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.

• Boxing Day? Big Bloody Deal! was my first rant about the day. In 2006 there were sales, but were they that exciting?
• Let the Boxing Quarter Begin does sum up the entire concept of Boxing “day”, it just keeps going on.
• Just because it’s on sale… another classic rant about impulse buying the day after Christmas, 2008.
• Holiday Cheer Volume 4 got lazy in 2009 and just put out a list of posts from that year.
• Carnival of Money Stories: Happy Pseudo Boxing Day! back in the day when Blogging Carnivals were all the rage (2009).
• Sales and What is the Price?!? started to figure out the connection between Black Friday and Boxing Day sales. Neither really saved you much, did they? Not really in 2010.
• Happy Pseudo Boxing Day was just really a best of kind of post, no real commentary on Boxing Day itself.
• Mayhem and Sunday’s Best (on Monday) it seems that Boxing Day was an excuse for me to post a best of posts list? This article seems to prove the point?
• Advice for the day in 2012? Don’t buy crap, which is good advice any time. If something you need is on sale, buy it, if not, don’t!
• One Thing You Can Buy on the day is to buy something you need.
• Mayhem is always present on Boxing Day, but remember just because it is on sale, doesn’t mean you have to buy it.
• The 12 Days of Christmas Debt is something to think about on Boxing Day? Maybe think about that at Thanksgiving?
• Weirdest Boxing Day Ever? What do you expect during a Pandemic, I suppose?

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.

So you’d like to get a pay raise, but you are afraid to go ask your boss for a raise? How could reducing debt help that? This is a cornerstone of Financial Literacy.

Here is a novel way to get more Net income, pay down debt! By reducing debt you have more disposable income. The arithmetic is simple, less debt payments (after you have paid down debt) means more money for you.

This is the simplest of arithmetic problems, yet it seems to be missed by so many people that I feel it is important to enumerate it for you.

Net Income = Income (I) – Expenditure (X)

X = ∑ all money spent (S)

I = ∑ all money earned (E)

Where ∑ simply means the sum of the variables in this case things like bills, pay cheques etc.,

Straight forward? So to increase your Net Income you can either increase your Income (I) or decrease X (your expenses), haven’t lost anyone have I?

So if we look closer and see that:

X = sum ( Mortgage Payment,Car Payment,Hydro,Natural Gas,Credit Cards,Interest on Credit Cards,Eating Out, …)

The whole idea is to minimize X (expenditures) and thus your Net Income or Savings increases.

This means the less you spend, overall, the more you have left over. It is much easier to lower your spending, than it is to increase your income (these days). You don’t have to ask your boss for a raise, or work overtime, you simply, spend less.

BCM Simple Rule of Money #1

If you want to make more money, you either increase your income, or you lower your expenses.

The rule seems quite simple, but is it?

“Never was so much owed by so many to so few“, –Winston Churchill

True Heroes

I paraphrase Churchill as a precursor to the latest data from Stats Canada about the National Balance Sheet. Remembrance Day is not far off, but allow me to borrow from Mr. Churchill a bit more.

Unfortunately, the phrase is very much in context. The so few, is the banks, unfortunately.

Stats Canada published their latest update of the National balance sheet and financial flow accounts, second quarter 2018, and as usual there are some very interesting numbers in this report.

It starts off saying that we are wealthier (but you need to read carefully what that means), but then we find out about our debt loads.

So Much Owed?

The report states:

Credit market debt as a proportion of household disposable income (adjusted to exclude pension entitlements) increased to 169.1%, as credit market debt outpaced income. In other words, there was $1.69 in credit market debt for every dollar of household disposable income.

Let us not frolic with glee, while the increase is slowing, it is still increasing (i.e. we are borrowing more compared to our disposable income).

For every $1 of disposable income you owed $1.69 ? That seems quite worrisome, because eventually, someone will ask for their money. Loans are callable, especially HELOC’s, Credit Card Debt and Loans.

We are worth more, but so much of that net worth is tied up in Real Estate. If the housing market goes bust, this could lead to disastrous consequences. So much more will be owed by all of us then.

A friend of this web site is Doug Hoyes (CA, CPA) and he gave me a copy of his book Straight Talk on Your Money to review. As most folks who have given me their books know, I am atrocious at reading and following up on books, however, Mr. Hoyes had an ace in the hole, he has published an Audiobook. I subscribe to Audible, so I used one of my credits to purchase the book and was pleasantly surprised.

