Canadian Government Programs

The best way to avoid student loan debt is likely with an Registered Education Savings Plan (RESP). Of course this is something that was hopefully set up by your parents, but if not you could set one up for yourself. You can contribute to an RESP up until the age of 21, though the grant money stops the year after the beneficiary turns 17. So if you turned 17 this year, you can make a contribution and get a 20% Canada Education Savings Grant. Even if you missed out on the grant time frame, you could take advantage of the tax free growth, especially if you plan to work for a couple years before going to college.

If you’ve been contributing to an RRSP, another option is to withdraw up to $20,000 under the Lifelong Learning Plan. You do have to pay back this money that you’ve borrowed from your RRSP, but you don’t incur any interest, just the lost opportunity for gains in your RRSP.

Textbooks and School Supplies

You can buy used textbooks through posting on school boards and through sites like craigslist and kijiji. When it comes to saving money on school supplies, take advantage of flyer deals and have a look at Costco and dollar stores for some great prices.

Food Expenses

Reduce your food expense by staying away from restaurants and going to the grocery store instead. Not only is this cheaper, but it is likely healthier as well. Save money on groceries by shopping the weekly sales and buying the store brans as often as possible.

Utility Bills

Check with your providers as they may have special student plans and rates. If previously listed 10 ways each to save money on electricity bills, water bills, heating bills and cable TV bills.

Clothing

While you should try to avoid the expensive name brand clothing, though you can often get some good prices on top brands through outlet stores and warehouse clubs. You can also make your clothes last longer by washing less often, using cold water and hanging your clothes to dry.

By saving in advance and living frugally during school, you can definitely finish college without student loan debt!

This article is part of the Education and Wealth group writing project put together by GoBankingRates.com. You can help Canadian Finance Blog win by voting for #15 in the comments section of the Education and Wealth voting page!

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Essentially it boils down to tracking your progress. Anytime that you have a debt, as long as you are making payments greater than the interest being generated by the debt, you’ll be making progress towards paying off your debt. Even if it is a dollar at a time, you’re still making progress. Not only will tracking this progress encourage you to be making even larger payments, it will also be a way to see just how much you’ve already done.

Keep a Paper Trail

First and most importantly, you’ve got to keep all your paperwork. Hopefully this is a financial accounting practice that you’ve already been following, but if you haven’t, then I seriously suggest you start now. Even if it is something as simple as throwing all your money-related papers into one “catch all” folder (not the garbage), then you can worry about sorting them later. Once you have your papers, you now want to take them and organize them. Find all your papers that relate to a specific debt and set them aside. If you have multiple debts, make multiple piles. Once you have your paper piles, organize them by date. You want to set them up in chronological order so from newest to oldest.

Develop a Tracking System

Depending on what type of learner you are, and whether or not you respond better to visual or artistic stimulation as opposed to simply numbers on a piece of paper, this part may differ for individuals. However, the basic point of having a tracking system is to be able to see what progress you have, or have not, made. The simplest method is to simply go through your paper trail and write down the overall loan/debt balance month by month over the length of time that you have had your debt, or at least as far as you have papers for. This could look something as simple as this:

If you’re interested, you could also track how much of each month’s payment is going towards interest. On one of my debts, I like to watch the monthly interest fees go from $15, to $12, to $9, and dropping. Every month they get less and less money from me!

Now, if you would prefer a more visual approach, feel free to take those data points and plot them on a graph that reaches zero. That way you can watch the graph fall towards being debt free. Or make a poster that has the total amount of money highlighted and represented by a thermometer or a cup of water or a Christmas tree. When the temperature is zero, when the cup is empty, when the tree has burned to the ground, then you’re debt free! Use these tools as motivation to constantly remind yourself of where you are and where you want to be. The only person that can get you out of debt is you, so make sure that you are the one that is being motivated to save money!

