Good Debt? Not Bloody Likely

After watching our friend Preet Banerjee have to listen to the “Experts” on a CBC National round table talk about Good Debt, I feel I must rant once again (Preet was his normal, Windsor Knotted sensible self, the rest of the panel drove me spare).

Let me be very clear saying that there is Good Debt is like saying there are Good Car Accidents, read my lips:

All Debt is Bad

I don’t give a crap what these so-called experts have to say, as soon as you start thinking that Debt can be Good, you assume it is OK to build it up, and it won’t hurt you.

Sugar coat this as much as you want:

  • Necessary Debt or Necessary Evil
  • Debt is good for the Economy
  • Leveraged Buying
  • Consumer Debt
  • Mad Money

It’s all fricking bad! One day I will write an NSFW post with my actual wording on this stuff (maybe Preet will let me back on his Podcast and I can do the real rant for this).

Shame on all of those alleged experts on that panel, except for Preet of course.

DEBT SUCKS

Debt Sucks the life out of you.  Learn to hate debt, want to get rid of it, and then you have the right idea, but if you rationalize that there is Good Debt, you can start sliding down a very slippery slope.

Yup, you might have to get a Mortgage, but don’t get comfortable with it, treat it like you would a Cockroach or an Uninvited Guest (fill in your most unfavorite person here), want to get rid of it, as soon as possible.

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Are You Solving the Right Problem?

Over many years of working at High Tech companies and with technology issues many times I have run into the interesting issue and many times (usually in hindsight) my team has realized they were solving the wrong problem.  It’s easy to get too close to a problem and to lose perspective on what the real problem you are trying to solve, and it happens more times than you think.

Here are a few problems that I have run into over the years (financially) where someone came up with great solutions but at the end of it, they were solving the wrong problem:

  1. Credit Card interest rate is too high, so find a credit card with a lower interest rate and transfer your balance over to have to have your debt grow slower (i.e. lower interest rate).
  2. Figure out that your overdraft protection interest rate is actually higher than a pay-day loan, so you get those instead.
  3. It is cheaper to get your car financed through the car dealership than it is through your bank, thus saving lots in interest paid.
  4. You have a high debt load of credit cards and such, so you get a consolidation loan, but you don’t destroy your credit cards.

Can you guess what the real problems were in these situations?

In case (1), why not pay off your credit card, or find a way to pay it off, or better still, don’t build up debt on your Credit Card is the real problem. Your solution is better than nothing, but you aren’t really solving the problem, especially if you keep using your credit card.

Seriously, you think that getting a pay-day loan is a better idea for case (2)? Stop over drafting and never get a pay-day loan is a much better solution, don’t you think?

Why not make a large down payment for your case in case (3) or better still pay cash for a used car that you can afford?

As for (4) consolidation loans can save folks financially, but if you don’t change your lifestyle and continue to build up debt, you will keep getting consolidation loans, and create a bigger problem for later.

Solve the right solution, did I miss any other “solving the wrong issue” problems?

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I am a Civil Servant

I keep hearing from various media outlets and bloggers how much money is wasted on the Government and such, and inevitably out of these discussions comes statements about the Civil Service, and I now feel that I have the right to comment on this stuff (having worked in both the Private and now the Public Sector).

Let’s go over a few of the more interesting points that some folks seem to have an opinion about:

  • I am  paid by your taxes, but strangely I also pay taxes as well. One media outlet seemed to be implying that Civil Servants didn’t pay taxes, but I can assure you, I pay taxes just like everyone. No free ride here.
  • Pretty much everybody can easily figure out from information readily available how much I make, which is disconcerting, since when I worked for Nortel, people could guess but they couldn’t be sure they knew how much I made.
  • Someone does drive me into work in the morning (these days), but he or she works for OC Transpo, I don’t get limousine rides to work every day (yes, someone asked me that exact question when they heard I worked in the government).
  • Are we all lazy? Let’s not go there on this one, let’s just say I have seen good and bad in both the Public and Private sector, and leave it at that. Some might argue I am a Lazy Sod, so maybe you shouldn’t ask me?

From what I can tell, a lot of misconceptions folks have about Civil Servants (or Public Servants) seems to come from the perks that Members of Parliament get.

The major issue I keep hearing is that I have a “gold-plated free pension”, which is an interesting fallacy, that again comes from the MP side of things. Yes, I have a very nice pension (that many people do not have, so I do realize that having a pension is a great benefit), that was negotiated with an elected government, but is in no way “free” to me. I pay a great deal of money into the Pension Plan, and will more likely have to pay more soon, to retain this privilege, but I did have this same privilege when I was at Nortel (until it all fell apart).

Yes, the taxpayer pays for part of my pension, but that is because they are the folks bankrolling my employer (i.e. the Federal Government), so again, I am kind of paying into that too.

