Ten Tips To Stay Debt Free

How To Stay Debt Free

It all starts with a small amount. At first sight, you think this is nothing – you will be able to manage it, and will get rid of it shortly. However, the further you go, the harder it becomes. And this small, manageable amount starts becoming unmanageable. It takes over your life. Yes, I am talking about debts.

Want “The Best Advice” on avoiding debt? The answer is: not to    have any debt at all from the beginning. Follow these simple tips to stay out of debt:

·   Pay cash. Paying cash forces you to spend only the money you have. If you don’t have the money – it means you can’t afford it. Don’t buy things you can’t afford.

·   Use credit card only if you are able to pay in full each month. Beware of credit cards. Most of us fall into debt trap because of credit cards. If you aren’t able to control credit cards, get rid of it.

·   Avoid falling behind on your payments for your bills. If you start falling behind even only once, it will be hard to catch up.

·   Know your monthly income and expenses from all sources. To live debt free, income has to be greater than expenses. Maintain this ratio by cutting expenses.

·   Use personal finance software to track your income and expenses. When you visualize your spending pattern, it’s a lot easier to analyze and comprehend where your money is going.

·   Spend within your limits. Don’t buy stuff just because they are on sale. If you don’t need it, sale is not going to do any good.

·   Always buy on sale. If you are certain that you will be using items on sale over and over, buy them when they are on sale and stock up. Avoid paying full price.

·   If you already have accumulated credit card or other consumer debts, pay them off ASAP. Always pay over the minimum. Start paying off the smaller debts and move to the larger ones.

·   Set long-term and short-term realistic, doable goals. For example, short-term goals can be paying off smaller debts and long-term goals can be paying off larger debts and start saving money.

·   Be realistic. Set attainable and achievable goals. If your spending is more than your income, cut down on spending. However, if this is not possible for you, increase your income and stay in debt-free positive territory.

Ten Common Bankruptcy Questions Answered

Information On Bankruptcies

First Published: Fab 11, 2009 ADawnJournal.com

The following article is for information purposes only. It is not intended to render professional and/or legal advice. Bankruptcy is a complex process. If you are having difficulty paying your debts and/or considering bankruptcy, I suggest you contact a Canadian Bankruptcy Trustee licensed by the federal government to discuss your situation. To find a trustee in your area, search on Google or Yahoo using these keywords: Bankruptcy, Trustees, Your Area.

What Is Bankruptcy?
Bankruptcy is a legal process that can provide you relief from unsecured creditors. When you file for bankruptcy, you surrender everything you own to a trustee in bankruptcy. In return, all your unsecured debts are discharged and you get a chance to start a new life.

How Do I Declare Bankruptcy?
A bankruptcy can be filed through a trustee in bankruptcy. A trustee in bankruptcy is a licensed individual to administer the bankruptcy process. The Office of the Superintendent of Bankruptcy (OSB) licenses and regulates trustees.

What Happens To My Debts When I Declare Bankruptcy?
Bankruptcy discharges you from unsecured debts. However, there are some debts that stay.

What Unsecured Debts Go Away?
Here are some examples:

– Payday Loans
– Credit Card Balances
– Unsecured Line of Credits
– Unsecured Personal Loans
– Unpaid Utility Bills
– Retail Store Credit Card Balances

What Debts Are Not Discharged?
Here are some debts that are not discharged:

Alimony Payments and Child Support
Student Loans (various rules and regulations apply, consult a bankruptcy trustee for more info)
Fines and Most Court Ordered Restitution Payments
Certain Government Overpayments
Debts That Arose as A Result of Fraud or Theft

Please note that whether or not a debt is discharged can be complicated. Rules can change anytime as a result of court rulings. Also, The Court has the right to refuse a discharge. Consult a bankruptcy trustee for more information.

What Happens To My Secured Debts?
Secured debts, debts secured by properties or assets, such as mortgages and car loans, are not discharged.

How Long Bankruptcy Lasts In Canada?
In general, your bankruptcy ends when you receive a discharge. Discharge cancels your debts, and it could take minimum nine months to get a discharge. However, bankruptcy court can order to extend your bankruptcy under certain circumstances.

How Long Bankruptcy Stays On My credit Report?
It depends on various factors. In general, it will remain on your credit report for six years. A second bankruptcy will remain on your credit report up to 14 years.

What Can I Keep In Bankruptcy?
You will be able to keep some assets. These are called “Bankruptcy Exemptions.” Bankruptcy is governed by federal law, but The Bankruptcy Exemptions (what you can keep) is legislated by the provinces and territories. In Ontario, you can keep the following:

– Clothing, jewelry etc up to a value of $5,650.00
– Household goods up to a value of $11,300.00
– Tools you use to earn your living up to a value of $11,300.00
– Motor Vehicle up to a value of $5,650.00

Check with your own province or a bankruptcy trustee to find out what you can keep in your province.

Does My Bankruptcy Affect My Spouse?
Contrary to popular belief, it does not affect your spouse. You are responsible for your own debts; your spouse is responsible for her/his debts. However, if your spouse co-signed for a loan or joint on your accounts, she/he may be affected. These issues can be complicated. Consult a bankruptcy trustee for further clarification.

Bonus Question

What Happens To My House When I File For Bankruptcy
If your mortgage is paid off, or if you still have mortgage but you have a lot of equity in your house, you cannot keep your house.

If your home has no or little equity, and you are able to keep up with your mortgage, you may be able to keep your house after filing bankruptcy.

Again, these issues can be complicated. Consult a licensed professional for further clarification.

NB – In Canada, Office of the Superintendent of Bankruptcy (OSB) protects the integrity of the bankruptcy and insolvency system and ensures public confidence in the marketplace. Visit their website for more information.

