has been sold to. If you’re unable to remove or update the information, you always have the option of adding a consumer statement to your credit report. It’s just a few short sentences that lenders can read that are meant to explain the blemish or mistake on your report.

    Ryan: Right, but the bottom line is to think like a lender. Would you loan money to yourself? If you took a look at the last seven years of your credit history, what would that tell any future lenders? That’s why it’s important to honestly ask yourself, “what does my credit report say about me?” Because that’s exactly what the lenders are asking themselves when they’re looking at your credit or loan application.

    Ben: Great. Some good points there. Now we’ll move on to, what could the problem be?

    Jeff: Is debt the problem? Just as the slide said. Carrying high debt levels, missing payments, and having debts sent to collections are some of the worst things you can do to your credit. So, what is your particular situation now that you have your credit reports and understand a bit more about them?

    It’s time to do a bit of a personal inventory. If your balances aren’t going down, even if you’re making the minimum payments, you’re likely headed for trouble. We’ve seen how being overutilized on your loans directly impacts your credit score, so each month that a credit card stays maxed out, your score is going to feel it. Late payments over 30 days are going to be reported to the credit bureaus, and again, your score is going to feel it.

    These are all warning signs that you need help with your debt. You’ll have to ask yourself some tough questions though. Why did the debt become a problem? When did these things go off the rails? What if an unplanned expense were to crop up tomorrow? How would I handle it? Would I be able to handle it?

    Ben: Those are all some good questions. And if the answers to these questions scare you – or some people who stick their heads in the sand, they don’t want to know the answer – that tells me it’s time to speak to a professional. So, speaking to a credit counsellor, or a trusted financial advisor will help you understand where your money is going and how much debt you’re carrying. Based on that budget snapshot and the debt assessment, they’ll have the tools necessary to start putting a plan together for you.

    Jeff: And there are several options for getting you out of debt. And if debt is the problem, then fixing that problem should be the first step towards improving your credit. The most severe of these options would be bankruptcy. If your situation is dire enough, then you need to speak to a Licensed Insolvency Trustee about the bankruptcy process.

    Debtors not wanting to file bankruptcy also have the option of speaking to a trustee about a consumer proposal. A proposal is an agreement made by the consumer to repay a portion of their debt within five years. Both of these options have a severe impact on your credit. So, you’re going to want to make sure you fully understand them before you go ahead with either of these insolvency options.

    Ben: Right. Those are not simple decisions to make because there are a number of reasons why a person can’t or may not want to go bankrupt, depending on their situation. They might lose their home, they could lose savings. If they’ve built assets, they could lose those as well. Others might lose their jobs depending on what industry they work in.

    So bankruptcy is not an option for everyone. A restructured payment plan – something like a debt management program (DMP) – is another option for people carrying high levels of unsecured debt. Unsecured debt would be anything that’s not backed by some sort of collateral or asset. What the DMP does is it consolidates all of your debts at a reduced interest rate, often at about 0%. Debtors will then make one monthly payment which is applied to all the accounts at that reduced interest rate until the debt is repaid.

    The debt management program does have a negative impact on your credit, but it is much less severe than the ratings associated with a bankruptcy or consumer proposal. The bottom line is, find some sort of help if you need it.

    If improving your credit is a concern of yours, then it’s worth it to take a look at some of the tools out there that can help you. Climb offers a credit building program to rebuild your credit while you save money. Ryan can explain a little more about what it is and how it’s been successful for some of their clients.

    Ryan: That’s great. The credit building program is fantastic for people who currently have low credit scores and are looking to build positive trade lines and have that positive credit history. It could be that you don’t have that history from the past, so you’re looking to build up your file. It could be – as you mentioned in the last slide – that you’re considering a consumer proposal or debt management plan and you’re looking to rebuild your credit from there.

    The credit builder program allows you to save money while you’re rebuilding your credit score. With an improved credit score, you’ll be one step closer to achieving the financial future that you’re looking for, being approved for loans, better interest rates. Not to mention at the end, you’ll have money that will be returned to you that can go towards whatever you were saving for, be it a car, a vacation, even your child’s education.

    The way the program works is that you would be paying a loan on a monthly basis. We would be holding the payments in a savings account for you and we’d be recording all your payments to the credit bureau, building up your positive credit history. At the end of the program, we return your savings to you so that you have that money to be able to spend on whatever you’d like.

