Rent-to-Own is Investing in Real-Estate and The Home Buyer Too - Find Out What You Need to Know Before Renting to Own

Investing in real estate is not how it once was. Recent changes to CMHC lending guidelines have made it increasingly difficult for individuals and families to purchase homes. In the past year, Canadians have seen CMHC reduce maximum mortgage amortizations from 35 years, to 30 years, and most recently down to 25 years. They have also tightened up other lending guidelines and reduced the number of products they will high ratio insure. This has forced those who have considered investing in real estate by purchasing a home to live in or to resell to come up with innovative ways to make the financing happen. 

To make the dream of homeownership a reality, some real estate investors and builders have come up with rent-to-own programs that enable families to begin their dream of home ownership by renting with a later option to own. Generally people who opt for rent-to-own do not qualify with the bank for traditional mortgage financing because they cannot get approved for CMHC high ratio mortgage insurance due to problems with credit, income and debt.

Most real estate investors and builders offer rent-to-own programs to provide homeowners with a stepping stone. The homeowner begins by renting the home with the expectation that later they will be able to qualify for a mortgage to own it. When a real estate investor or builder agrees to offer rent-to-own financing they are not only investing in real estate but they are also investing in the borrower too. Real estate investors and builders who offer rent-to-own programs do so to help give people the ability to buy homes. The faster the borrower can fulfill the rent-to-own contract and buy the home, the better.

A big challenge that people face when renting to own because of credit, income or debt problems is that once in the home, they are faced with the question of how they will improve the state of their credit and finances so that they can qualify for conventional mortgage financing in the future. Well, if they are in a financial pickle, they likely will not be able to get out of it without some financial guidance.

The fact of the matter is that where credit is concerned, most people can obtain mortgage financing with 2 years of good credit after having cleared up past bad credit. Generally, CMHC will want to see that whatever problem credit existed is paid off and that there are 2 years of rebuilt credit. CMHC will also want to see that debt servicing ratios are in line with their guidelines and that the individual is not loaded with debt.

Clients who decide to go the route of rent-to-own should not do so without a strong financial plan; a plan that will see that all credit and finances are in order before looking to obtain conventional mortgage financing is critical. Where real estate investors and builders are concerned, when we say that investing in real estate means investing in your client, we mean that when you take a risk on someone, it is prudent to give them all of the tools and resources necessary to be able to fulfill the end agreement.

Rent-to-own can be a great resource to leverage when pursuing home ownership, especially when combined with a solid financial plan at the get-go.

DebtCare Canada works with many real estate investors, builders, and consultants who offer rent-to-own programs to put their clients back on a path to financial wellness. We work with clients with all types of credit and incomes, and can assess your clients to give both you and your clients a financial opinion as far as where they are today financially, as well as providing you with a plan to see that they can improve their circumstances. Many real estate professionals have found our services to be very valuable because they also help to identify clients who have deeply rooted financial issues that may need to be considered when making lending decisions.

For more information about the programs offered by DebtCare Canada please call Michael Goldenberg at 416-907-2582 ext 102 or visit www.debtcareservices.ca/real-estate.

Credit Card Payment Calculator - How Long Will it Really Take to Pay off Your Credit Cards

You likely stumbled upon this article looking for an online credit card payment calculator or for information about using a credit card payment calculator because you are looking to calculate ways to pay off your credit card debt. There are many different debt and credit card payment calculators out there but seeking one out at this point may not make sense. Having too much credit card debt can present a big problem and paying it off can be difficult. Assessing your true ability to pay off your debt and estimating the time it will take to do so involve many considerations.

Each credit card will have a different interest rate, so unless you have the ability to use a single credit product to pay off all of your credit cards, in essence consolidating your debt, you may find using a credit card repayment calculator inaccurate because of the varying interest rates and credit terms.

Consider using the credit card payment calculator that exists in your own head. Here are some very simple credit card payment calculations that you can use to get an idea of how long it will take you to pay off your credit card debt.

How much would it cost you per/month to pay off your existing debt over 4 years at 0% interest? Take your total debt and divide it by 48. E.g. $20,000 debt divided by 48 months would mean it would cost you $416 per/mo. to pay off your debt at 0% interest over 48 months. Now that you know this number, let's look at the interest rates you are paying on your credit cards.

