Debt Free in 30

My guest today is Kerry Taylor. Her website, Squawkfox, was voted Canada's best money blog by the Globe & Mail in 2010, and in 2014 Chatelaine said she was the "gold standard for personal finance blogging".

I've followed Kerry's work for many years, so I was very interested to read her Globe & Mail article where she described her visit to Mogo Lounge, operated by Mogo, a new "sexy, fintech" lender.

What Kelly discovered was today's new form of payday and alternative lender. No more ugly yellow stores, these new loan shops have a much more attractive approach. Nice looking locations that look more like lounges than payday loan outlets, they offer free water, an online app - and best of all a 3 minute signup process. In addition, they give you a free credit report, with your credit score.

As we discuss on the show, Mogo markets themselves to people who feel like they are "getting screwed by the banks" (and those are the words on the packages of free condoms they hand out). Their marketing pitch is simple: go to the app, get your credit score for free, and in three minutes you may get pre-approved for a loan of up to $35,000 with rates starting at 5.9%.

But are the rates really that good? What's the catch? And what do condoms have to do with it. That's what we discuss on today's show.

We're living in very different times in terms of our economy. To help us explore this topic further I talked with economist David Bond about how the Canadian economy as a whole is impacted by household debt and the root causes of debt, including income inequality and our tax system.

David is a PHD in economics from Yale University, but more than that he brings a broad perspective of someone who has worked as an academic, civil servant and in industry.

Mr. Bond points out that we must face the fact that we live in an economy that has cycles. A high household debt to income ratio (167.8% at the time of our podcast) puts both the individual, and our economy as a whole, at risk. If you lose your job, you may not be able to pay your debts. If too many people default on their debts, our financial institutions might go bankrupt.

Tune in for Mr. Bond's David's advice if you have debt and risk a job loss or income reduction.

We all want to help when someone is in trouble. But helping someone out of financial trouble can come with unexpected costs and consequences. It is for that reason that I strongly advise against ever loaning money to family and friends.

On today's show we hear three stories:

1. Mabel is a widow who chose to help her adult son who was struggling financially after a divorce. In the end, Mabel ended up maxing out her own line of credit and was having trouble keeping up with her own rent and debt payments.
2. Larry loaned his son money for a down payment on a new home. Unfortunately, Larry's son separated from his wife who received the house as part of the separation agreement. Larry's down payment went to his son's ex-spouse.
3. Amanda's parents gave her the 5% down payment she needed to enter the housing market. Unfortunately Amanda quickly found out she couldn't keep up with the bills associated with her new house. Maintenance, a job loss and a flooded basement resulted in her selling the home for less than she owed including some additional credit she incurred trying to keep up.

What's common about all these stories we heard on today's podcast is that in each case, loaning money to someone to 'help out' ended up with very bad consequences for everyone involved.

There are plenty of reasons not to loan money to a friend or family member:

• If they don't pay you back, you could jeopardize your relationship.
• Other family members may expect the same treatment or become resentful if you are seen to be favouring one child with money over another.
• If you have to borrow money yourself, this can lead to your own financial struggles, even your own bankruptcy if you are not repaid.
• You may be enabling bad spending behaviour by bailing your friend or child out, rather than forcing them to deal with their money problems on their own.

Sometimes the best help you can give is no help at all. However if you do want to do something, ask yourself these questions first:

1. Can you afford it? I recommend gifting money over loaning them money. That way you only gift money you can afford. Also, if there is no obligation to pay it back, there is less of a chance that the gift will create friction between you. If they pay it back, you will appreciate the gesture and the friendship will last.
2. Are you really helping? Again, this goes back to enabling bad financial choices. If your child can't afford to maintain their new home, you are doing more harm than good. If they know they can turn to you for a loan, they will never learn to save or live within their means.

On October 3, 2016 Finance Minister Bill Morneau announced big changes to Canada's mortgage lending rules, designed to make it more difficult for high ratio borrowers to qualify for mortgages.

