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I continue to clean up my huge archive. Many times I simply delete old silly content, but this topic is still valid. If you carry a large credit card balance, and make only minimum payments, you are in for a shock. Look for how long it will take to pay off the balance (it must be in your statement). This was originally published back in 2010.

My current credit card balance is quite large this month due to a bunch of specific previously planned expenses (and a couple that we hadn’t planned).  The bill will be paid on time, so there is not too much worry about starting a cycle of credit card interest charges (at least that is my plan, unless I forget to pay on time).

Having wandered through the wonderland of spending, I tripped across the following sentence:

credit card minimum payment
Example of how long a minimum payment will take only 18 years eh?

19 years? Aye Carumba, that is an astounding time frame. So my estimation if we were making this same payment that the effective yearly rate is about 20% and I’d end up paying in total about 500% of the initial amount on the credit line once all payments are made, pretty cool eh?

I realize that sometimes folks spending gets out of control. Sometimes, bad things happen that knock you off your financial feet. If this happens you must fight to get back to paying off the entire balance of your credit card monthly. The interest rates on Credit Cards can be over 20% and will dig a deep financial debt hole for you.

Some ideas you can do to stop paying Credit Card interest:

  • Set up an unsecured line of credit. This can be good, if you treat is as an Emergency only credit vehicle. Typically this has a lower interest rate, but it has risks. If you habitually use the LOC to pay off Debt, but can’t pay off that balance, maybe this is not the way to do it.
  • Consolidation loans or consolidation into your mortgage sounds good. If you use it once, it can get you back on track. If you use it habitually, that is a very bad thing. You are digging a bigger debt hole, more slowly.
  • Borrow it from your family or friends? A last resort, and it can destroy relationships, but it could work, short term.
  • Pay Day Loans? Absolutely, positively NO! Go talk to a licensed insolvency professional before you do this.

The amazing things you can read on your credit card statement.

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Paying Off Debt is Risky ?

I have been attempting to raise my visibility on social media, lately. I have been commenting on Instagram and Twitter and it seems I have ruffled a few feathers. Evidently paying off debt is risky ?

Let me be clear, the risk is losing possible growth through investing. To be specific, the argument made was:

“…disagree. This is why so many people are cash poor, they race to pay off debts costing them 3% with cash making 7-8%…”

Instagram rebuke of my comment about paying off debt (Instagram has financial advice?)

Firstly 3% debt rate is only for Mortgages (or secured credit). Most unsecured debt is much closer to 3 to 18% more than many advisers would have you think about. The “cash poor” phrase made me bristle too. Remember how no one talks about house poor any more.

Borrowing money to invest in the market always worries me. Leverage has the potential to make a lot of money, but it can also do the opposite. I wouldn’t do it, but I only buy Index Funds and similar ETFs.

A Scenario of What Can Go Wrong

I know a former exec at a large tech firm. He had many “options to buy” the firms stack at a lower price. He decided to exercise the options on the stock and hold the stock. Normally the option is exercised and then a quick sell order is put in place, to take profits from the sale.

This gentleman decided, he would be more clever, and hold the stock, to live off the dividends from it. At the time, the stock dividend yield was about 1%, which would be plenty to live on. Money was borrowed to make the transaction, as it was for a large amount of stock.

Less than two years later, the dividends were reduced to zero. A short period afterwards, the stock was worthless. This was yet another firm that was “too big to fail”.

Is this a “corner case”, yes I think it is. It is also an excellent example of someone assuming, “the good days are here to stay”.

Removal of Debt, Addition of Options

If you pay off debt, you have more options. Do not fall for the FOMO (fear of missing out) arguments. If you have little or no debt, you then have options to do whatever you like, with your money.

Social Media and Financial Advice

Some frowned at financial talk on web sites. Then there was Twitter and Facebook that got in on it, but now Instagram and TikTok? Seriously, unless it is the Wizard of Omaha on TikTok, maybe get your financial advice elsewhere? Need I point at the Gamestop Reddit debacle to suggest maybe you should be careful where you get your advice?

A Very True Statement

“Think of borrowing money today as negotiating a pay cut with your future self”

Preet Banerjee

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A Mortgage Changes You

I was watching Chris Rock:Total Blackout and he had a good perspective on mortgages. His perspective actually can be extended to all debt, but his point about having a Mortgage changing you is spot on.

When you finally get a mortgage your behaviour and your attitude will change. Why? I won’t ruin Mr. Rock’s eloquent perspective (quite NSFW), but let me sum up:

When you have a large debt, you have fewer options. Your options are limited due to your need to pay off this large debt.

The people I know that have the most options, have little or no debt.

You can delude yourself into thinking you have options, but you don’t. If you carry a large debt, and think you can afford other high debt options, you will inevitably end up in a place with even fewer options.

Why do I constantly harp on reducing debt? It will give you more options. You are no longer a slave to your debt.

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They Paid My Loan Off

“They paid my loan off” is what a co-worker told me, when he purchased a new vehicle. I have given up telling my co-workers things about finance (they don’t listen much). I knew what that meant, but it took a while for him to figure out what that phrase meant.

What did the phrase mean?

  • Whoever has taken over the debt from the other loan will add this to the new loan (debt) for this new vehicle. What might this include:
    • Penalties for ending the loan (or lease} early
    • The balance still owing for the previous vehicle. The vehicle may not be worth as much as the balance owing
    • Administration fees for closing the loan (for the new firm)
    • Other fees
  • If the other loan was at a lower rate, you will be using the new rate of this new loan
  • The vehicle you are purchasing is most likely not worth the “new” value of this new loan, but that is your problem.

