Tuesday, 25 October 2011

Reverse Mortgages for Seniors in Ontario – Is This the Right Solution for a Senior Citizen in Debt?

In Ontario, seniors are amongst the most vulnerable when it comes to dealing with debt. With a steady influx of companies providing early retirement packages to employees, more and more seniors are finding themselves retiring with minimal income. More often than not, their income is not even enough to survive.

Once an individual has retired from the workforce his borrowing options become severely limited; this leaves him with his debt and little in the way of debt consolidation options. In many cases, banks do not lend to people who are on a fixed income (unless they have an asset or investment that they can offer as security).

Seniors who own their homes sometimes think that the reverse mortgage is the answer, and for some it may be, however, for most it is not. On top of that, a reverse mortgage is not so easy to qualify for.

Reverse mortgages are reverse loans where lenders, such as the Canadian Home Income Plan, will lend a senior up to 40% of their home’s value and either issue her monthly payments or a lump sum to help her supplement her income. The money does not have to be repaid until she dies, stops living in the home, or sells the home. The money then has to be repaid with interest and the interest rates are higher than what a regular mortgage would bear. This leaves little behind for children and grandchildren.

How about all the seniors who owe more than 40% of their properties value, or worse, don’t own homes at all?

CTV News recently reported that 1 in 3 seniors are retiring in debt. According to their report on a recent Statistics Canada study, 17% of retired Canadians, 55 years or older, who have debt owe more than $100,000.

The report also revealed that the median amount owed by retired seniors carrying debt was $19,000. Of the seniors over the age of 55 who have not retired, two-thirds carry a mortgage or consumer debt. And their median debt load is $40,000 – that's about double that of retirees.

Increasingly, seniors are retiring with low incomes and according to the CARP pre-budget submission to the Standing Committee on Finance and Economic Affairs, among unattached seniors – 28.1% of men and 38.3% of women are considered “low income”.

This is why families have to take a stand to protect their aging parents and grandparents who are facing retirement with little in way of assets and income.

There have been Federal Government programs introduced over the past few years to help our seniors who are struggling with debt; many of them offer immediate debt relief and solutions that eliminate debt in very short time spans. This is crucial in the case of someone who is facing retirement or has just retired. The key is that our seniors have our support to help them make effective financial choices; in turn, they can retire without stress and worry over debt. For more information please contact Michael Goldenberg at DebtCare Canada by calling (888) 890-0888 or by visiting www.debtcare.ca

Tuesday, 18 October 2011

Credit Counselling Services in Canada and Your Credit Report

Before a consumer makes the decision to enter into a credit counselling service program in Canada, it is most important to understand the long term implication to their credit.

There are many options available to consumers who struggle with debt and some pose greater implications to a consumer’s credit report than others. With all the choices available, unless you owe less than $7,000, credit counselling programs are the least attractive.

Credit counselling services are “not for profit” because they rely on donations from the big banks to operate. In many cases, the consumers are indebted to these very same big banks. Why would banks fund organizations who effectively allow consumers to pay less than what was originally contractually agreed upon? With all the debt relief options out there, credit counselling programs put the most money back into the coffers of the big banks.

Credit counselling involves the credit counselling agency arranging a reduced monthly payment to your creditors over an extended period of time (4-5 years). The result to your credit is horrendous. When a consumer enters into a credit counselling program, all of the ratings on their credit report turn from a “1” to a “7” and remain that way for 3 years from the date the credit counselling program has been completed.

Credit counselling services in Canada also have no formal authority to stop collection action on the part of your creditors.

If you have reached a point where you owe more than $7,000 and you can no longer make your minimum payments, keep in mind that there are other programs that have been made available by the Federal Government. These programs will result in more favourable outcomes for the consumer than credit counselling.

These programs provide immediate protection to consumers who have unsecured debt. What this means is that if the debt has gone to collections or the consumer is being sued, these programs can legally stop all collection action.

Debt settlements that are arranged are “final settlements”, so while they involve low minimum payments over 3, 4, or 5 years, if the consumer’s financial situation improves she can pay the balance of the settlement in full and thus begin the process of rebuilding her credit. Debt settlement also impacts credit for 3 years from the date it is paid in full, however, you can actually pay it off early.

All in all, consumers are looking for solutions to deal with their debt, solutions that don’t involve bankruptcy. What is important is educating yourself to fully understand what is out there and the possible implications for you when choosing an option that provides debt relief. Hiring a Financial Consultant/Advisor to guide you through your options is often an excellent choice. For more information about Credit Counselling Services in Canada and your credit report please contact Michael Goldenberg at DebtCare Canada by calling (888) 890-0888 or by visiting www.debtcare.ca

Tuesday, 11 October 2011

Debt in Canada vs. Debt in Toronto - Average Toronto Family Carrying $40k in Debt

Earlier this year, the Globe and Mail reported that the average household debt in Canada (minus mortgage debt) is approx. $38,000, which is very close to the amount of consumer debt that exists here in Toronto.