It appears that both the government and industry professionals believe that the sky is falling. On today's show Ted Michalos and Doug Hoyes discuss how the new rules will impact borrowers, lenders and more. We also ask the important questions:

Is it really necessary for the government to protect the big banks who earn huge profits from loan losses? Doesn't this guarantee simply cause the big banks to lend more money on high ratio mortgages to heavily indebted consumers?

Finally, we give our predictions on how these new rules will impact the real estate market (and it's not pretty).

This is a common question, and changes to the law have changed the answer from what we would have advised a few years ago.

The answer depends on:

• How much debt you have; and
• What type of debt you have.

We explore the answer on today's podcast.

Today's podcast is the first ever podcast interview with Jonathan Chevreau and Mike Drak together, talking about their new book Victory Lap Retirement. This is so exclusive an interview that the book won't even be officially released until October 10, 2016 but it is available for pre-order at amazon.ca, and the Kindle version is available now.

Jonathan was a guest back on Show #5 where we discussed his previous book, Findependence Day.

Mike Drak created the concept of a Victory Lap as an alternative to retirement, and teamed up with Jonathan to write their new book.

So what is a Victory Lap?

You will have to read the book for a full description, but as Jonathan and Mike and I discussed the concept of retirement has changed significantly. Our grandparents and parents had a good chance of working at the same company until aged 65, and then retiring with a full pension before dying at age 70.

Today almost no-one works at the same company for their entire working life, and most employers no longer offer full pensions, so the old fashioned view of retirement at age 65 with a full pension is no longer reality for most workers.

Full details on the podcast.

For the first time ever Debt Free in 30 broadcast LIVE on video, over YouTube. The response was fantastic. We asked our listeners to leave us questions through sound clips, email, twitter and Facebook in advance of the show and took questions during the show. Doug Hoyes and Ted Michalos answered as many of those questions as we could during the webcast.

We talked about debt, consumer proposals, car loans and mortgages. We even had a "celebrity" question.

The full video is also available on the Hoyes Michalos YouTube Channel.

In June 2016 Walmart Canada announced that they believe interchange fees charged by Visa are too high, so, starting with their three stores in Thunder Bay Ontario, they would no longer accept Visa cards at their stores in Canada. As of September, 2016 Walmart has not implemented this policy outside of Thunder Bay, presumably so they can continue to negotiate with Visa for lower fees.

On this edition of Debt Free in 30 we answer the question: what's the real reason that Walmart doesn't want to accept Visa credit cards at their stores?

The answer is not as simple as "Visa's fees are too high". Walmart is the largest retailer in the world, so with their bargaining power they are probably paying the lowest Visa fees of any retailer. They already have a cost advantage over every other retailer, so are high fees the true explanation for Walmart's "anti-Visa" stance? Tune in for the answer.

SPECIAL ANNOUNCEMENT: It's the start of Season #3 of Debt Free in 30, and I am excited to share that with our new season we have a new and improved format.

For two seasons Debt Free in 30 was both a radio show and a podcast. To meet the time constraints of radio it had be an exact number of minutes. Not anymore! Much to the disappoint of our radio station affiliates I've taken the show off the radio, and now it will be a podcast-only broadcast.

That means that this season I can do shorter shows to answer one specific question, or longer shows where I've got a great guest and we can't cover everything in 30 minutes. Please subscribe, and stay tuned for a great season!

This is our final "best of" show of the summer, and it's a doozy: my interview with Hilliard Macbeth (you can find the original show notes on our is the Canadian real estate bubble about to burst page) is the most downloaded show of 2016.

Why is a show on debt and real estate our most downloaded show? I think it's because there are two opposite opinions: one group believes that real estate is the greatest investment ever, and another group believes it is over-valued. Obviously Mr. Macbeth is of the view that it's over-valued, and the bubble will eventually burst.