For some debts, it might seem like you’re making a lot of progress, and for others, it might seem like you’re not making very much at all. Hopefully, in either case, you’ll realize just how much of a difference a few more dollars each month might make, and strive to put a little extra towards you loan each month. Every little bit really does help, and by tracking your progress, you’ll see just how much!

Do you track your progress? What tools do you use to keep track of your debts? How do you stay motivated?

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With my wife’s parental leave coming to an end soon, we knew we would need to eliminate our debt to be able to afford for her to continue to stay home to look after our son. To both pay off our debts and prepare for living on one income, we simply used the maternity leave and parental leave payments to reduce our debt. Since we were used to living without the extra money, we had to look at what we should do next, especially over the next couple months while we still receive the extra income.

The first thing we’ve done is open a TFSA with ING Direct (use Orange Key 35090351S1 to get a free $25 when you open a new account!) to use as an emergency fund and for annual expenses like preparing for Christmas and life insurance. This will help ensure we won’t have to dip back into our credit lines when major expenses come up, whether it’s repairing our car or paying our property taxes.

The next thing we’re about to do is set up our child’s RESP. Delaying on this has been due as much to procrastination as it is to paying off our debts first. But now that we’re focused on putting some money aside, this is a good time to get it done. While I plan to setup a TD e-Series RESP, I recently found out that I’ll need to set up a GIC account as well in order to receive the Alberta Centennial Education Savings (ACES) grant.

After those savings accounts are setup and we get some money put away, the next thing we have to accomplish is paying down the mortgage, freeing up more HELOC room for investing through a Smith Manoeuvre.

Have any readers come to similar financial crossroads? What did you decide to do when looking at your financial situation and looking for the next goal you wanted to take on?

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1. Get hold of your credit report and look for red flags.

There are a number of companies out there, depending on which country you live in, which for a small fee will allow you to view your credit report, which is essentially a master record of all your borrowing activity. This is the same data that a credit card company or bank will look at when considering your application. If you can see this BEFORE applying for anything you’re in a position of advantage because you can look for any potential issues on your file before they do, and try to fix them if possible. If you have missed payments, or worse, this is something that lenders will be able to see and won’t work in your favour. Some companies even offer you a credit score service – this can be useful but remember that every lender uses their own credit scoring system based on the data available, so it’s possible to be scored well with one company and not so well with another. Bottom line: knowledge is power – don’t go into any application blind.

2. Paying a bit of interest is no bad thing!

It may seem logical that credit card lenders are looking for responsible people that always pay off their debts. That’s true to an extent but remember they are also looking for people they can make a PROFIT from! If you are someone who NEVER gets charged interest and always pays your balance in full, amazingly it could lead to you being an unattractive applicant for a credit card. Sometimes its worth letting your interest be charged now and again. Although unfortunately I think for most of us this isn’t really a problem these days!

3. Correct any errors

Sometimes you might spot something on your credit report that simply isn’t true – maybe they think you had a missed payment when you didn’t, have the wrong address registered to you, or worst of all they somehow think you’ve been declared bankrupt when you haven’t. You can imagine how that could be screwing up your chances of getting credit! If this is the case, it is possible to apply for a correction to your file; a simple fix like this could make a world of difference.

4. Go easy on the applications!

One of the worst things you can do to your credit history is keep applying for more and more products (loans, credit cards, credit lines) when you get rejected. Two or three applications within a few months probably won’t harm you, but lenders can see the applications you’ve made, and although they can’t see if you were successful, multiple applications are a signal that you’re getting rejected by other lenders. Lenders’ attitudes are: “if none of those guys want you, why would I?”. Take it easy, and be aware of the damage that a 5 minute online application could cause.

