Paying down debt advice

[KonaHeiHei]

I'm a university grad - a few years older than most as I worked part-time to pay for tuition etc. I've racked up close to $8,000 in debt. Part is a bank loan for tuition rest is on credit card. Its been very hard to pay it off, as where I live right now, there aren't a lot of jobs, most are contract jobs (no benefits, low pay, poor use of my skills, no continuation of employment etc). I'm paying a bit more than minimum which isn't helping. So I'm moving to city where I'll have a better job with higher pay.

I've read some books on repaying loan. Some have helpful advice. I'm already running a budget and planning on doing a spending jar with cash and saving money automatically with bank deduction from pay.

To pay off my loans in full within a year, I'd have to pay close to $700 a month as I'd have to pay off interest charges and such. That probably won't leave me much to save, put money in an RRSP (which I'd like to *start*), and buy some needed things like new clothes for work. I don't mind working some extra hours at a PT job on weekends but I have limits for time to work and don't want to burn out.

I don't have a car and don't need one. That's helping me save some money.

Does anyone have any suggestions? Anything that you do to help repay debt would be helpful.

[pitz]

Paying off your debt is a form of saving.

Don't worry about RRSPs or 'saving' until you've wiped away that credit card debt.

Once the debt is gone, consider saving in a TFSA (tax free savings account).

[Jucius Maximus]

The obvious: Always direct your payments to the debt that is building up the highest interest.

Also, phone up the credit card company and ask them for a lower interest rate. Sometimes it works, sometimes not. It's worth a try.

Check out the threads on MBNA and CitiBank 0% intro rate credit cards. I got 0% on balance transfers for 12 months from Citi, so that is a good way to temporarily eliminate interest. Just don't make any other purchases on those cards because those will gain interest at the full rate and can't be paid off until you pay the entire balance transfer!!

If you have old possessions that you don't need, try selling them off. I may be selling off much of my DVD collection for this reason.

[mr_raider]

Kill that debt now! 8000$ is manageable. Neglect it and it will become 20 or 30K before you know it. Even if it takes 2 or 5 years, start working on it now. There is no compelling reason for you start an RRSP now.

[TheCheez]

I'd recommend trying to get your CC debt moved onto your LOC or do a balance transfer to a low interest card.

I had quite a bit of debt last year from living above my means and consolidating it into one place to pay helped on a mental level, if nothing more. I had 3 sources of debt, and was in denial about the total amount because each was only a few thousand. Put together it was eye opening, and motivated me to pay it off more.

You seem to have the right idea though. Do what you can to not spend money, and make more. Don't worry about saving money until you're out of debt. If you put $1000 on your credit card, you're not making any money, but you're not losing money to the tune of 20%+ interest.

Good luck!

[KonaHeiHei]

Thanks for the advice!

Now that its pointed out to me (and the priority was) to get rid of the credit card debt ASAP, I hadn't considered getting the 0% balance forwarded on a card. Wonder if I could also do it on my loan somehow (its a bank loan and not a student loan and the interest rate is more forgiving).

I'm also going to budget even more carefully and save receipts. I'm not a penny pincher but if I can manage to squeeze another $20 a week, it'll help.

But, my first priority is certainly the credit card.

[Jucius Maximus]

Now that its pointed out to me (and the priority was) to get rid of the credit card debt ASAP, I hadn't considered getting the 0% balance forwarded on a card. Wonder if I could also do it on my loan somehow (its a bank loan and not a student loan and the interest rate is more forgiving).

Here is what you do:
Card A = 0% Intro Rate Balance Transfer Card
Card B = Some other Credit Card With $0 Balance

Do a balance transfer from Card B -> A for the max limit of Card A. Now the bank for Card B owes you money. Phone up the bank for Card B and ask for some convenience cheques. (You should probably do that earlier on because it takes a week or 2 to get them. And you also want to get it before they know they owe you money.) They will be only too happy to send you convenience cheques because those are normally treated as cash advances. So just write yourself a cheque for the negative balance on Card B and now you can deposit that into your bank acct and you will have CASH! And most likely there will be no fee for the convenience cheque either.

Yes, I have done this. It worked great!

