Getting Out of Credit Card Debt

[Woofy]

Not quite the same as consumer credit card debt though, at least not in my opinion. Regardless if you're living in a house that you're paying the bank for, or living in an apartment that you're paying rent on, you still need to pay to have a roof over your head. And the interest rate on a mortgage is nowhere near the interest rate you'd pay on a credit card.

If you're in a bad spot and can't make payments, you can also sell your house. Credit card or other debt, you're stuck.

Z

Yes, that I can agree on...

Mortgage debt is not the same as consumer debt. I know in the financial world, there is a distinction between good debt and bad debt. And mortgage debt and student loans fall under good debt.

However, let's not forget that it is still a debt. And good debt can be a double edged sword. If you do not learn to wield it properly, it can destroy you the way bad debt (consumer debt) destroys you.

[ashedfc]

Are you familiar with HOUSE RICH & CASH POOR. Mostly the retirees, who have fully paid up houses (zero mortgage), take a reverse mortgage to fund their retirement. In other words, they surrender their house to institutions like CHIP to get an income for their retirement. And most of them end up losing their home, for less than half the money.
Lets not get into classification of debt, any debt is bad if you blow-up the money.
Every debt has a monetary value, as an expensive debt or less expensive debt.
One should always pay their most expensive debt first (like credit cards, pay day loans, etc). Then focus on less expensive debt.
For Example a Credit Card at 19% (after tax money) - To pay 19% interest rate for a person in 21% lowest marginal income tax rate, it requires a 24.05% of gross income. In real terms the credit card is costing 24.05% of gross income (Income tax of 5.05% is paid then you get a 19% left to pay the credit card). Now you know why it takes a very long time to pay credit card.
For a Mortgage say at 3% after tax (mortgage interest is not tax deductible), the actual cost is 3.797% gross income. Now you compare which one is more expensive 24.05% or 3.797%. (I am only taking the lowest marginal tax rate - What if the tax rate is 46.41% then the difference will really surprise you).
Some people have no clue about this - they keep a $5000 credit card debt & pay extra money towards their mortgage payment. Its a waste of money (rather, ineffective use of money).

Every family & every individual is different.
What is good for you, may not be good for your friend.
When it comes to debt, always pay your most expensive debt first.

[email protected]
Financial Advisor, FundEX Investments Inc.
Licensed for Ontario, Alberta & Manitoba.

[Zonny]

Yes, if you've taken on more debt than you can manage, it's not a good debt. If we'd listened to our bank at the time, we would have qualified for a far larger mortgage than we got. But would it have been a good investment? No, I don't think so. We would have been struggling if we'd taken on a mortgage of that amount, I'm grateful to my DH that we aimed lower. What we have is very manageable, and we're able to pay extra these days.

I agree, if we had credit card debt, we wouldn't be paying extra on our mortgage. Mortgage debt is relatively cheap, while credit card debt is anything but. Our credit card that we use for everything has a 19.5% interest rate I think it is, but it doesn't matter to us if it's 10% of 50% interest. We pay it all off in full each month, and have never paid a cent in interest. Charge all the interest you want, as long as you charge nothing to those of us who pay it all on time. Don't care!

There was talk awhile back about 'punishing' people like us who don't make money for the credit card companies, who take the advantages without paying the interest. Fortunately it didn't happen. If it did, we'd be among the first to cancel our credit card. We use it soley for the the benefits it gives us.

Back to the mortgage, 'reverse mortage' really seems like a silly idea to me. In my opinion, this is mostly a predatory product against those who haven't planned for their retirement!

By the time our 4 year old goes to university, we will in theory be mortgage-free. While maybe not financially significant to a financial professional, it makes us feel good to be free of that debt by the time our son may need our help. We have an RESP too of course, but not nearly what he will probably need.

Z

[ashedfc]

Yes, if you've taken on more debt than you can manage, it's not a good debt. If we'd listened to our bank at the time, we would have qualified for a far larger mortgage than we got. But would it have been a good investment? No, I don't think so. We would have been struggling if we'd taken on a mortgage of that amount, I'm grateful to my DH that we aimed lower. What we have is very manageable, and we're able to pay extra these days.

I agree, if we had credit card debt, we wouldn't be paying extra on our mortgage. Mortgage debt is relatively cheap, while credit card debt is anything but. Our credit card that we use for everything has a 19.5% interest rate I think it is, but it doesn't matter to us if it's 10% of 50% interest. We pay it all off in full each month, and have never paid a cent in interest. Charge all the interest you want, as long as you charge nothing to those of us who pay it all on time. Don't care!

There was talk awhile back about 'punishing' people like us who don't make money for the credit card companies, who take the advantages without paying the interest. Fortunately it didn't happen. If it did, we'd be among the first to cancel our credit card. We use it soley for the the benefits it gives us.

Back to the mortgage, 'reverse mortage' really seems like a silly idea to me. In my opinion, this is mostly a predatory product against those who haven't planned for their retirement!

By the time our 4 year old goes to university, we will in theory be mortgage-free. While maybe not financially significant to a financial professional, it makes us feel good to be free of that debt by the time our son may need our help. We have an RESP too of course, but not nearly what he will probably need.

Z

Congratulations! There are very few Canadians like you. You have managed your financial matters very effectively. Keep an easily available emergency fund (3 to 6 month expenses), just in case.
Plan for the worse & Hope for the best.

[Zonny]

Congratulations! There are very few Canadians like you. You have managed your financial matters very effectively. Keep an easily available emergency fund (3 to 6 month expenses), just in case.
Plan for the worse & Hope for the best.

This doesn't make me any better or worse than anyone else. I wasn't always bright enough to live debt-free.

But you do stupid things to learn, right? Plus, my DH is very thrifty, saves a lot. If it weren't for him, we wouldn't have had the down payment for our house. He's at one financial extreme, I'm at the other, and we meet at the middle.

Z