Mr. Hoyes’ presence and narration of the book is excellent. Many times authors fool themselves into thinking that only they can bring their story to life, but Mr. Hoyes’ experience with his podcast has served him well.

This is a book for anyone wanting to learn about how your financial plans can go awry. The stories told are of ordinary folks, who had some very bad luck, or things just got out of control. If you think you have everything under control, read the book you will feel less confident and see where your plan might need tweaking.

If you think you have your life insurance story in place, please read the There is More to Death than Life Insurance section. I did like the section about Never Loan Money to Family or Friends as well. I won’t ruin it for you, but it really does make sense to me.

The book is an excellent read and the audio book is really great to listen to while commuting or on long car trips too. Mr. Hoyes’ delivery on the audiobook is top rate (and his son engineered the book as well, and the sound balance was very good). This is not a classic How To financial book but it gives concrete examples about how life is variable and things can go wrong.

Straight Talk on Your Money is an excellent financial read.

Open Disclosure

I do like Mr. Hoyes, I have only met him a few times, however we have spoken many times on-line, and I have been a guest on his podcast twice. Mr. Hoyes  is a bankruptcy trustee (and an accountant), and he seems to genuinely care about his customers as well. Mr. Hoyes did give me a copy of his book, however, I bought the audiobook version myself. I am not receiving any payment for this review. If you click on the Amazon link I will make a small commission. Please keep this in mind reading my review.

Serial refinancers is a term I heard Scott Terrio use on the Debt Free in 30 podcast, and it resonated with me.

Like serial murderers, serial refinancers keep going back to the well and refinancing their debts with consolidation loans or similar debt vehicles. This is very bad, much like serial murder (or murder in general)! Consolidation or refinancing of a debt is supposed to be something you do once (if ever), not every two years.

A good point that Mr. Terrio makes is that you are more likely to get turned down for a consolidation loan with the new credit rules in place. Yes, credit is still loose, but the rules are tightening things up. Mr. Hoyes and Mr. Terrio are not seeing more folks coming into their offices with these problems, but it is still early. The new financing rules only came into play at the start of the year.

What will happen when this tighter credit takes hold? More folks are going to a Payday loan and alternate finance firms, most likely, which will accelerate the process of insolvency, or the personal finance death spiral of serial refinancing.

Is refinancing Bad?

Yes, refinancing debt is bad in business, and it is bad for your financial life. If you are carrying a considerable credit card debt, refinancing looks like a lifeline. It may be a lifeline but if you are not going to delete those credit cards from your financial life, you are setting yourself up to fail.

I know serial refinancers. I have tried to point out the folly of their ways. I have not succeeded in most cases, but I can see the path (i.e. financial death spiral) they will follow, so I am keeping my favourite bankruptcy trustee’s number around in case.

Unfortunately Credit and Debt is the opiate of the consumer (to paraphrase Karl Marx, and his views on religion). As long as consumers continue to use Debt, business will continue to rely on it (and the associated expanded spending).  Witness the current economic situation where consumer credit is the lubricant of the economy.

Live Within Your Means ?

Forget that, Grandpa! No one needs to live within their means, when interest rates continue at these historic lows. Next thing you will be telling me is that interest rates will go up? Concepts like house poor seems to have disappeared from our money vocabulary.

Live Now

Interest rates are down now, credit is easy now, so the economy seems to be saying, live now, pay later. You only live once, after all. Can I afford to buy this, is another concept that has disappeared from our financial lexicon. The most important thing is to have a good credit rating.

What would the economy look like if most consumers decided, “I can’t afford that”? The constriction might change a lot of things.

Credit is Limitless (i.e. Pay Later)

Anyone can get credit now, no one gets turned down for a mortgage, and if they do, you have blundered mortgages, sorry blended mortgages. Have you heard of anyone being turned down for a mortgage lately? Anybody who wants a new car does not get a loan or lease for a pickup truck? Credit is the lubricant on those transactions.

Will we run out of the lubricant? Will debt get tighter soon? All economic models in North America rely on free spending consumers, and tight debt rules would be the sand in the lubricant of the economy.

Remember, eventually, all debts must be paid, but when will that reckoning be? Perhaps sooner than we wish?