[iamdogdog]

Hi OP,

Not sure if I am 100% correct, but definitely move your 8000 debt from CC because you will still being charged interest on 8000 even though you have paid down to 2000(example). This happens to my friends and no wonder many people can't get out of the CC debt because there is a fine print in those statement saying that interest will be charged based on the original amount, in your case, which is 8000, until there is no more outstanding balance.

A LOC will be much better and it can also build up your credit as well.

Someone please correct me if I am wrong.

[luckydog2006]

First of all, get a job in the city after you move to the city.
Then go to your bank and ask to consolidate your debt of $8000.
They will give you a personal loan and a lower interest and withdraw the money from your bank account. It might take 1-2 years to pay off your debt.
Work overtime as much as you can for the first two years to help pay down your debt faster.

[DanielCarrera]

Don't worry about RRSP or "savings". Put every dime you have toward paying your debts. Pay the credit cards first. Keep your bank account balance a $0. Yes, that is $0, as in nil, zip, nada.

Should I have an emergency fund? No, you shouldn't. If you have an emergency, use your credit card and at least you will have saved a few months of interest.

Should I put money in an RRSP? No, you should pay your debts. The point of RRSPs is that you defer taxes on interest. Paying your debts is even better because the government is not going to tax you more because you saved money. Paying debt is a tax-free investment. Even better than RRSP.

Should I have just a little bit saved to pay for food and clothing? No. Pay your credit card instead. When you buy food pay with your credit card and you will have saved some money on interest.

I suggest you make paying your debts your overriding goal. Go crazy. Sell the cat on eBay! Anything to pay off your debt. You will be much wealthier as a result.

[Jacklad]

Hi OP,

Not sure if I am 100% correct, but definitely move your 8000 debt from CC because you will still being charged interest on 8000 even though you have paid down to 2000(example). This happens to my friends and no wonder many people can't get out of the CC debt because there is a fine print in those statement saying that interest will be charged based on the original amount, in your case, which is 8000, until there is no more outstanding balance.

A LOC will be much better and it can also build up your credit as well.

Someone please correct me if I am wrong.

You're wrong. :D

Take a look at the cardholder agreement; it spells out how interest is calculated. For example, BMO Mosaik says:

"We charge interest at the annual Cash Advance and Purchase interest rates shown on the Card Carrier or as amended over time. The annual rates at any time and their equivalent daily interest rates appear on your Account statement. We calculate interest on Cash Advances by multiplying the daily closing balance of your Cash Advances by the equivalent daily Cash Advance interest rate. We calculate interest on Purchases and fees by multiplying the daily closing balance of those items by the equivalent daily Purchase interest rate."

Other credit cards are similar. Interest is charged on the daily closing balance - not on the original amount.

What you are probably thinking of is those "no payments, no interest" deals various stores offer. What a lot of people don't realize is that if they don't pay off the balance before the grace period ends, they become liable for the entire interest in addition to the purchase price at that point. It's a gimmick that catches a lot of people.

Jackie

[KonaHeiHei]

Sell the cat on eBay! Anything to pay off your debt.

I've considered that. The post-office and the couriers throw the boxes around too much. Makes it hard to put the kitty litter, water and food in the box. Seriously, though, what few things I actually have I'm taking with as much as I can - computer, desk, dresser, bookshelf, etc. I only have one thing really to sell - an exercise bike that cost a bit over $600 - I do put some serious use to it, but I'll be lucky to get $50 for it. And I won't have space in my new apartment. Thats the problem with selling stuff either at yard sale or classifieds - everyone knows how much its worth, realize your price is fair, but are always only willing to pay 80% less of your asking price.

Its not $8000 CC'd debt. Its about $5 Grand on a low-interest loan and another $2000 on one credit card. I'll def. transfer the balance over to a 0% interest for one year on the existing credit card. I'll avoid using the card unless for really necessary purchases and make sure I have the money to cover that + regular payment on the new card. I don't like the idea of cash forwarding anyways. I've been with my bank a long time, but I might see if I can get a better deal with another.

I do plan on working some shifts on the weekends to make ends meet or overtime - certainly if I'm paid extra (but I know the reality that I might not be). I'll work at a retailer for a bit. But, I just don't want to get into working 80 or 90 hour weeks. I'll burn out and/or die before that happens! (or my cat will if I sell him on eBay. Craigslist anyone?)

