Vice-President of Sands & Associates and Licensed Insolvency Trustee Blair Mantin was a guest on CTV Vancouver’s ‘News at Noon’ today. As November is Financial Literacy Month in Canada, this afternoon Blair shared his top 4 financial myths and misconceptions that end up costing consumers money.
Watch the clip here, and read more below:
Blair’s Top 4 Financial Myths and Misconceptions
- Paying just the minimum amounts due each month is A-O.K.
- Many individuals fall into a trap of just making the minimum payments on their credit cards and assuming that they are actually making progress. At 20% annual interest (like most cards these days!), making the 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 (avoidable) interest charges.
- If all you can do is make the minimum monthly payments on your debts each month, this is the surest sign of a debt problem and an indication that you may need to try something different to get out of debt. Credit card companies are now forced to disclose exactly how long it will take to pay off a debt if you only make the minimum payments, so keep an eye on your statements.
- Buying insurance for everything
- Banks are quick to sell and aggressively promote various insurance products. Some are great, and necessary, like life insurance for a young family. Others provide little value in most circumstances. One of these I see again and again as providing little value 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 help, it actually does very little. That is, if you lose your job, it may cover the minimum payments for the period of time you are unemployed – but – keep in mind that very little of these payments will actually reduce the balance you owe on the card!
- Thinking there’s no way to re-negotiate Government debts
- It’s scary to owe the Government money that you can’t pay. If you owe money for taxes, MSP or student loans you may think there’s no alternative but to pay in full no matter how long this may take. In fact, there is one single way of ‘making a deal’ on Government debts. Anyone in Canada who has more debt than they are able to pay has the right to file a ‘Consumer Proposal’. A Consumer Proposal is a legal remedy that can be used to stop all interest, reduce amounts owing, and work out a payment plan for what you can actually afford to pay. Government debts like taxes, student loans, and MSP premiums can all be dealt with using this powerful tool, which will also halt a wage seizure or bank account freeze (both of which are regularly used collection methods by Government).
- Thinking that your credit rating is a barometer of your 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 anything that might negatively impact their credit rating (like restructuring their debts, for example). The fact is, your credit rating can change dramatically in a short amount of time – people can go from bankruptcy to be credit worthy enough for a mortgage in as little as 2-3 years if they follow the right steps.
- It’s important to understand what a credit rating measures – credit ratings were originally designed as customer profitability measures for banks. The more products you have open, the more credit you use, the more interest you pay (as long as this is on time!) – the better your credit rating. Things like actually having savings and making financially smart decisions (like driving an old paid off car rather than financing a new one) have ZERO impact in increasing your credit rating, though you are clearly much better off financially.
With over 29 years of experience, Sands & Associates is BC’s largest firm of Licensed Insolvency Trustees focused exclusively on assisting individuals and small businesses achieve their “debt free” goals.