Did you know that November is Financial Literacy Month? To help increase consumer awareness, Proposal Administrator, Trustee in Bankruptcy and Vice-President of Sands & Associates Blair Mantin shared some of his top financial myths and misconceptions with Vancouver’s Breakfast Television.
Blair’s Top 5 Myths and Misconceptions that can save consumers money:
1 – Confusing activity with achievement
Many individuals fall into a trap of just making the minimum payments on their credit cards and assuming that they are actually making progress. The fact is that at 20% interest, making the minimum monthly payments of $250 on a $10,000 debt will take more than 5.5 years to clear and will cost more than $6,600 in additional interest charges. Banks are now forced to disclose exactly how long it will take to pay off a debt if you make only the minimum payments. I’ve seen payment terms in excess of 150 years for some individuals.
If you can only afford to make the minimum payments each month, you very likely have a debt problem.
2 – Buying insurance for everything
Banks are quick to sell and aggressively promote various insurance products. Some are great, but some provide little to no value. One of these is ‘balance protection insurance’. Each month you pay fees into this product even if you don’t carry a balance. The fees can be as high as 1% of the purchases on the card. Over the course of one year, this could take a 20% credit card interest rate to 32%.
The real issue is that, in most instances where you’d expect the insurance to really help, it actually does very little. i.e. If you lose your job, it will cover the minimum payments for the period of time you are unemployed but very little of these payments will actually reduce the balance you owe on the card.
3 – Not being aware of your rights as a consumer
Many people in BC are completely unaware of the exceptional amount of protections afforded to them under provincial legislation in BC. Here are some major points:
- If creditors are harassing you by phone, BC is the only place in Canada where you can send them a formal request to only deal with you via mail instead of phone calls. It’s much easier, and less stressful to deal with collection letters rather than an aggressive collection agent on the phone
- The province of BC is the only jurisdiction of Canada where, if you’ve financed a car and are unable to make the payments, the creditor can seize the vehicle from you but cannot come after you for the shortfall. Many individuals I meet feel as though they are ‘stuck’ in a financing arrangement where they owe more than the vehicle is worth – the fact is they can return the vehicle without being held accountable for any shortfall (i.e. if the vehicle sells for $10,000 and they owe $15,000 they cannot be made to pay the difference).
4 – Thinking there’s no way to re-negotiate government debts
If you owe money for taxes, MSP, or student loans you may think there’s no way out. In fact, there is one single way of ‘making a deal’ on these amounts. A Consumer Proposal is an option that can be used to stop interest, reduce amounts owing, and work out an affordable payment plan. A Consumer Proposal can only be filed by a licensed Trustee and is a relatively unknown, yet extremely powerful way of restructuring your financial affairs.
5 – Thinking that your credit rating is a barometer of self-worth
Many people are scared to tackle their debt burden because they believe that their credit rating is an indicator of self-worth and that they could never recover from something as bad as a bankruptcy. The fact is, your credit rating can change dramatically in a short amount of time. People can go from bankruptcy to getting a mortgage in as little as 2-3 years. Often, it’s by taking the step to tackle their debts that people end up in far better shape sooner, than if they had hunkered down and make minimum payments for years and years on end.