Debt Free in 30

In early February, we released updated research that shows 3 in 10 Ontario insolvencies involve payday loans. Payday loans have been a fairly popular discussion in 2018, as the Government of Ontario changed laws lowering the cost of borrowing for these types of loans and the City of Hamilton stepped in to be the first municipality in Ontario to limit the number of payday loan locations.

Yet despite all the warnings and changes, payday loan use among our clients is on the rise. Why aren't these changes working? Why are indebted Ontarians in fact taking out bigger and bigger loans from payday loan companies? To answer these questions and discuss the unintended consequences of recent changes to the payday loan industry, I talk with my co-founder and fellow payday loan antagonist Ted Michalos.

On more than one occasion, we've said that compound interest is great for savings, but terrible for debt. On today's show, Ted Michalos shares a simple math trick to help you easily calculate the impact interest has on the debt you carry.

The trick is called the Rule of 72.

You take the number 72 and you divide it by the interest rate that you're considering.

Why does this matter? We explain on today's podcast.

With the launch of the new PC Optimum program, we're taking the opportunity to examine just how Canadians can make the most of loyalty cards and points programs. While there are advantages to in-store reward programs, if you're not careful, they can actually cause you to overspend.

Our special guest host on today's podcast, Sharon Hoyes, talks with our guest, Kimberly Hill, about how to use loyalty programs wisely to balance your budget.

Trying to make debt an everyday topic is difficult. What's more, most people who are in my line of work have an accounting background. As such, there's a tendency to be more numbers-focused than say, story-telling, for example.

But a year ago, I came across an individual on my Twitter feed, who was commenting on personal finance issues and the sorts of situations that my clients face. He's even got an impressive social media follower base because of it.

His name is Scott Terrio. He's a regular contributor to Macleans, BNN, and many more media outlets. I'm happy to share that he's also the newest member of the Hoyes Michalos team. Scott is our new Manager of Consumer Insolvency and he's our guest on today's podcast, as we talk debt.

You hear the stories about the person who paid off $100,000 in debt in just 3 years; sounds great, but how did they do it, and is that realistic for the average person?

The short answer is no, if you earn $25,000 per year it is mathematically impossible to pay off $100,000 in three years, but you do have options, which we discuss on today's show.

If you think your finances are under control because you're keeping up with minimum monthly payments on credit card debt, think again. To become debt free, you need to pay down more of your balances. How do minimum payments work and why do they keep you in debt? And what do you do if all you can afford are the minimum payments or less? We discuss that on today's podcast.

We hear the same thing repeatedly. If you rent, you're throwing away your money. Why? Because you have nothing to show for it at the end of the month. On the other hand, if you own your home, you're paying down your mortgage and building equity. But is this true? Why can't you build wealth by renting? Today's guest thinks you can.

Some points to consider, according to Alex Avery:

1. It's not one-size-fits-all. Buying isn't for everyone. Neither is renting. Consider how long you expect to be in a particular location. If you have precarious employment, or know that a job will be moving you to another location, renting is a more suitable choice. On the other hand, if you know exactly where your life will be in the next 10 years and you'll have children, who will go to school, then it's probably better to invest in a home.
2. When making the decision to rent or buy, don't forget all the negative carrying costs of owning and selling a home. Count that against your 'investment' decision. Be aware of you biases that might make you want to scale up, buy more, renovate more. Alex uses the term investment creep to explain this bias.
3. Understand how the pro ownership lobby can influence your decision - from the government, to real estate agents, even your friends talking around the dinner table. Don't be persuaded by someone else giving you advice that reflects their objectives, not yours.

Because it's not the level of debt that causes the problem necessarily. It's whether or not you can service it. On show #174, we gave the example of someone with a $500,000 mortgage and 25-year amortization. If the interest on it went from 3.29% to 4.29%, the monthly payment would go from $2,400 to just over $2,700. That's about an 11% increase.

On today's show we discuss which debts should you pay first, and how to make that decision.

What will happen in 2018 that could water the seeds of a financial crisis? Ted Michalos and Doug Hoyes believe there are three big stories to watch in 2018:

1. Minimum wage going up in Ontario from $11.60 to $14.00, effective January 1st. This means any employer that is already marginal or has very tight margins is probably going to employ fewer people.
2. Debt. According to the Canadian Payroll Association's September 2017 survey, 49% of Ontarians are living paycheque to paycheque and 43% of them save less than 5% of their earnings. Canadians are also the most indebted in the world by at least one measure, as household debt is more than our GDP.
3. Real estate value and mortgage interest rates. The Bank of Canada predicts that 47% of Canadian real estate mortgages will renew in 2018 and a lot of people are going to be facing an increase because rates are higher than they were a year ago.

For more insight and detailed breakdown of our predictions for 2018, tune into the podcast.

On today's podcast we explain how, even though your house may have increased in value, if you don't have enough cash to meet your monthly expenses, you are house rich but cash poor.

We give four tips to avoid being house poor. The most important tip: decide what kind of life you want, and use that decision to decide on the house you really need.