    Ben: Great. Sounds like an interesting program and certainly worth taking a look at if improving your credit is a concern of yours.

    Now I think we have some time for some questions. It looks like the first one is, “How long will it take before I see an improvement of my credit score?” Well, that depends a lot on your personal situation and what your credit looked like before you started taking action to repair it. But people who manage to reduce their debt loads, or stop paying late, or maybe take care of a debt that’s in collections can start seeing a big improvement in about 6 to 8 months.

    Next question that we have there, it looks like it could be directed towards Jeff: “How can I build credit as a young person with no credit history?” Good question.

    Jeff: Firstly, and I experienced this with one of my children, I would start with a credit card. As long as you can trust yourself with paying it off in full every month, and if you’re over 18, you can talk to your bank about applying for a low-limit, preferably low-interest credit card. It’s a little easier to get approved for a student card if you’re attending a full-time post-secondary program. So that’s something you might want to think about.

    Now, if you can’t get approved for either one of those, then look at applying for what’s called a “secured” credit card. With a secured credit card, you’re required to pay a deposit up front. And that deposit is going to act as your credit limit. So you put down, say, a $500 deposit, and then they give you a credit card with a $500 limit. Once you get that credit card, leave it at home.

    Figure out what you can comfortably afford each month. It could be your Netflix subscription or your Hydro bill. Whatever it is, make sure you pay it off each month. Borrow, pay, and repeat. That’s the best way to build your credit history. Remember that in order to get the most impact of using a card, pay it off prior to the end of the period of that statement, and not just before the due date.

    Ben: Good point as well. Ryan, are there any questions you seem to get about your program that you want to cover now? Anything else you wanted to mention?

     

    Ryan: Yes, it comes down to exactly what Jeff said in his previous comments, is that a secured credit card or credit card of some type is a great way to build your credit. But as we said earlier in the webinar, having installment loans and revolving loans is a one-two punch in order to improve your credit even quicker. So, that’s where a lot of our customers will look at getting into our credit builder program, also getting that secured card to be able to improve their credit scores even faster.

    Ben: Great. Thanks for taking that. It looks like that’s all the questions we’ve got so far. If you’d like to contact us or Ryan at Climb to learn more about their program, please let me know. You can reach us by phone or email. Feel free to check out the website. There’s a ton of information and educational resources there.

    That concludes the webinar for today. Thank you all, and have a great day!

  9. Saving for Retirement - Registered Retirement Savings Plan Season [Webinar]

    Saving for Retirement - Registered Retirement Savings Plan Season [Webinar]A Consolidated Credit Webinar, looking at what all the fuss that RRSP season is about. Executive director Jeffrey Schwartz joins a Q&A and takes a step back and examine what exactly happened during RRSP season and why it might matter to you.

    Ben: Hello, and welcome to another Consolidated Credit Webinar. This time we’ll be looking at what all the fuss that RRSP season is about. Today our executive director Jeffrey Schwartz has been kind enough to join us so we can take a step back and examine what exactly happened during RRSP season and why it might matter to you.

    So, RRSP season has come and gone, and some of you are probably even wondering what that even meant. What’s all the fuss about? Why should I even care? Well, that’s what we’re going to take a look at today. We’re going to look at some of those questions in detail and give you some tips on where you can go to get help. And as always, we’ll end off with a Q&A session and cover some of those burning questions you have about RRSPs or RRSP season. I’ll let Jeff lead us off here with, “When is RRSP Season?”

    Jeff: Thanks Ben. As we’ve said, RRSP season has come and gone this year, and now your focus has probably shifted to the upcoming tax season. And given the tax implications of RRSPs, it might make sense that these two deadlines are only 60 days apart.

    So, that answer our first question: “When is RRSP season?” For most people, it’s the first two months of a new calendar year. You’ve got until March 1st to contribute to your RRSPs up to the maximum amount, which is typically 18% of last year’s total income. That means if you’re set to earn about $100,000 in 2019, you’ll have until March 1st, 2020 to contribute up to $18,000.

    The reality is that RRSP season is all year long, but we can get into that a little bit later. There are some exceptions to this rule: for instance, if you have an employer RRSP Matching Program, a pension, or you’re self-employed. So be sure you understand what your situation is so you don’t get hit with penalties for over-contributing.

