Happy Friday, everyone!
Today, I want to touch on my least favourite four letter word –
According to the Financial Post, TransUnion predicts that average Canadian consumer debt will rise by 4% to an all-time high of $28,853.00 by the end of 2014. That’s a pretty scary statistic – especially when you figure that the average Canadian income is $29,878.00 annually. If we do the math on those numbers, one would be left with $1025.00 if their debt and income matched the national averages. Now, as nice as it is to be left with a surplus, the fact of the matter is that nobody can subsist on $1025.00 per year. Rent, food, transportation, and entertainment are just the tip of the iceberg when it comes to the expenses any adult has, and with that in mind, it’s easy to understand why so many of us get caught up in the seemingly ceaseless cycle of debt – and as an additional bonus, the negative side effects on mental and physical health that come along with the crazy stress of knowing that the collectors’ phone calls aren’t just going to magically disappear.
I am a young woman who once upon a time (okay, okay, five years ago when I was eighteen) acquired a credit card with a $1500.00 limit from the credit union where I did my banking at the time. I was a full-time student with bills to pay, and the minimum wage jobs I had left me with enough to eat OR pay rent for the month. A couple months on the Broke Student Diet later, I turned to creditors for the first time. When I got that Visa in the mail, I promised myself that it would be used exclusively for groceries and emergencies – I’d even gone so far as to break down to the penny exactly what I could afford to spend on the card per month in order to make the payments and not accrue too much of a balance (ergo, too much interest) on the card. I’d taken the “So You’re Moving Out Life Basics 101” class in high school, and I knew that I had to be responsible with my credit. That was the plan.
But (and there always is a “but” in life), I was eighteen and dating someone who was less than responsible with their own credit. When the collectors came a-calling, he’d successfully brushed them off for close to two years. They weren’t playing around anymore – they wanted their money, or they wanted his assets (at the time, a Ford F-150 and a small property his grandfather had left to him when he had passed). Well, I was young. And naive (though well-intentioned). And I decided to “save the day” by taking a cash advance off of my credit card for $1200.00, which was supposed to be paid back to me within three weeks so that I would suffer very little penalty. Long story short, we’ve been separated for close to four years now, and I never did see a penny of that money.
Rule #1: Never, Ever, Ever Put Yourself In a Bad Situation To Help Someone Else Financially. Ever.
Add to that the fact that my cell phone bill at the time was automatically withdrawn from that very credit card (which, of course, didn’t have the funds on it, so accrued a whole bunch of NSF fees), I had student loan payments, rent and heat to pay for, and one of the three businesses I was working for suddenly closed. I was sinking, quickly, but with my cell phone cut off, classes to pass and work to attend, I managed to remain somewhat blissfully unaware of how bad the situation had become. Granted, I knew in the back of my mind that it would have to be repaid eventually, but I never stopped to think about the negative repercussions on my credit score, my mental health, or my ability to take out loans, credit cards, or even to sign up for a new phone contract. Life went on, as it does, and (as was the norm for the vast majority of my adult life) living paycheck to paycheck and hoping for the best seemed like the only way for me to make it through with a roof over my head, food in my stomach, and enough change to take the bus to and from work every day.
Fast forward five years to this afternoon. I’ve grown up a lot in sixty short months – today, I’m happily engaged, I work full time at a job that allows me a comfortable living wage, and I’m looking forward to the future. The future is a scary thing, especially for us young adults. When I was still a teenager, the furthest I thought ahead was to my next rent payment or my next assignment due at University. Nowadays, I’m considering life’s bigger goals – home ownership, retirement savings, saving for the wedding that is somewhere in the (not too near, but still) future…all of the things that come along with being a responsible, happy, and financially stable person are now in the forefront of my mind, and I’d be lying to you if I didn’t admit that it is somewhat overwhelming. In fact, it would be even if I weren’t in the negative credit situation that I am currently trying to dig my way out of. The mistake I made five years ago was a critical one.
