This & That: Credit Confusion Edition

L Wrote: Our mortgage is up for renewal – $92,000.00 – as well we have $48,000.00 on our line of credit. This is our entire debt load. We gross $200,000.00 between the two of us. Should we combine these debts to one mortgage payment or power down on the line of credit (I think we could pay it down in 12 to 18 months) and renew our mortgage and keep these separate? My husband and I disagree on what we should do so we are asking the expert!

Gail Says: If your intent is to consolidate to the mortgage and then treat it like your mortgage, taking for-frickin’-ever to pay it off then don’t do the consolidation. If consolidation saves you money because the interest rate is lower, and you have a way to make extra payments against the mortgage every year, and you plan to get that $48K paid off in 3 years or less, it can be a good idea. 

 

T Wrote: A friend (honestly) has approached us to help her out. She is single, self-employed, older (60) and bought a house on her own 5 years ago. Awhile back she fell into problems when the CRA audited her, she owed back taxes that were not budgeted for. That debt has skyrocketed as she has been unable to pay them, they have garnished her wages, and she is living off credit. As a friend I want to help. But I don’t know how. I can loan her money, but feel like that is throwing a Band-Aid at a deep wound, and the amount is a lot. I am wondering if there are trustworthy debt consolidation companies or debt councillors that exist in Canada? Or are bankers able to help? We need an independent third party to help!

Gail Says: You don’t say how large all her debt is, nor do you say how much equity she has in her home. If she has very little equity, I would strongly recommend you seek help from a bankruptcy trustee. This:  http://www.hoyes.com is a good company if you’re in Ontario. If she has enough equity to pay her debts, she should sell her home and pay off what she owes. I know it’s a tough hit. 

 

S Wrote:   My boyfriend and I are $20,000 in credit card debt. We have four kids and an $188,000 mortgage. My question is should the cards with the lowest balances or the highest interest be paid first? What will give us the best bang for our buck and allow us to pay off the debt the quickest?

Gail Says: You always pay the debt with the highest interest rate first. You should make a debt repayment plan, and snowball. If you don’t know how, grab a copy of Debt-Free Forever from the library and it will give you all the steps.  

 

M Wrote: I consolidated my debt, and one in particular my daughter co-signed for me….does that mean my daughter is fully responsible now for this loan and has to continue to pay even if I consolidated?

Gail Says: Yes. When your daughter co-signed she accepted responsibility for the debt. And if you make payments late, they will show up on her credit history and affect her ability to borrow in the future. Please do not screw up your kid for stepping up for you. 

 

C Wrote: My sweetheart is a huge fan of yours she is doing the whole jar business. She’s really doing great with it. Got a bunch squirreled away. We recently decided to build a new home which is a huge undertaking. At this point we have no vehicle payments however, our current vehicles are showing their age. She is thinking strongly of purchasing a new vehicle and taking on a $700 a month payment for six years. That’s about 30% of one month’s income. Is this a wise move?

Gail Says: Really, she feels that building a new home and taking on a $50,000 car at the same time is sensible. You might want to remind her that she shouldn’t be spending more than 15% of her take-home income on transportation, and that includes gas, insurance and maintenance. *shaking head* Geeze Louise.

 

K Wrote:   My husband and I are looking to purchase a few large-ticket furniture items for our new home, and have noticed that some retailers (Sears, for example) offers pretty enticing deals–65% off purchases of $3500, for example–if you place the purchase on a their credit card. In our situation, we would be purchasing furniture that we already had the cash money for, but because we’d like to save as much as possible I’m wondering if it makes sense to open up retailer credit card just for this one large purchase and then pay it off immediately and cut up the card. We have decent credit and 3 credit cards between us (only two of which we regularly use) but I’ve heard that opening credit accounts can be bad for your credit score. What would you suggest is the best decision in the long run?

Gail Says: If you can save $2300 on a purchase, do it! Follow through on paying it off, and then when about 6 weeks have passed, cancel the card. Don’t apply for a retailer CC more than 1x in a year and your credit score should be fine. 

 

D Wrote: My husband & I are wanting to buy our first condo, but before we see a mortgage broker, I would like to check our credit scores/rating, as well as fix potential errors. When I check the websites for TransUnion and Equifax, they want to be paid up front, but I heard we can check our own information for free. How can we see our credit scores and rating free the first time?

Gail Says: No one will give you your credit score for free. It’s a money making machine, that credit score! You can get your credit history for free, but if you want to see your score you’re going to have to pony up the bucks.