    Ben: OK Jeff, I’ll try to tread lightly a little bit here. It’s never a good idea to insult your boss, but you’re a little bit older than I am. But I’m not exactly a young man, but I’m willing to bet that we have different retirement goals. So a question we get a lot in my retirement planning workshop is, “Should I care about RRSPs, or RRSP season?” Sometimes it’s older baby boomers looking at retiring in three to five years and maybe a fresh college graduate looking to enter the workforce. But they all ask me in some form or another, “What can an RRSP do for me?”

    Jeff: And you’re right Ben. Different people will always have different financial situations or goals and they can be intensely comlex, or simple and straightforward. There are so many factors involved, like, how old are you? When do you want to retire? What kind of assets have you built? How much debt do you have right now? What do you want to leave to your family when you’re gone?

    Really, in order to answer your question about whether or not you should care about RRSPs is to first ask yourself, “Do I have to have an RRSP?” If you do, what do you want to do with it? And if you don’t have an RRSP, then what’s your long-term goal?

    As you’re probably aware, CPP, OAS, and GIS (if you qualify) will not be enough to live on comfortably or close to how you’re living now when you’re retired. You’ll need some other sources of retirement income to meet all of your wants and needs so you can actually take time to enjoy your retirement.

    Ben: Great. And that brings me to another popular question: “How do RRSPs work? What can they do for me?” Those are two very important questions and they depend a lot on your financial situation and your tax situation. But when used wisely, RRSPs can lower your annual tax bill. For people who regularly contribute to their RRSPs – and maybe they find themselves in a higher marginal tax rate – the benefits can be high there. They’ll be getting a refund on the taxes they’ve already paid, and they’re building a retirement income stream here.

    So, Jeff, another popular line of questioning I get from workshop participants is, “What are the benefits of an RRSP if I don’t have to pay taxes each year?

    Jeff: That’s a great question, and while there’s no taxable benefit for you when you’re contributing to an RRSP, you’re still saving for a secure retirement, and that’s never a bad idea. That means years and years of compounding interest and sheltered growth in a relatively secure investment vehicle which will literally pay off big when it’s time to think about retiring and withdrawing that money.

    Ben: Great. So I guess that leads into the next question: “What do you want to do with your RRSP if you do have one?” Hopefully, you’re a little bit better informed about what RRSPs can do now, and maybe start opening one, or contributing to one, or come up with some sort of retirement plan of your own.

    Those are some great financial goals to have, but before we jump on the RRSP bandwagon, let’s take a second to find out what you want to do with your RRSP. Is there somewhere else you could put that money that will better serve your needs? These are serious questions that you need to spend a little bit of time answering as best you can.

    Jeff: Yes. Definitely spend a little bit of time exploring answers to those questions. You may want to speak with a financial counsellor or a trusted advisor to clarify your situation first. If you’re looking for a place to save money first for paying off a debt or a home reno, don’t do it with an RRSP. Find some other place to save that money, like a TFSA.

    Ben: OK, once and for all, here are the three biggest benefits to an RRSP. The first is tax savings and retirement income. That was the reason these registered retirement programs started way back in the 50s. And I’m willing to bet that was probably before your time, Jeff. So, they’re meant to save taxes so you can pay them at a lower tax rate later.

    Now, at the same time, you’re adding an additional source of income to any pensions or any investments that you’ve had or what you’re planning on drawing down on in retirement. So, another thing that you might want to consider is the Homebuyers Plan (HBP).

    If you’re planning to buy a home and you have money in an RRSP, you can make tax-free withdrawals up to $25,000. But of course, it’s not that simple. There are some qualifying requirements to meet, so speak with an advisor or someone at your financial institution about all the pros and cons of using the Homebuyer’s Plan before you commit to it. Because you’re going to have to pay that money back into the RRSP eventually. So Jeff, perhaps you can spend a little bit of time shedding more light on that Homebuyer’s Plan option.

    Jeff: Certainly. It’s one that I know about personally. It’s probably easier to think of the Homebuyer’s Plan as a loan. In fact, that’s how I was able to get my first home as well. I dipped into my RRSP and paid it back interest-free over time. So, how you want to think about it is, it’s a tax-free loan from your RRSP to yourself. You’ll have up to 15 years to pay back that loan.

