Tag Archives: borrowing

Borrowing Money Is Not For Me

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For years I had no idea what our net worth was. I never bothered to add it up and find out. I didn’t particularly feel I needed to because I knew one thing clearly: our only debt was our mortgage. It’s been even simpler for a few years now because we no longer even have a mortgage. Whatever our net worth is, it is a positive number. I’ve been slowly realizing I’m in the minority among my friends, but not my relatives, because borrowing money is not the right choice for me.

Should I Get an RRSP Loan and Catch Up My Contribution Room?

I’ve seen various articles on the topic of RRSP loans this year. It’s a subject that comes up every January. For years, our RRSPs were topped out. Then we married and wanted to have kids. (Cue the ominous music.) During those wanting and getting kids early years our RRSP contributions dropped off significantly. That left us with a big chunk of unused RRSP contribution room.

As you can imagine, that resulted in some hopeful calls from our banks asking if we’d like to take out a RRSP loan and catch up.

I couldn’t for the life of me imagine why. Yes, it would get the money into the RRSP a few months or maybe a year or two earlier. That’s the only benefit I could see, though.

Instead, we contributed the money we would have had to use to pay a loan into our RRSPs. We used the refunds to put into our RRSPs too. Within the time it would have taken to pay off a loan, we had our RRSPs topped up. There’s only one thing we didn’t pay: interest on a loan.

Admittedly, if we’d happened to get a loan and invested most of the new contributions in a low-fee ETF mirroring the entire stock market in, say, March 2009, we might have ridden a wave up to dizzying heights. But with our luck, we would have put it all in about February 2008 and had to wait till 2011 just to break even. And pay interest for the privilege!

Instead we put in steady amounts through all those highs and lows and overall we’re ahead. That’s fine with me.

Should I Get a HELOC and Remodel the Bathroom?

We live in an older home, which suits us because we’re about the same vintage. It does mean that gradually rooms need to be significantly updated. Forty-year-old enameled iron sinks start to corrode. Water eventually sneaks its way behind shower tiles and erodes the drywall. Mirrors get that funny greenish cast and lose the coating near the edges. Governments pass laws making it illegal to manufacture light bulbs for your fixtures!

So a couple of years ago we planned out what needed to be done to our ensuite bathroom which has a fully tiled shower “room.”

Then, while driving to pick up our Rescue Pigs the car behind us decided that despite the fact all four lanes of the highway were parked they would try to find a path forward. You can guess that wasn’t good for our 2008 Camry, although many blessings upon us all none of the passengers of the three cars involved suffered lasting injuries.

Our insurance company was great and did the best they could but even so, they weren’t prepared to pay for a brand new car for us. So we did. Yes, in cash.

What cash?

The cash we had carefully saved for the ensuite bathroom remodelling.

Now given we had no debt and no mortgage we could easily have obtained a HELOC and remodelled the bathroom anyway. Let’s say we would need $20 000 to do the bathroom. I’ve seen people throwing around numbers like 3.5 to 4% for a HELOC.

Let’s say I could pay it off in 1 year but not till the end of that year. (Maybe because of an annual performance bonus or something.)

That would mean I would pay $700-800 to get the bathroom done a year earlier.

Why on earth would I want to give the bank that kind of money? Sure, I own shares so I’d get some of it back in my increased dividends, but even so. That’s about $2/day for a year.

It might be different if we HAD to get the bathroom done. But it’s still fully functional, just very aged. (We may be Chemicals but we can still keep a bathroom waterproof and a shower, basin and toilet functional. After all, we did attend SOME of the same courses as you handy Mechanicals.) (I assume you Civils are too polite to even be thinking rude thoughts about us; And you Electricals are too busy designing new light fixtures.)

Instead of paying the bank anything, we’ve been saving the money we would have needed to pay back the HELOC. We’ve now got enough to start the job. And, hey, I could even spend $700 more for a fancier brushed-nickel shower set. I won’t, but I could!

I’d strongly suggest anyone considering using a HELOC for a home improvement run a quick reality check on what the added cost per day would be because of the interest costs. Unless the work actually needs to be done, it’s probably better to just save the money until you’re ready: after all, if you can pay a HELOC you can pay a savings account.

Is Borrowing Money to Buy a Car Worth It?

Well, that one gets really tricky and the answer has to be customized to fit the person asking.

I have never borrowed money to buy a car. Admittedly, that means I did not own a car until I was 27 years old. (Actually I was almost 28.) But I was lucky enough to be able to always find some kind of apartment within public transit/walking/biking distance of my job. I did make a huge effort to find some of those apartments and had to accept some things that weren’t perfect but it was an option for me. And I rented for car-worthy weekends and vacations.

My husband had to borrow money for his first car. He was a new graduate working in a rural community in the oil patch and he needed to provide his own transportation to remote work sites. He bought only the amount of vehicle he needed and he paid off the loan as quickly as humanly possible. Since then he’s always been able to save what he needs for the next vehicle before he buys it.

I know others who live rurally and while it’s theoretically possible they could manage without a vehicle, it’s not practical. On the other hand, I know people who live in downtown Toronto and Vancouver who drive Ford 150s and never leave the city. You can guess which ones would get my sympathy about needing a car loan and which ones would be raising my eyebrows.

What About Borrowing Money to Buy a House?

The one time I borrowed money was to buy a house. We bought a house we could afford to carry on one of our incomes, in the event of yet another layoff, down-sizing, right-sizing or diagonal-slice.