Last week the Toronto Star reported that the average homeowner in Toronto is carrying $40,000 in debt and that the debt to income ratio in Toronto has increased from 88% to a record 150% over the past 10 years. The headline of this article read, “Toronto's wealthiest are the most indebted”.

It is not a sign of wealth if the average Toronto household is $40,000 in debt, and the average Toronto household does not represent those who have the most wealth.

Increases in the cost of living combined with the recent recession and along with the ever-growing unemployment rate are all reasons for this astounding number. It is not a sign of wealth when, in many cases, the average family is dealing with debt that is more than their net annual take home earnings.

Is it easy to assume that people are living beyond their means? Sure it is, but we are noticing that this trend is part of a much deeper problem, with many moving parts.

Financial Institutions, including the big banks, have over the years made it far too easy for consumers to obtain credit. Credit that far exceeds their ability to maintain and bases their ability to repay their debt on the following factors:

-Their credit score (which is not a reflection of one’s cash flow)

-The equity in their home (the assumption is that if the debtor cannot pay they can always count on home equity to deal with their debt)

-Their household income (as opposed to the individuals’ income)

-The consumer’s income to debt service ratio; the credit limit is often approved based on the consumer’s ability to make minimum payments which often only covers monthly interest

When a consumer is granted credit based on the consumer’s ability to only manage interest payments, the consumer then becomes almost permanently indebted to the bank. If they cannot find the cash flow to make lump sum payments or pay 2-3 times more than their minimum payments, their balance will not move and they will forever owe the bank. Television programs like “Till Debt Do Us Part” have done a lot to shine a spotlight on this problem by showing individuals how long it will take them to pay down their debt if they continue to only make minimum payments.

The danger with these lending practices occurs when change happens in the household, such as an injury or an illness in the family, a marital separation, loss of employment etc… Individuals sometimes find themselves turning to credit to bridge the gap in order to make ends meet, the end result being even more debt. Those who have already maxed out their credit find themselves in deep trouble when they can no longer manage their minimum payments.

There is good news: the Canadian Government has responded by providing families who are struggling financially with access to programs that provide immediate debt relief. This can be achieved through freezing credit card interest, settling debt and these programs do not involve bankruptcy. If you are in trouble and would like more information on these programs please contact Michael Goldenberg at DebtCare Canada by calling (888) 890-0888 or by visiting www.debtcare.ca

Tuesday, 4 October 2011

Credit Card Debt in Canada – Find out the Truth About How Much You're Paying

Credit card debt in Canada is forever on the rise. Those applying for credit cards don’t even realize what they are getting themselves into, until it is too late. Canadian banks have made it really easy for the average person to not only be approved for credit cards, but also to make them feel like they can afford to repay them on a monthly basis.

This can get tricky. The manner in which you manage your credit card, the credit card’s interest rate and the credit card’s repayment terms, will determine whether or not you are going to have credit problems in the future.

Credit card interest rates can range from prime (in the case of lines of credit) all the way up to 29% interest (in the case of store cards). You can usually estimate what type of interest rate you will be looking at depending on the credit card grantor. Department store cards like Sears, The Bay, Best Buy, etc.. generally offer higher interest rates (25%-30%), while Visa cards and MasterCards are usually between 16%-25% and lines of credit are generally less than 16%. Make no mistake; this kind of interest can quickly land you in a situation where you have more credit card debt than you can afford.

The minimum monthly payments are usually estimated at 1%-3% of your balance. The result is that people use their credit cards based on being able to manage their minimum payments, however these minimum payments will often only cover interest.

Here is an example. If you obtain a department store card at 27% interest and then spend $2,000 on appliances, your minimum monthly payment, at 3% of your balance, would be $60 per/month. Now let’s take a look at the interest. Credit card interest almost always compounds monthly (12 times per/year). To calculate credit card interest, take the annual interest rate and divide it by 12. In our example, take 27% divide it by 12 and you will get 2.25%. Take the credit card balance of $2,000 and multiple that by 2.25%. The monthly interest would be $45, which means that if you were only making minimum payments, 75% of your monthly payment would be going to interest!

A simple rule of thumb to remember when using credit cards is to not borrow more than you can afford to pay in full at the end of the month.

Many folks who don’t follow this rule of thumb often find themselves in a situation where they have multiple credit cards, stretched to their limits, and when minimum payments collectively become unmanageable, a financial debt crisis can ensue. If you have credit card debt and would like to have your situation evaluated to see what debt elimination options are available please contact Michael Goldenberg at DebtCare Canada by calling (888) 890-0888 or by visiting www.debtcare.ca