Rule #2: Always Keep The Future In Mind – What You Do Today Will Affect You Tomorrow.
So, how exactly am I digging myself out of this situation?
First of all, I looked up my Equifax report. Equifax is one of the two (TransUnion being the other) agencies in Canada which report consumer credit bureau information. One’s Equifax score, or Credit Beacon, is a refined methodology to assess a consumer’s repayment performance across all their accounts to help predict the likelihood that an existing or potential customer will become delinquent within the next 24 months. This score is reported within the 300-900 range, and the basics of it are that the higher your beacon score, the better. My beacon right now is at 540 – certainly not the worst it could be; however, there is a lot of room for me to improve. At that beacon score, if I were to go finance a car right now, I would automatically be bumped down from prime rate interest (0.5% – 7.99%) to sub-prime (at best, 8.00% to 17.99%). Ouch. That’s not the only thing I’d like to fix on my Equifax report – since the aforementioned credit card and cell phone bill went unpaid for too long, the creditors wrote off my debt. While that does mean that I am no longer responsible to pay back what I owed to Bell and to Visa (the bad debt is transferred or sold to a collection agency for pennies on the dollar. It is then owned by the collection agency, which will try to recover as much of the debt as possible from the borrower. More here), the fact that it was sent to collections is clearly stated on my Equifax report, and it definitely lowered my beacon by more than a few mere points. I am now labelled as a “seriously delinquent” borrower – not something that will bode well for me and my fiancé in the future when the time comes to buy a house or a car together…that is, if I don’t take care of it, and soon.
Rule #3: Know Where You Stand. Your Credit History & Equifax/TransUnion Scores Are Important!
Knowing that about my credit history and knowing where I stand, my options to fix the situation are somewhat limited; however, they do exist. Basically, what I need to do is prove to the creditors that I am responsible with my finances, and that I am a person worth lending to again. The first step towards this is to re-establish a line of credit that will report on your credit bureau (for example, a pre-paid credit card that you buy at the gas station will not do the trick, as it is in no way tied to your name or bank account, it will not be reported). There are a few routes through which this can be achieved:
1. Secured credit card/line of credit
2. Debt consolidation (i.e. a short-term, high-interest, “Last Chance Financing” automotive loan)
3. Credit counselling – most credit counsellors will work with you (and, most importantly, within your budget, whatever that may be) to find alternative solutions that will be sustainable and positively impact your credit rating
I am pursuing option #1, the secured credit card. Now, the banks are not going to just hand me over another $1500 limit Visa card, because the last time that they did that, I didn’t hold up my end of the deal and they ended up writing off my debt. In their eyes, I’ve lost that privilege. A secured credit card requires that you put a predetermined amount of “security funds” down before they give you the credit card, essentially, you are paying for the right to be a borrower – proving that you are going to pay the due balance and not allow the same mistakes to happen again. In my case, I qualified for a Capital One Mastercard – I’m awaiting the letter in the mail that will detail what they have determined my security deposit and credit limit to be based on my credit history and beacon score. For now, it is a waiting game for me; however, once I have that letter and have deposited my security funds, the process of rebuilding my credit will actually begin. Bear in mind; however, that in more extreme cases, the security deposit may in fact be the credit limit on the card – essentially, you are using your own money; however, the fact that it is on a credit card through a credit union or a bank will allow that information to be reported to the credit bureaus. Remember – if the information isn’t being reported, it likely isn’t doing you any real favors in terms of boosting your credit rating.
But (and like I said, there is always a but in life) the end goal of fixing my credit history doesn’t happen when I get the actual credit card in the mail and have it activated. I need to use the card, and I need to make my payments on time, every time for at least a couple of years. An easy way to do this is to put a small monthly bill on the card (and if you can, set it up to automatically pay the balance once a month). I’ll be doing this with my cell phone bill – my contract is up in February anyways, and the extra bonus is that most major phone companies report to Equifax (in Canada, Bell and Rogers do for sure, and I’m certain that a whole bunch of others do, too), so I’ll be giving my credit rating a one two punch. What I want to prove to the creditors is that I can be a predictable, stable, and reliable borrower who pays her bills on time, doesn’t allow her account to go into arrears, and shows consistency with payment amounts and frequency. That is a completely attainable, and rather easy task for me to achieve at this juncture in my life – all I have to do is make sure I pay my bills!