To me, though, it didn’t seem like borrowing money. It seemed like the bank owned a house and we were renting it from them. We were used to renting so it was no hardship to watch the money vanish from our bank account every two weeks. From time to time we threw in a lump sum payment. Whenever we renewed our term, we kept our payments the same even though our required payments kept dropping with the reducing interest rates.

It didn’t bother us to have a mortgage because we knew we could sell the house (or just walk away from it) at any time. We might never get a cent from it but we wouldn’t get a cent if we moved out of an apartment either.

Then one day, poof, the home became ours. That was exciting!

How Do You Feel About Borrowing Money?

What’s your attitude toward borrowing? Do you only borrow for something you need or do you prefer to speed up gratification by buying a bit ahead of time? Please share your views with a comment.

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Do you think the government is right in making us trash our 50-year-old light fixtures? Does the electrical-usage savings of a mercury-laden light bulb justify the wastage of throwing out a vintage fixture and mining, smelting, moulding, packaging, and shipping a new fixture from probably half-way around the world? Please share your views with an insightful comment.

Another Near Year End Job: Check Your Credit Report for Free from Equifax

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Back in November I listed some of the financial chores to consider completing by year end. Of course, I forgot one. You can check your credit file annually for free; if you’re like me, you probably have forgotten to do that: It’s not yet too late! You can check your credit report for free once per year with TransUnion and Equifax.

Why Should I Check My Credit Report?

This check will not tell you your credit rating or credit score. It will only tell you information about what credit products you are using and whether there are any problems such as late payments. For people who use credit responsibly and always pay off their balance at the end of the month, the purpose of the check is to make sure no identity mix-ups or identity theft has taken place.

For example, if your name is a fairly common one, it’s possible a mistake can happen and someone else’s credit card can be listed as yours. If they aren’t managing that card well, it’s your credit history that will get damaged.

If you find an item on your file that isn’t yours you can get the problem corrected before it becomes a major problem, such as when you go to renew your mortgage or purchase a car.

A less common but more frightening prospect is that your identity may have been stolen. Again, seeing the problem on your report will give you the tip to start fixing it.

Earlier this year, my credit card was compromised and used without authorization for a number of online purchases. (Ironically it was the card I only use about once per month, so I hope the police determined the source of the information theft and could use it to catch the fraudsters.) I think I should check my credit report to make sure nothing else has happened because of this security breach.

Does a Free Credit Report Include My Credit Rating or Score?

No. This check will not tell you your credit rating or credit score. You have to pay money to retrieve those. In general if you’ve been living within your means and paying your bills you don’t need to know the number anyway!

(Some RedFlagDeal users will play the system by signing up for a year’s service to check their score, and then cancel after they receive the first report for their “first month free” trial offer. I don’t encourage this, personally.)

How to Order Your Annual Free Credit Report for Equifax

You can order your Equifax “Credit File” for free by calling their toll-free number or by submitting a request in writing.

To Order Your Equifax Free Credit File by Phone

WARNING!
First, don’t trust any phone number given on a secondary website, including this one, to be correct!

Someone could hack my site and change the phone number. Then when you call, some fraudster will get your full name, address and Social Insurance Number: plenty of information to start stealing your identity!

The toll-free number for Equifax is provided on their website.

Here’s what I had to provide to the automated service to order my report by phone:

  • my Social Insurance Number (you can’t use the automated service without giving this)
  • my date of birth
  • my house number, but not street, city, or province
  • whether I have an apartment number
  • my postal code

***Interesting Bit***
The automated system asked for my credit card number, after explaining nothing would be billed to me. It then asked if I had a major credit card from MasterCard, VISA or American Express.

I said “no.”

The system responded that it will mail my report.

I actually DO have a major credit card in my name. It’s slightly possible that some internal check will compare my response with my file and reject my request for the credit report, but I doubt it. After all, people must call in who like me are (a) reluctant to give their credit card number out where they might be overheard or via cell phone transmission or (b) who don’t have their card with them at the time they make the call and who haven’t memorized their card number. If the request is rejected I will update this post, of course.

The automated system said I could expect my report in 3-5 business days. Knowing the postal service here and given the weekends and stat holidays coming up, I’ll expect it sometime in the New Year.

To Order Your Equifax Free Credit File by Mail or Fax

To request your free credit report from Equifax, print the form provided on their site.

You will need to provide

  • a photocopy of 2 different government-issued identification items
    for example a driver’s licence, birth certificate or passport
  • if your current address is not on one of the photocopies of your id, you must also provide a copy of another document with your address
    for example a utility bill, bank or credit card statement. You can black out the details if it still clearly shows the date of the document, the sender, your name and address and your account number.
  • your full name/s
  • address
  • any previous addresses within the past 3 years
  • at your option, you can provide: your Social Insurance Number, this is useful if you have a very common name
  • at your option, you can provide: your name and the last four digits of a major credit card

Sign and date the form.

The information you provide will

  • be used to update your file; it may also be disclosed to customers requesting your credit report
  • be used to issue you the correct report

Mail or fax the completed request form to the address or fax number listed on the Equifax.ca form.

So Do I Have to Give My SIN and Credit Card Number to Get a Free Report

As mentioned above,

  • you can order a free report by phone without giving a credit card number but you must provide your SIN.
  • you can order a free report by mail or fax without giving a credit card number or SIN but you must provide copies of two pieces of government id, your full address and date of birth.

Pick your poison!

When Will I Get My Equifax Credit Report?

The file will be sent by mail. It should arrive within 5-10 business days after the request is received.

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Have you ever found anything spooky when you checked your credit file? Please share your experiences with a comment.