Interest rates on credit cards generally range from prime to $29% (Lines of credit are usually prime to 10%, regular credit cards from 15%-23%, department, furniture and department store credit cards are usually from 24%-29%). Credit card interest compounds monthly which means that each month, one month’s interest is applied to the bill.

The biggest problem with credit card interest and paying off credit card debt is the amount and frequency of the interest coupled with the fact that minimum monthly payments are set very low, usually 1% to 3% of the credit card balance. You will notice that banks will now tell you on your bill the number of months it will take you to pay off your credit card debt. I had a client show me a credit card statement for a Visa with a 19.9% interest rate which indicated that it would take the client 96 months to pay it off at the minimum payments.

Here’s why. If you took that same $20,000 credit card debt in our first example and made it a single product at 19.9% interest, your minimum monthly payment would likely be $200-$300 per/mo. To calculate the monthly interest that would be applied to the credit card, all we have to do is take the interest rate of 19.9% and divide it by 12 months (remember it compounds monthly). In our example, that would make the monthly interest 1.66%. Now multiply the $20,000 by the 1.66% and presto, the monthly interest would be $320. That means on your monthly billing date $320 would be added to the credit card, making the balance $20,320. Even if you make a $300 payment, you owe more than you started with, which is why credit cards are so difficult to pay off. To pay off credit card debt in a reasonable time period you would have to double or triple your minimum payments.

Before playing around with the numbers using a credit card payment calculator take a step back and be realistic about your situation. How much money can you apply in addition to minimum monthly payments? Is it realistic that you will be able to pay off your credit card debt without restructuring it? Are you finding it difficult now to even manage your minimum payments?

Figuring out how to deal with credit card debt will involve closely analyzing your budget, cash flow and resources to come up with a solution. There are some debt restructuring programs available that can freeze or even reduce the amount of debt you owe and offer you a single monthly payment. The best thing that you can do is seek out financial counselling if you are struggling with a financial problem. By working with a financial specialist who focuses on debt consolidation and financial restructuring you can access the programs and resources that are available to help you get out of credit card debt.

If you would still like to use a credit card payment calculator, click here to use DebtCare Canada’s online credit card payment calculator. If you have a financial problem and need help, please contact DebtCare at 416-907-2582 or visit www.debtcare.ca.

Is a Consumer Proposal a Debt Consolidation Loan?

When looking for a solution to a financial problem or accumulated debt, you will find that there are many services available that offer different things. Banks and finance companies traditionally offer debt consolidation loans, while trustees in bankruptcy deal with debt through bankruptcies and consumer proposals.

Debt consolidations involve consolidating debt into a single payment and debt consolidation loans have very similar characteristics to consumer proposals. A consumer proposal involves a proposal being made to your creditors wherein you agree to repay a portion or all of your debt through a single, fixed monthly payment.

A consumer proposal is much like a debt consolidation loan because:

·         You begin owing a fixed sum of money.

·         You begin making a single monthly payment.

·         You can pay it off at any time.

Some of the benefits that are offered through a consumer proposal that are not offered by debt consolidation loans are that in many cases a consumer proposal will reduce the overall debt owing, will stop collection action, will freeze the interest accruing on debts, and more.

One of the drawbacks of filing a consumer proposal vs. taking out a consolidation loan is that it will impact your credit and your relationship with your creditors. Because creditors are not being paid according to the original terms of your agreements with them when accepting less than what they are owed and/or being repaid over a longer period of time, they will not likely do business with you in the future. In addition, the consumer proposal will be reported on your credit report for 3 years from the date it is paid in full.

Now, one must weigh the impacts on credit against getting out of debt. If you owe so little debt that you could pay off all of your creditors in 3 to 4 years and have good enough credit to get a debt consolidation loan, then a debt consolidation loan may be the right answer. However, a consumer proposal may be the best answer if:

·         Your credit is already damaged to the point where you cannot get a debt consolidation loan, or;

·         You have so much debt that you cannot consolidate it all, or;

·         You have so much debt you just can’t see a way to pay it off in a reasonable amount of time.