$100 BANK NSF FEE?

Banks Can Charge As Much NSF Fees As They Want

I wrote an article about how banks are charging ridiculous NSF fees. This article became very popular and generated lots of traffic. Recently, after reading this article, one reader wanted to know if there is a maximum allowable NSF fee banks can charge. I could not answer this question because I did not know the answer by myself. So I wanted to find an answer and I ended up calling Financial Consumer Agency of Canada (FCAC).

FCAC is a federal government regulatory agency that ensures financial institutions comply with federal consumer protection laws and regulations. On Thursday I called them to find out if there is limit on how much banks can charge NFS Fee. I was totally blown away by their answers. NSF Fees have no limits. In simple words, In Canada, banks can charge as much NSF fees as they want. What it means? If banks keep increasing NSF fees every year, there is nothing you can do. Remember those days when NFS fees were like $10 or $15? Well, in the future, don’t be surprised if you get hit by $100 NSF fee. It may not happen in a couple of years or so; however; the way banks keep increasing NSF Fees, I would not be surprised if it reaches $100 someday. Right now, NFS fees are still below $50, but this may not last too long. What you can do not to pay NSF fees? Find your answers here: Banks Are Charging Ridiculous NSF Fees

TFSA - No Need To Rush

TFSA or RRSP

First Published: December 10, 2008 ADawnJournal.com

Recently, an ADJ reader sent the following email:

Hi Dawn,
Been reading your blog for some time now and getting more and more interested in learning to handle my own finance.
I would like to know more details about the new Tax Free savings account and your take on this new thing and how we can use it best.
Thanks for your time!

Ms. ADJ Reader (Withholding name for privacy)

Today’s article is specially written for Ms. ADJ Reader and many other ADJ readers who are waiting eagerly to read ADJ article on TFSA.

What Is a Tax Free Savings Account?

TFSA is an account type where you can make contributions, grow your money (means you can earn interest or income), and take out money without paying any taxes.

Doesn’t It Sound Like an RRSP (Registered Retired Savings Plan)?

Kind of. However there are some major differences. Let’s look them one by one.

RRSP

TFSA

When you put money in an RRSP, you get tax slips to reduce your taxable income

contributions in a TFSA do not reduce your taxable income

When you take out money from an RRSP, you pay taxes on withdrawals and your withdrawal will be added to your income (it simply means you taxable income will be higher)

TFSA withdrawals are tax free

RRSP account has age limit (must be terminated by 71);

TFSA has no age limit

Once you put in money, your contribution room is used up. You will not be able to regain your contribution room back by taking out money

Amount withdrawn will create equal contribution room

Some TFSA Features

·   Canadians aged 18 and older can save up to $5000 a year.

·   Annual contribution limit will be indexed and will increase gradually.

·   Contributions will not be tax deductible but income and gains will not be taxed.

·   No taxes to pay when you withdraw money out of TFSA.

·   Income earned or withdrawals will not affect eligibility for Federal benefits such as Old Age Security, Canada Child Tax Credit, Guaranteed Income Supplement.

·   No taxes to pay when you withdraw money out of TFSA.

·   Unused room can be carried forward indefinitely.

·   TFSA account can hold same products like RRSP, such as GICs, stocks, mutual funds, and many more.

·   Upon death, your TFSA can be transferred to your spouse without tax implications.

·   Excess contributions will incur a monthly penalty tax of 1% – just like an RRSP.

TFSA Ideas

You have to be creative here. There are so many ways you can use a TFSA account. Here are some I can think of off the top of my head:

·   If you don’t have room in your RRSP account, use TFSA.

·   If you don’t have room in your RESP account, use TFSA.

·   Use TFSA for short-term savings.

·   Use TFSA for long-term savings.

·   Use TFSA to keep your emergency funds.

My Take

You should use TFSA to its full limits; however, I don’t see there is any need to rush. You will see bank ads and some personal finance blogs making it sound like you should jump into it right now – otherwise, you will miss the boat. This is simply not not the case. TFSA is not going anywhere and there is no need to rush. Take your time to draft your investment planning and strategies and then make full use of TFSA.

Warren Buffett, Cash, Stocks, and Award-Winning Book Invest Now

Warren Buffett, Cash, Stocks, and Award-Winning Book Invest Now

Warren Buffett, the world’s greatest investor, richest man, and dedicated philanthropist, wrote an op-ed post in The New York Times on Oct 16. In this post, Buffett stated that he is getting rid of cash (lots of it) and buying stocks. Buffett’s decision to trash cash and buy stocks amid an ongoing financial crisis has created heavy buzz and it is expected to bring some confidence back in this time of market turmoil. I find Buffett’s article somewhat interesting because what he mentioned in it resembles with what I said in my book, Invest Now. Let me point it out to you by doing a comparison.

What Warren Buffett Said

What I Said In Invest Now

Page No.

“Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value.”

“Stay away from savings accounts. Even if you hold one of those high interest–paying savings accounts, you will not beat inflation in the long run.”

Page 9

“I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now.”

“Let me give you an eternal stock-market tip that will remain true forever. No one can predict the market. Not I, not you, not any analysts, not Warren Buffett. Simply no one can or ever will.”

Page 83

“What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”

“No one can predict the market, which will always have ups and downs. Focus on your long-term goals. Start investing, keep adding money, and stay invested. If you start early, you will have time on your side; even a smaller amount will turn into a large amount in the long run.”

Page 117

Invest Now is jam-packed with timeless material which is true today, and will remain true forever. In Invest Now, I emphasized staying invested for the long run and asked you not to panic in market turmoil such as what’s happening globally right now. Start investing, focus on your long term goals, and you will survive global financial meltdown.