In a few years, I will have re-established some trust with the credit bureaus. Given that I hold up my end of the deal (and trust me, I will), I should be able to start attaining bigger and better lines of credit – perhaps a non secured credit card to start with, or an automotive loan, or a mortgage with my fiancé. I don’t know what the future holds, besides better options for my financial health, and more peace of mind in regard to the rest of my life with the weight of those worries off of my shoulders.
Rule #4: Don’t Make The Same Mistakes Twice! If You’re Given A Second Chance, Make The Best Out Of A Bad Situation And Set Yourself Up For Long Term Success.
So why am I telling the whole world about my debt problems? Simple. Debt is a widespread, deeply affecting, and very embarrassing issue. To tell you the truth, I’m second guessing hitting the ‘publish’ button on this article – it’s mortifying to admit that I made such an error, that I set myself up for failure when I should have been taking the world by storm. But (there’s that but again!), I’ve also had the privilege of working with a multitude of people wading through much deeper and much more terrifying personal finance issues when I was employed in high-risk automotive sales. People on the whole want to fix their credit – nobody likes being harassed by collectors or to receive threatening letters in the mail; however, it’s even harder to admit to ourselves (let alone the people who can help us) that we are in the rough in the first place. I am telling you my personal humiliating story in the hopes that I reach somebody who is currently suffering the negative effects of debt in their life. I am telling you this story to give you hope, because (as much as it may not feel like it), there IS hope – a lot of it, if you’re willing to reach out and find the lifelines that exist. And, most importantly (to me), I am telling you this about myself in order to regain control over my situation. The absolute worst part of this whole scenario for me was the realization that in allowing myself to become somebody who had very few credit acquisition options, I had effectively taken away a large portion of my own freedom. Money doesn’t buy happiness; however, a good credit history increases the likelihood of being able to go after the big things – the house, the car, the line of credit I might need one day – all because I was irresponsible, and that irresponsibility had bigger repercussions than I ever took the time to fathom. Now that I am actively fixing the situation, I am demanding control of my life as a whole.
Rule #5: Never, Ever, Ever Give Up Hope. No Matter How Bad The Situation May Seem, There Are Options, Solutions, And Tools Available To Help You Find Financial Freedom.
Myself and the rest of the Slegg Mortgage Team are always available to answer any and all questions you may have in regards to your own financial repairs. If you are currently sinking, if you have lost hope, if it is affecting your life in a negative way, I urge you to reach out and start climbing back up the ladder. Do it NOW. I’ve included a list of resources at the end of this article. If you are looking for ways to consolidate your debt, we may very well have a viable option awaiting you. The absolute most important thing you can do for yourself if you are in Money Hell is to actively seek out ways to get away from the flames. Like I said before, ignoring the problem will not make it go away, no matter how much we may hope it will.
It is worth the discomfort and the embarrassment and the few months/years/whatever it takes of sacrifice to free yourself from constant, crippling, and devastating financial stress. Call us toll free at 1-855-590-7532, and we’ll help you take the first steps on the right path.
Other Resources:
Equifax
TransUnion
Debt Relief Canada
Managing Your Debt – Service Canada
Canadian Credit Counselling Society – 1-888-527-8999
Phew – heavy article for a Friday; however, I hope that it brought some of you some much needed and well deserved relief!
…Unfortunately, I don’t think that this is a well accepted point of view.
Have a fantastic weekend, everyone. I’ll be back in the office with another post for you on Tuesday – until then, I look forward to reading your comments!
-Mel
Slegg Mortgage Press 