When it comes to making a choice with respect to how to deal with your debt it is important to recognize that each person's financial situation is different. A debt consolidation loan or consumer proposal may not be the right answer for you at all. The best thing that you can do is consult a financial counsellor/consultant to perform an unbiased review of your finances, give you some practical advice, and provide the resources and representation to see your plan through.

For more information about consumer proposals and debt consolidation loans or if you need a debt consolidation please contact DebtCare Canada at 416-907-2582 or visit www.debtcare.ca.

Consumer Proposal VS. Bankruptcy - How Are They Different

If you have been facing financial challenges you may have been exploring financial options to deal with debt. Two of these options include a consumer proposal and bankruptcy. We are often asked the differences between filing a consumer proposal vs. bankruptcy in Canada, which prompted us to write this article.

Before discussing the differences between filing a consumer proposal vs. bankruptcy it is important to understand that both are legal processes to deal with debt that are administered by a trustee in bankruptcy. The trustee in bankruptcy is an officer of the court appointed by the Superintendent of Bankruptcy who oversees the Bankruptcy and Insolvency Act and regulates the insolvency professionals who administer it.

The trustee in bankruptcy administers bankruptcies and consumer proposals; they do not represent you in the process. One of the trustee’s responsibilities is to make a fair deal that pays your creditors the most money possible. Trustees also earn more money based on the size of the consumer proposal that you file. The larger the payments you make under the consumer proposal they negotiate, the more money they make administering it.

A bankruptcy or consumer proposal is a viable method to use to deal with debt. Both will stop most collection action, will leave you with a single monthly payment, and will stop the interest accruing on unsecured debts.

When comparing the differences between filing a consumer proposal vs. bankruptcy the option you choose will generally depend on your income and assets. Those with minimal income, no assets and a significant amount of unsecured debt may be a better candidate for a bankruptcy. One big drawback with bankruptcy is that, if your income surpasses a certain level, your trustee may assess you as having surplus income. Having surplus income means that, if your income exceeds the threshold, not only will your monthly payment in bankruptcy increase but the trustee may also require that you remain bankrupt longer. The same applies to equity in assets, such as a home. If you have equity in your home the trustee will assess surplus income which will increase the amount that you have to repay in bankruptcy. This is why higher income earners or those with assets often opt for consumer proposals.

Many individuals don’t realize that in a bankruptcy or consumer proposal you can generally keep your assets, homes or cars included.

Consumer proposals involve offering your creditors a proposal that includes a sum of money that you will repay as a final settlement on your debts. Consumer proposals are based on your income, cash flow, and the ability to make a monthly payment over 4 to 5 years. Some benefits of a consumer proposal include:

·         It can be paid off early – a bankruptcy can’t.

·         It is a final agreement - bankruptcies will continue until your bankruptcy trustee discharges you. If your income increases, it could increase the amount you have to repay in your bankruptcy and the length of time that you are bankrupt.

·         You can rebuild credit sooner – consumer proposals are removed from the credit report 3 years after they are paid in full, bankruptcies stay for 6 years from the date you are discharged.

·         In the case of a higher income earner or individual who has assets, a consumer proposal will involve a smaller monthly payment than bankruptcy.

·         If the majority of your creditors accept the consumer proposal, your other creditors are automatically included whether they like it or not.

When investigating the differences between filing a consumer proposal vs. bankruptcy it is best to speak to an independent financial professional who can guide you through your options and represent you throughout the process. Bankruptcy trustees are shrewd negotiators and have experience filing these every day. Having your own representation can help to ensure that you get the best deal. The fact that a bankruptcy or consumer proposal may not be your only financial option is also important, which is why an independent and objective financial opinion will help you to make more informed financial decisions.

For more information about filing a consumer proposal vs. bankruptcy or if you need help with a financial problem, please contact DebtCare Canada at 416-907-2582 or visit www.debtcare.ca

How to Deal With a Frozen Bank Account as a Result of a Canada Revenue Agency Tax Debt

When an individual or business has a tax debt owing to the Canada Revenue Agency, the Canada Revenue Agency will begin to pursue enforcement action to collect the debt. One method that the Canada Revenue Agency uses to collect debt is by freezing a bank account. 

