CREDIT CARDS & LINES OF CREDIT (HELOC’s) are the two worst kinds of credit because of high interest and fees, annual fees, late fees etc. They give a false sense of buying power. Believe it or not, some people actually think of this type of credit as ‘income’. Buy now pay later schemes lure people deeper. When ‘later’ arrives the balance is not paid off and the cycle of interest charges and minimum payments begins. It starts innocently enough, believing you will pay them off every month, and you can’t or don’t for whatever reasons. It may simply be a lack of discipline; other unexpected bills get in the way, but the main reason people fall behind and enter the ‘cycle’ is because they do not have a budget. Before you know it, you are saying “Where did that $40,000 balance come from.

Many people tell us that their mortgage is only ‘X’ believing that is the only debt on their house when in fact they also have a HELOC which they thought was unsecured when it is/was. Unfortunately we all need credit cards to establish and maintain a good credit rating, but beyond credit cards the HELOC just makes it too easy, especially because the interest rate is prime plus 3% as opposed to 19-29+%. Very few people are able to pay more than the minimum balance, and worse, it is interest only. Ouch. You never pay off the debt. And the Big Banks are smiling! Dollar advances, is another ‘trick’ that allows the banks to charge full interest from day one at the highest rate. All payment are applied to ‘purchase balances’ first.  

Now that you are making minimum payments only, you have entered the ‘slippery slope’. Next comes borrowing on your overdraft, and visits to the cash money stores (who charge usurous rates). Canadians  had the luxury of being able to refinance their mortgage to pay off/down high interest debt in the past, but this technique has been sharply curtailed by the feds to a maximum 80% of value AND since real estate appreciation has flattened out, many are faced with having to obtain a private mortgage to stay afloat. More and more will be forced to sell or lose their homes likely ending up in bankruptcy.

Two more examples how the banks take your money are HOLDING CHECKS & PAYING YOUR REALTY TAXES FOR YOU. Did you know most cheques ‘clear’ within 48 hours but are ‘held’ up to 10 days. That means the bank makes more profit off you because they have the use of your money ‘free’ for 8 days. PAYING YOUR REAL ESTATE TAXES is another big one, and while you may opt ‘for convenience’ to have the bank pay them for you, it costs you dearly. You pay monthy, the bank pays twice a year.  The banks also charges you more to build up a tax ‘credit’ account . Don’t do it. It costs you hundreds and hundreds of dollars more every year.

Folks it’s really our own fault if we allow the banks to take advantage of us, pure and simple. And the best way to prevent this from happening is to be informed and GET ON A BUDGET. More on this next week.