[logik]

Here is what you do:
Card A = 0% Intro Rate Balance Transfer Card
Card B = Some other Credit Card With $0 Balance

Do a balance transfer from Card B -> A for the max limit of Card A. Now the bank for Card B owes you money. Phone up the bank for Card B and ask for some convenience cheques. (You should probably do that earlier on because it takes a week or 2 to get them. And you also want to get it before they know they owe you money.) They will be only too happy to send you convenience cheques because those are normally treated as cash advances. So just write yourself a cheque for the negative balance on Card B and now you can deposit that into your bank acct and you will have CASH! And most likely there will be no fee for the convenience cheque either.

Yes, I have done this. It worked great!

Or to simplify things even more, MBNA provides the option of an electronic transfer to your chequing account. (With any bank) Once the funds have arrived, pay off your loan. I'm pretty sure that when I did have a Citi MC, they offered the same option.

The above suggestion by JM is definitely another option. I know for a fact that some banks will still charge you a cash transaction fee even if the money your are withdrawing is the result of a credit balance. (It's a systematic thing, based on the amount of the cheque) That being said, a quick call into their CS dept. and they should refund the fee assessed on the account without any issues.

[Jucius Maximus]

I know for a fact that some banks will still charge you a cash transaction fee even if the money your are withdrawing is the result of a credit balance. (It's a systematic thing, based on the amount of the cheque) That being said, a quick call into their CS dept. and they should refund the fee assessed on the account without any issues.

Good to know. I did not pay any kind of fee when I channelled the money through my RBC Visa Gold.

[TopTaxGuy]

Statistics Canada announced this morning that year over year growth in new housing princes slowed for the second consecutive month in March continuing a downward deceleration in the market that begun the fall of 2006. While house prices still continue to rise, it is the percentage increase that is getting smaller and smaller.

Housing prices are an indicator of the strength of the economy.

Take a look at Up To Your Eyeballs In Debt (http://blog.personal-money-tips.com/up-to-the-eyeballs-in-debt/), Tips To Reduce Credit Card Debt Problems (http://blog.personal-money-tips.com/tips-to-reduce-credit-card-debt-problems/), and Should I Invest or Pay Off Personal Debt? (http://blog.taxresource.ca/2008/03/should-i-invest-or-pay-off-personal-debt/)

[SirAlain]

Or to simplify things even more, MBNA provides the option of an electronic transfer to your chequing account. (With any bank) Once the funds have arrived, pay off your loan. I'm pretty sure that when I did have a Citi MC, they offered the same option.

The above suggestion by JM is definitely another option. I know for a fact that some banks will still charge you a cash transaction fee even if the money your are withdrawing is the result of a credit balance. (It's a systematic thing, based on the amount of the cheque) That being said, a quick call into their CS dept. and they should refund the fee assessed on the account without any issues.

Thanks for the informative post.
If I am looking to pay off my debt (I have CIBC Visa), is it better to approach CIBC or MBNA?

[Jucius Maximus]

Thanks for the informative post.
If I am looking to pay off my debt (I have CIBC Visa), is it better to approach CIBC or MBNA?

In your situation I would first approach CIBC to ask them for a lower rate. That can be done quickly and will have an immediate impact on your costs.

If you wanted to get a 0% card to transfer the balance, after that you should approach Citi or MBNA and apply for the card. It can take several weeks after submitting the application before you actually get the card, assuming you are approved, that is. Once you do get the card, you contact MBNA or Citi and they will initiate the balance transfer from CIBC.

Be careful, the MBNA card charges you a percentage small surcharge for each balance transfer. Some of the Citi cards also charge a surcharge. Read the fine print!

[faken]

Paying off your debt is a form of saving.

Don't worry about RRSPs or 'saving' until you've wiped away that credit card debt.

Once the debt is gone, consider saving in a TFSA (tax free savings account).

Hit the monkey on the head! Don't worry about the RRSP's. You're 8,000 debt is making you lose money right now because you're paying interest. Think short term first.

[SirAlain]

In your situation...
Thank you 10000x!

[Jucius Maximus]

See this article (http://www.rd.com/advice-and-know-how/consumer-complaints-getting-what-you-pay-for/article55733.html) for some info on how someone convinced the bank to lower their credit card's interest rate.