A frozen bank account can be extremely disruptive and can cause incredible financial hardship. Many people feel blindsided when they go to the bank and find out that the bank has frozen all of the funds in their bank account. However, a frozen bank account that is the result of a tax debt generally doesn’t occur without warning. 

A Canada Revenue Agency collection practice usually is as follows:

1.       First you will be notified in writing that a tax debt is owed.

2.       Second, you will be sent another letter demanding payment of the tax debt.

3.       Finally, a “Requirement to Pay” letter will be sent to you and your bank, requiring the bank to freeze your bank account.  

When the “Requirement to Pay” letter is issued and sent to the bank, the bank must freeze the bank account indicated. The bank will then hold the money that is in the frozen bank account for 30 days and then will send the money to the Canada Revenue Agency.

The frozen bank account (even after the money has been sent to the Canada Revenue Agency) will remain frozen. Outside of losing all the money that was in the frozen bank account, the frozen bank account will now cause significant disruption because if your pay is directly deposited into the frozen bank account, the bank will continue to seize the money deposited into the frozen bank account and send it to the Canada Revenue Agency.

Once the CRA has frozen your bank account, you will almost always have to open a new account with another institution. Generally speaking, once the CRA has frozen a bank account the account holder will also see that the relationship they once had with their bank has been severely damaged. Most banks will stop offering credit and may even close existing credit products if they become aware that a customer has a tax debt owed to the Canada Revenue Agency. This is because some people who have tax debts end up filing for bankruptcy after being put under the pressure of CRA enforcement action.

Of course, if you have a tax debt and your bank account has not yet been frozen, it is advantageous to act before things come to that. Acting now doesn’t necessarily mean coming up with money you don’t have to pay off the tax debt. Acting now means seeking out professional guidance to deal with your tax problem before things get that far. If your bank account has been frozen you still have a chance to get your account unfrozen.  Getting a bank account unfrozen is difficult but can be achieved through programs that involve legislation that carries the power to stop certain collection actions, such as a frozen bank account.

If your bank account has been frozen or if you owe money to the Canada Revenue Agency that you do not have the means to pay, we can help – including getting your bank account unfrozen and coming up with a plan to deal with your tax debt. Contact DebtCare at 416-907-2582 or visit www.debtcare.ca.

Garnishment of Wages Blog Series Part 3 of 3 - Garnishment of Wages by the Canada Revenue Agency and Your Options

One of the scariest and most serious garnishments of wages that exists is a garnishment of wages issued by the Canada Revenue Agency. When a tax debt is owed, the Canada Revenue Agency has a vast arsenal of tools at their disposal that they can deploy to collect money from you. A wage garnishment is one of these tools.  

What you may not know is that the Canada Revenue Agency does not need to sue you or obtain a court order against you if they want to impose a garnishment on your wages. The Canadian Income Tax Act gives them the power to require that your employer garnish your wages on notice. If you owe the Canada Revenue Agency money, a garnishment of wages should not be a surprise.

The Canada Revenue Agency will send out a series of notices before a garnishment of wages occurs: 

1.       First, you will get a notice that you have a tax debt.

2.       Second, you will get a notice demanding payment in full.

3.       Third, you will get a final notice for payment.

4.       Fourth, you will get a notice indicating that your wages are about to be garnished.

5.       Finally, your employer will receive notice to garnish your wages and remit payment directly to the Canada Revenue Agency. 

In a perfect world, you would immediately begin looking for a solution to deal with your tax debt before things go so far. Generally people who ignore notices and end up with a garnishment of their wages simply don’t have the money to pay their debt. 

A wage garnishment can involve up to 100% of your income depending on what type of income you have. The problem is that once a garnishment of wages ensues it can cause incredible financial hardship that is difficult to recover from. 