    Think about the long-term consequences before jumping in on this plan. Yes, you’ll be buying a house or condo, which is a fantastic financial goal and a great asset to start building equity with. But what are some of the other potential costs of this program?

    For one, it may have taken you years or decades to build that RRSP up to that amount. So, it could be seen as robbing from your future to pay for the present. But that doesn’t mean it’s a bad thing, either. It’s really one of those pros and cons options that you’ll need to evaluate and do your homework on before you decide whether it’s the right choice for you. Building equity in an asset that will usually gain value over time is a great use of your money, but so is saving for a secure retirement. As with any choice, there’s going to be consequences. You have to make sure you know all the ins and outs of the Homebuyer’s Plan before you start house hunting.

    Ben: Great. Those are some great points on the Homebuyer’s Plan. These are big decisions, so don’t rush them. If you don’t understand something, find help. Another reason you might want to tap into your RRSP funds is for continuing education, or perhaps starting a second career a little bit later on in your life. And that program is called the Lifelong Learning Plan. And for someone considering a career change, it can be a great way to finance your education or some training.

    The Lifelong Learning Plan does have some wordy eligibility criteria to meet, but essentially it allows you to withdraw up to $10,000 a year to finance full-time training or post-secondary education. The total amount that can be withdrawn is $20,000 over four years.

    Another great benefit of the Lifelong Learning Plan is that any withdrawals are made tax-free. But similar to the Homebuyer’s Plan, this is a loan. You’re going to have to pay that money back. At least 10% of the money borrowed must be repaid each year for a maximum of 10 years. That’s why it makes sense to take a little bit of time looking at what you are earning.

    Jeff: I think we’ve established that saving for retirement, however you plan to do it, is never a bad idea. From those stats, it’s clear that this is a source of financial stress for far too many Canadians. It’s your money. These are your retirement goals. So make sure your RRSP aligns with those goals.

    If your goals don’t align with the benefits of an RRSP, it doesn’t mean you should stop planning your retirement altogether. It just means that contributing to an RRSP makes more sense for others than it might for you. And that’s why we should take a minute to go over TFSAs and how they might be a better choice for some over an RRSP because there’s often a lot of confusion about the two.

    Ben: I agree. Contributing to an RRSP is never a bad idea. I also hope that we’ve stressed the importance of some type of a long-term savings plan, even if it’s not an RRSP. If an RRSP is not going to help you achieve your retirement goals right now, then you might want to look into the benefits that come with a TFSA. It’s an easy-to-use, low-risk investment vehicle, and the interest earned within the TFSA is 100% tax-free. If you’re young or are earning a lower income, then contribute to a TFSA. And if you start earning more money and are moving up in the tax brackets, then you can always move money back over to an RRSP. So, what’s your savings plan?

    Jeff: If you’re one of the many Canadians out there who is confused about what’s better – a TFSA, or RRSP – just ask yourself: “Can an RRSP help me achieve my retirement goal?” If it doesn’t make sense right now, then contribute as much as you can to a TFSA.

    All these acronyms are tough to keep up with. It’s a place to deposit and withdraw money. Low-risk investments that can be made within a TFSA will grow tax-free. And if your income situation changes later on, you can always move that money from your TFSA to your RRSP.

    Ben: Another common question I get is, “Do I need to contribute to my RRSPs?” or “Do I need to contribute to my RRSP by the deadline?” I’d say yes, or maybe no. You’ll have to decide that on your own.

    Hopefully, some of what we’ve talked about today made things a little easier. The bottom line is, ask yourself now, what’s your long-term financial plan? What goals have you set for yourself, and how do you plan on getting there? If you’re still unsure about what to do with your RRSP, maybe you’re unsure if you should even start one, then maybe talk with friends or family.

    Now, that doesn’t mean take the advice of your crazy Uncle Gary who keeps his retirement funds stuffed under his mattress so the government can’t get it. That’s not going to earn him or you any interest or tax-deferral benefits. So we see right there that 61% of people in that 2017 Financial Planning Standards Council poll all started to seriously think about their retirement savings plans when triggered by a discussion with family or friends. Maybe at your next family event or dinner, you might want to ask some of your older family members what their plans were.