Unlike Members of Parliament, Civil Servants take 35 years to get a “full” pension. Members of Parliament get a FULL pension after 6 years (oh and I don’t think they put much money in on their side either).

A Civil Servants “full” pension can be calculated as (assuming they work for 35 years in the Civil Service):

70% of an average of your 5 best years salary, which is then discounted by how much CPP you will get paid (once you are CPP eligible)  {simple isn’t it ?}

What’s the point of all of this? Just me venting at some of the more asinine commentaries I have seen on the Media and in the Blogosphere lately. If anyone cares to try to refute or ridicule my opinions, have at it, I am prepared to discuss whatever points you like on the topic of the Civil Service and it’s Pension system.

 

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St. Valentine’s Day Financial Massacre

Today can effectively be for some of us effectively a recreation of the St. Valentine’s Day Massacre, in terms of our Credit Cards.

This one is an interested twisted tail to follow, so I’ll try to not wander down too many dark alleys, but it is this simple, right about now (February 14th) the Credit Card bills are arriving for the stuff you bought after Christmas (or stuff that didn’t make it into your Christmas bill, which would have shown up in January).

How bad could that be? Who spends lots of money after Christmas? You do!!

RRSP, RESP, RDSP

Valentine's Day Sentiments to Live By

Remember that big screen TV that you got for 40% off at the Boxing Day Sale? How about all that stuff that was on sale for Boxing Week/Month/Quarter? There is a tremendous amount of money spent after Christmas, and you might have planned for your Christmas spending splurge, but did you plan for your January spending binge? My guess is no (and if you didn’t have a post-Christmas spending binge, good on you (but are you sure?)).

In my house my daughter’s tuition appears on my Credit Card (we still have money to pay that off so that is good), but it is a HUGE number to appear for St. Valentine’s day, isn’t it?

Oh and all those, “live now, pay later” deals you got from the Furniture Mega-Store or the Electronics Mega-Store all have to start getting paid off now too. Future Shop’s new “don’t pay for 3 months” has a new catch, yes, you don’t have to pay it all in 3 months, but now you have to pay at least 1/3 every month leading up to the payment.

Are you now feeling the effects of a Saint Valentine’s Day financial Massacre?

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Let’s All Sell Out

As I have said previously I am a big fan of Suze Orman and her no-nonsense attitude about debt and such, however she did something recently that puts her in a different light for me.

Last week Ms. Orman announced a Debit Card approved by her which sounds innocuous until you started to read the fine print, and this is what is causing me to rethink my opinion of her. While I have no problem with someone hustling to make a buck (heck I do it myself as you have seen with my Quicken Review and other things I have talked about) but this new venture has me scratching my financial head.

For those about to hit the Comment button and want to leave some comment about The pot calling the kettle black or something like that, feel free, but my opinion is someone who has thrust themselves into the Public Eye making statements about getting rid of debt and such, and then they endorse something that  seems to fly in the face of some of their own advice. Now I am not putting her in the same grouping as Garth Turner, but it still concerns me.

Some of the highlights being mentioned by other financial bloggers (nothing like financial bloggers to stir the pot (evidently Suze has made some very derogatory remarks about we Fin Bloggers as a species)):

  • This is a DEBIT Card (not a credit card) yet you must pay a yearly fee of $32 for it? Yes, banks charge me for the same thing, but why do I pay someone other than my bank to access my money? It’s only $3 a month, but I don’t pay anything to PC Financial.
  • The card will share your spending information with TransUnion and hopefully they will take this into consideration for your credit score (I am badly paraphrasing what she says, you can read the transcript of an NPR interview where she explains further)
  • She has promised the fees will not go up.

The major problem seems to be that Credit Rating Clearing Houses (like TransUnion) do not now take into consideration your bank or cash spending patterns, they look at Credit Card transactions (hence the name Credit Rating I guess), but Ms. Orman is promising that she is going to try to get the Credit Bureaus to use the information from her card to help repair your credit scores, and this is where many Fin Bloggers have been piling on.

I have no doubt that Ms. Orman may think this is a noble quixotic quest, however, whether she can change how the system works remains to be seen, and my issue is with her lending herself to a product in the industry that she analyzes. Am I being naive to have these doubts, maybe, but this what is next? The Suze Orman set of Mutual Funds (with a 4.0% MER?) or something like that? It makes it harder to believe an analyst once they are part of the industry they are analyzing (if I am not being too obtuse).

Will Ms. Orman lose any prestige? I doubt it, my guess is the only folks she has irked, are we Narrow Minded Financial Blogging Bigots, and frankly she wasn’t making much money from us, anyhow. If she succeeds and helps repair some Credit Ratings, good on her too!

 

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