5. Have patience and rebuild your payment history over time

The good news is that no matter how poor a credit history you’ve clocked up in the past, in most cases it’s never so bad that you can’t build it up to good standing in time. Some people are shocked at the interest rates offered by some ‘poor credit credit cards‘ (up to 40% or 50%) but for people who cannot get approved for anything else these cards can be used as stepping stones to a better credit score, if you use them sensibly. If you make sure you use them within the credit limit you’re given, pay back the balance in full every month to avoid the exorbitant interest, and make sure you never miss payments, after several months your credit history will start looking a lot healthier. Give it six months to a year of sustained, responsible usage and then try applying for that more upmarket card or loan and see what happens. Chances are you’ll be seen in a better light as someone who is responsible with their credit and willing and able to make regular payments.

This is by no means an exclusive list, but in my experience a good starting point to help you get back on track. Beyond this, my advice is that Google is your friend – make sure you do some research online, because there are plenty of guides, advice articles and forum threads out there that will be able to help you.

About the author: Tom is a finance blogger currently specialising in credit cards for bad credit. He strongly believes in picking through the complexities of the mysterious world of money and finance to help ordinary people make their way through the maze.

Image by pickup2sticks

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You should check your credit reports at least once a year. There are two reporting agencies you need to contact, Equifax Canada Inc. and TransUnion of Canada. Each company offers a free credit report, though it’s not surprisingly less easy to find than the paid version. To make it easier, last year I created a pdf with all the contact information and credit report request forms that you’ll need to get your free credit report.

Once you have your credit report, you will want to find out your credit score. You do have to pay to get a credit score from Equifax or TransUnion. However, there is a way to get a free credit score by using a calculator from Bankrate. You enter all the information from your credit report and the calculator will give you a range that your credit score falls into. The range is pretty accurate, what I do is write the range down on my report and file it away to compare to the next time I ask for a credit report.

Once you know all this information, the next step is to look for ways to improve it. There are many ways to improve your Canadian credit score, from paying your bills on time to keeping your balances low. Keep both revolving and installment credit and continue building your credit history.

While it takes a little more effort then simply paying for your score online, getting a free credit score is a great way to save money and still stay on top of your credit information.

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So are there ways to improve your score? Or are you stuck with it for life? Let’s delve into some ways:

1. Find out your credit rating

One of the first things you should do is obtain a current copy of your credit report. This way you can see exactly what state your credit rating is in. Where do you get a credit score  from? Either Equifax or TransUnion provide them online. Be warned that sites will charge a fee for this, though you can calculate your credit score for free.

2. Does anything look out of place?

Look for any blatant errors on your report. Read through and if you find any mistakes – it’s actually quite commonplace to – go directly to the source of the mistake. Bring it to their attention, it could have been easily made and also easily rectified, thus improving your credit rating.

3. Obvious but important – Pay your balance!

If you have more than a few credit cards, try and pay off those cards with the lowest balances first. It may sound silly but don’t try and pay off your biggest balances; you’ll only make a tiny dent. It’s better to see progress with cards paid off in total, spurring you on, and showing the lenders that you are indeed taking positive actions to be more responsible with your spending. Once you have it down to a few cards, then it won’t seem like such a mammoth task, and as long as you make the minimum payments each month, you should be well on your way to improving your score.

4. Do you really need that?

Calm down on the overspending. Why go to all that effort to clear your balances, only to spend on them again? Keep one card as an emergency fund card, and only use in the case of an emergency! Kind of like “freezing your assets”, take the cards you have paid off and if you can’t bring yourself to cancel them, but them in a container full of water and freeze them! You’ll never be bothered to wait for it to melt and forget about that sudden spending impulse you had!

5. Wait for your score to improve

Refrain from applying for a new card just yet. If your credit rating is not up to standard, you will only be eligible for the high APR cards, and applying and getting rejected might harm your score even further. Remember your credit score sees you as a number not a person, your activity is logged on a computer and the purpose or reasoning behind is never known.

The bottom line – the longer you go paying off your balance each month the faster your credit rating will rise.

Bio: Check out more posts at Thinking Money. You can also follow on Twitter @ThinkingMoney and subscribe to the RSS feed!