    Jeff: Right Ben. Talking about money usually isn’t the most comfortable topic to bring up at the dinner table. But with retirement planning, it’s a bit different. People love to talk about their dream retirement with one another. That being said, however, I’ve spoken with a number of Canadians who have unfortunately had their retirement dreams put on hold after speaking with a pushy salesperson. Typically, they wind up leaving the salesman’s office more confused than when they went in with a pile of confusing graphs and glossy reports.

    So find a trusted advisor to speak with. A good place to start might be at your workplace. Many great organizations out there offer an employee RRSP matching program. And for 83% of the participants in that poll, that’s what it’s going t take to encourage active retirement planning. If your company offers an RRSP matching program, jump on it right away. It’s essentially free money offered by your company to ensure you have a better chance of planning a secure retirement.

    Ben: Great, so while we’re on the topic of that, maybe Jeff if you could just explain to us if you need help, where can you go, or who should you look for.

    Jeff: If you’re looking for a trusted financial advisor, a CFP (Certified Financial Planner) or a financial counsellor can help you lay the groundwork for a secure retirement. If you have some more lofty retirement goals, then you may want to look for a financial advisor who specializes in retirement planning. They’ll have a much better understanding of what will be needed to get you on your way to your retirement dreams. CRSs (Certified Retirement Counsellors) or RRCs (Registered Retirement Consultants) are great places to start. You can find out a ton of great information about financial planners by visiting the FPSC website.

    So, that wraps up our webinar here, and we’ll just take a second or two to answer a few common questions we get.

    Ben: Sure. The first one we get quite a bit is, “How much should I contribute to my RRSP? Is there a dollar amount I should focus on, or a percentage?” That sort of thing. Jeff, maybe you want to take a stab at that one.

    Jeff: Firstly, the fact that you’re considering putting money aside for an RRSP each month is a great idea because that really eliminates the need to come up with a lump sum of cash right before March 1st. If you’re doing it all year long, you get the growth throughout the year in addition to the fact that you’re saving yourself from having to contribute a lump sum all at once and coming up with that cash.

    So, let’s address what you really asked, and it’s a complex question. You’ll need to take a serious look at your monthly budget to see what you can safely stash away for retirement while meeting all of your monthly financial obligations but still leave room to save for your other financial goals. Now, according to Money Sense, each year two-thirds of Canadians don’t contribute anything at all. So any contribution you make is an accomplishment. If you’re able to stash away the maximum 18% of your income per year in RRSP, you’re doing great.

    But your situation might be different. Start with your monthly budget, and if you don’t have a monthly budget, it’s time to start one. After your monthly expenses are paid, if you’re able to it away 5% to 15% of your monthly income into savings, figure out how much of that amount you’ll need for your other savings goals, like your emergency savings funds, or if you’re planning a vacation, or purchasing new appliances, and so on . The rest of that savings should be earmarked for retirement. And the earlier you start, the better, so stop waiting.

    Ben: I like that. Start with a budget, and then go from there. So, another one I hear often is, “How long can I have an RRSP and what can I do with it once I retire?” Well, you’ll have to transfer that money out of your RRSP by the end of the year that you’ll be turning 71. But you’ve got a few options on how to do that, where you want to do that, and that sort of thing. Certainly seek the advice of a trusted financial professional, hopefully one that has experience, because those options include taking out the money in cash, which has its tax implications.

    You can also purchase some annuities for some regular type of retirement income. And the other option which is pretty popular is transferring your money to a Registered Retirement Income Fund, or a “RRIF”. A RRIF allows you to keep that money invested with the opportunity for it to grow tax-deferred. But every year you need to withdraw a minimum amount from your RRIF, and any amounts taken above will be taxed. So, there are a few different options, so you really want to speak to your financial advisor or professional about what you want to do.

    If you wanted to connect with us, please do. We hope you have a little bit of a clearer understanding of what RRSPs can do for you and why there always seems to be a mad rush to contribute before the RRSP deadline. So hopefully next year you’ll be ready and actively working towards that goal, that dream retirement.

    Please feel free to contact us here are Consolidated Credit Counselling Services of Canada with any of your burning financial questions. We hope you enjoyed the webinar and we’ll see you next time.

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