Even if your wages are currently being garnished and the situation seems hopeless, there are financial options that can enable you to stop a wage garnishment from the CRA. Your personal financial situation will have to be thoroughly reviewed by a professional because the route you choose will depend on your personal financial circumstances. Solutions can range from:

1.       Securing financing to pay the debt or enough of a lump sum payment that the CRA agrees to lift the garnishment of wages.

2.       Participating in a program designed to provide relief from tax debt which would involve legislated options that can stop a garnishment even if is being imposed by the government. 

Both solutions will involve the guidance of a financial professional skilled at working with people who have tax problems and the resources to make a plan to deal with a tax debt work.  

A tax problem is a very serious one that shouldn’t be taken lightly. If ignored, a tax problem will only snowball: the debt will grow and the Canada Revenue Agency will only become more aggressive. If the Canada Revenue Agency garnishes your wages you may think that it is the extent of the collection action that they are going to take against you, but this may not be the case. The Canada Revenue Agency has been known to deploy multiple enforcement measures at the same time to force you to pay. This could include garnishing your wages and freezing your bank account or placing a lien on your home. 

If you have a tax debt and are facing a wage garnishment or if your wages are being garnished, help is just around the corner. Contact DebtCare today at 416-907-2582 or visit www.debtcare.ca. If you have a bank account that has been frozen by the CRA be sure to check out our article about how to deal with a frozen bank account.

Garnishment of Wages Blog Series Part 2 of 3 - How to Stop a Wage Garnishment

In our last blog in this series we answered the question “what is a wage garnishment” .  If you have been threatened with a garnishment of wages then you need to know that your employer is about to be notified about your defaulted debt. If your wages are already being garnished then your employer has already been made aware of your defaulted debt and you are likely feeling the financial hardship that accompanies wage garnishments. In this blog we will discuss how to stop a wage garnishment even if it is already in place. 

The three most common wage garnishments are: court ordered wage garnishments that arise because of a defaulted debt to a creditor; a garnishment of wages from the government which does not require a court order for the government to impose; and finally, wage garnishments issued as a result of family responsibility. In this blog we will discuss wage garnishments that arise because of a debt to a creditor and government imposed wage garnishments, and how you can stop them.

When a garnishment of wages has been imposed, there are 3 common ways to stop it:

1.       You get your creditor to agree to voluntarily remove the wage garnishment. This rarely works if you try to negotiate this on your own. If a creditor has pursued a garnishment of wages it is generally because they feel that they have been unsuccessful at negotiating a voluntary repayment arrangement with you. Once a garnishment is in place and they start to receive payments, there is very little you can say to them to convince them to lift it.

2.       You can pay off the debt. Likely this is not a possibility because if you could pay the debt in full, you would have done that already and wouldn’t be putting yourself through the stress of having your wages garnished.

3.       You can work with a financial professional who has access to programs and resources to push your creditor to accept a repayment arrangement that is acceptable to them and that you can live with.

Court ordered wage garnishments can be removed or reduced by going to the court and convincing a judge to give you relief. Pursuing this option can be expensive and time consuming and there are no guarantees. This is not an option in the case of a debt to the government because the government can garnish your wages without a court order.

When there is a debt owed to the government you have far fewer options. Going to the court for relief is not an option, as previously stated. Negotiating with the government once a wage garnishment is in place is often fruitless for the same reason that negotiating with a creditor is. Once the garnishment is in place and the government starts receiving their money, there is no incentive to them to remove the garnishment.

A garnishment of wages is almost always a symptom of a financial problem. Without the existence of a financial problem you would be paying your bills and would not have defaulted on your debt(s). If you want to know how to stop a wage garnishment you must first look at the state of your finances and start the process of coming up with a plan to deal with your financial problems.

There are programs available that can be deployed as effective negotiating tools that can stop a wage garnishment. These programs are available through financial professionals who know how to stop a wage garnishment. When you work with professionals who are skilled at stopping wage garnishments you are able to breathe a sigh of relief as they become your personal representatives, charged with a mandate to deal with your creditors on your behalf. They can also work with you on an overall financial plan to cure your financial problems and begin the process of rebuilding.

If you are facing a garnishment of wages and need help from a company that knows how to stop a wage garnishment, please contact DebtCare at 416-907-2582 or visit www.debtcare.ca.