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The Good

In general, low interest rates are good for anyone who wants to borrow money. Here are a few examples:

1. Individuals: When rates are low, it’s more affordable for consumers to borrow the money they need to finance homes, cars, education, and other forms of consumption. Keep an eye on interest rate trends to decide whether to choose a fixed or variable rate mortgage.

2. Businesses: Companies need readily available credit to invest in their businesses, pay their employees on time, and manage their cash flow effectively.

3. Governments: Most governments at all levels, whether municipal, provincial, or federal rely, to some extent, on the credit markets to finance their operations. With multi-trillion dollar stimulus programs in effect world wide, lower interest rates can reduce the cost of borrowing dramatically.

In general, lower interest rates are seen as stimulative for the economy, as consumers tend to buy more, businesses invest more, and governments can afford social programs.

The Bad

Low interest rates are usually not so good for lenders and savers like the following:

1. Older or Retired People: These folks usually want to avoid having too much of their money in higher risk assets like stocks, so they stick to fixed income assets like bonds, GICs, and savings accounts. Lower rates mean lower retirement income.

2. Risk Averse Savers: Some people naturally avoid risk. They have very low or no debt and they don’t like to invest in stocks, commodities or real estate. Low interest rate environments provide little or no reward for this kind of fiscal prudence.

3. Insurance Companies & Pension Funds: These large institutions need to achieve a certain level of return in order to ensure they have enough capital to pay out when they need to. They also need to mitigate risk for the same reason. Low interest rates make it very difficult for these institutions to achieve their goals.

Very low interest rates can lead consumers, businesses, and governments to take on more debt. They can also make it very difficult for retirees and other risk averse investors to achieve the returns they need.

The Ugly

Interest rates that are held too low for too long can lead to unintended consequences like asset bubbles, inflation, and other economic dislocations:

1. Real Estate Bubbles: Housing and commercial real estate prices can rise too high too fast, pricing some buyers out of the market. This can lead to a number of factors that might burst the housing bubble.

2. Commodity Bubbles: When inflation expectations rise (regardless of whether or not there is real inflation), investors tend to pile into hard assets like gold, oil, and base metals.

3. Equity Bubbles: Investors who are looking for higher returns may flock to stocks rather than fixed income instruments, causing equity prices to rise, perhaps out of line with reasonable valuations.

4. Debt Bubbles: Cheap money, especially when offered for extended periods of time, can lead borrowers to become complacent and take on more leverage than they can really afford.

Bubbles don’t become ugly until they pop. There are 2 main problems with any type of bubble: First, they always pop eventually. Secondly, we never know when they are going to do it.

Where Are We Now?

There’s a lot of debate over whether or not we’ve already seen the good, the bad, and the ugly for this cycle. I’m not an economist or a financial analyst and I’m not sure exactly what the path of rates might be. (I don’t think many economists or financial analysts know either.) Given their current levels, it seems like there’s nowhere to go but up. On the other hand, I don’t think central banks will hesitate to resume QE (Quantitative Easing) if the economy tanks again. Having said that, I don’t think we’ve seen the end of the ugly yet. There’s still a huge amount of debt out there and those levels are going to have to come down, whether through repayments over time, or writedowns by lenders. Either way, deleveraging is painful economically and will limit growth for a few more years. We can debate whether or not the central banks should have lowered rates so much during the crisis. For better or worse, it seems like they have bought us some time for banks to heal their balance sheets and more importantly, to deal with the root causes of the crisis. John Mauldin offers a few key items we need for Reform We Can Believe In:

1. The Federal Reserve must remain independent.

2. Credit default swaps need to be regulated and placed on an exchange.

3. Too big to fail must go.

4. Leverage limits on banks must grow as they do. (The larger the bank, the greater the leverage limits.)

I hope we have some time before the next crisis arrives. Whether or not we use that time wisely remains to be seen.

About the Author: 2 Cents writes about personal finance, economics, and life balance at Balance Junkie. Check it out, then follow on Twitter @Balance Junkie and subscribe to the BJ RSS feed!

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