My co-worker did finally figure this out, once he got all the documentation, which explained all the details to him. He was less than impressed that his loan was now larger than the actual value of his new automobile.

negative equity
A Useful Graphic from GoAuto.ca

Strangely there was no mention of “Negative Equity”, which seems to be a phrase no longer used in the automobile sales world.

Negative Equity ?

Debts do not just “disappear” without someone paying them off (with very few exceptions). Remember that when buying large items.

Someone may have “paid my loan” but what does that really mean?

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If you actually clicked on this title, you should be ashamed. You have a problem, and you need help. Don’t click this kind of crap (or worse the actual title which was 3 Ways To Pull Off This Season’s Coolest Beauty Trend ).

Coolest Financial Trend

You want to know what the coolest financial trend is this season? Pay off debt.

If you are carrying a large debt, and you want a guaranteed investment pay back? Pay off debt.

If you can’t sleep and you are having problems with anxiety due to how much money you owe? Pay off debt.

The best way for me to create a list of a whole bunch of articles about one of my cornerstones? Pay off debt.

If you simply follow these simple tips, you can be part of the financial trend setters this season.

What a Load of Tripe

No kidding? I read so many magazines that have less content than this post talking about fashion, beauty tips and yes even some financial advice columns, who buys into this bilge? Yes I have read articles that talked about the coolest financial trend, I threw up in my mouth a little.

You know what you need to do, you don’t need click-bait titled clap-trap to tell you what to do, just go do it.

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When to Use a Payday Loan? Never!

Never use a Pay Day Loan. There is no reason to use this service, ever.

I was going to leave that as the entire post, but I suppose I should elaborate a little on my statement.

If you are considering a Pay Day Loan, you are in a bad place financially. Adding a pay day loan will simply add an accelerant to your financial demise. A ridiculously high interest rate loan is not going to help get you back on your feet. All a pay day loan will do is get you to bankruptcy faster.

What should you do if you are thinking of getting one of these short term high interest rate loans? Get Help!

See a licensed bankruptcy trustee. They will either recommend a plan on how to pay things off, or a Consumer Proposal or maybe that it is time to declare bankruptcy. Remember this is a one-time thing, you can’t keep doing this.

Pay Day Loans
Similarities Pay Day Loans and Loan Sharks

If you are thinking of going to a credit counselling firm, research them and figure out if they are reputable. How much this is going to cost? Some firms are helpful, others, not as much.

Sometimes you end up in this financial place due to life related issues, maybe it is time to talk to someone about that too? Talk to someone about the issues in your life, may help you fix your lifestyle (and your financial lifestyle). If you don’t understand how you got to this place (financially), how can you be sure you won’t end up here again?

Stay the hell away from Pay Day Loans and the new “On line loans” system coming forward as well. Fix the problem, don’t dig a deeper hole.

Simple Advice

No question has the answer, “You should get a payday loan”.

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The 12 Days of Christmas Debt

To get everyone in a festive Christmas spirit, allow me to offer this cautionary tale of Christmas Debt.

The 12 Days of Christmas DEBT

12 Months of Agonizing Payments

Have you paid off last Christmas yet? How about the one before that?

11 Maxed Out Credit Cards

How much room do you have on those cards? Really?

10 Overdrafts a leaping

Really, how much are you paying in overdraft fees? Just because your bank balance can show a negative value doesn’t mean it should always be that way!

9 Minimum Payments

Do you realize you will pay that off in 20 years with those minimum payments, or possibly 50 years? Minimum payments forestall the inevitable.

8 Balance Transfers

Shuttling debt from one credit card to another is not solving the problem. Juggling chainsaws will lead to a messy end, and that is what this is.

7 Cashed in Emergency Funds

Is Christmas debt an emergency? I don’t think that is the emergency you were planning.

6 Pay Day Loans

Pay Day Loans could be starting a death spiral in your finances that will lead you to Day (3)

5 Gold Reclamations!

Did your Grandmother leave you that ring to help you cash it in for pennies on the dollar to pay off debt?

4 Calling Collection Agencies

These are not the bogus ones you get emails. These are the real ones

3 Calls to insolvency trustees

They can help, but you can’t keep doing this every year either.

2 Calls to your family for an emergency loan

You do have to pay those back, you realize?

1 Mortgage Refinance

Using the equity in your house to pay for consumer debt is a terrible thing.

Yes, not very festive, but ultimately a bit too true. I go to Church, and I am confident the Christmas season is not to bankrupt you. It is at a time to get together with family and friends. 

Wonder why you dislike this time of the season? How many of the Days of Debt on the list are you facing in January?

Previous Boxing Days?

I have written on the topic of Boxing Day a few times.

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Farewell New Credit Card

Last week I received a new credit card in the mail. It was a Flexiti card, and they seem to have purchased the business from The Brick or some other store credit card. Every few months I keep getting new credit cards like this sent to me. They come with a simple activate procedure to turn them on.

Each of these new cards adds:

  • More liability to me, in the eyes of any reputable loan provider (i.e. bank or the like). In the good old days each credit cards credit limit counted against your ability to borrow I am not sure how things work these days.
  • Another attack vector for those attempting to fraudulently use my good credit. Each of these cards has a new number, a new login on-line and thus another place where thieves can attempt to steal your
  • Temptation, and this is the intangible nasty part of One day I might get into a position where if I had this card I might use it as a last resort (when maybe I should have done something sensible instead).

Cancel the Card

To cancel this card, I called and spoke to a polite young man, who did try to convince me not to cancel the account, but relented when it became obvious I wouldn’t change my mind. I also asked for a confirmation that the card was cancelled. The credit card number and information have been put in a safe place as well (along with the date I cancelled the card).

The card has been shredded, so this credit vehicle should be dead.

As I have said previously I have too many credit cards, so cancelling this card and a few more is a very good idea for me. Your mileage may vary, but I think having one (or no) credit cards is a good idea.

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