Interesting Rate

I received an anonymous comment a couple days ago on my month end review telling me that my line of credit interest rate was exceptionally high. I hadn't actually given my line of credit interest rate any thought at all, it was just something that was there so I accepted it. The comment however spurred me into gear. I didn't expect to get the 4.5% interest rate he/she mentioned, but if my interest rate was high why not look into getting a decrease?

To google I go!

Apparently the internet isn't a very good place to go to find interest rates on lines of credit in Canada, the banks play that information pretty close to their chest. So, I called my bank Tuesday at lunch, and managed to get an appointment for after work on Wednesday. That was fast!

I almost got my hopes up there!

So, I went in and discussed a rate decrease. No dice. Apparently the major banks tie their line of credit rates to the "customer relationship" they have with you, ie: The more financial credit products you have with them, the better the rate they'll give you. So, if you have your mortgage, credit card, line of credit, RRSP, TFSA, and other investments through them, they'll give you a better rate than if you have just a chequing or a savings account with them.

Lovely.

If you wanted my investment business to build our "customer relationship", why did you try to convince me to lock into a 5.5% fixed rate mortgage when I was being offered 3.99% elsewhere? That doesn't sound like good relationship building to me.

Save 1.5% on a $237,000 mortgage, or save... any number... on a $11,000 line of credit balance.

You tell me what to pick.

There was the option of securing my line of credit to my house equity, but that wasn't guaranteed to be successful. Along with the application process there was an assessment cost of just under $200, and other application/closing fees of close to $500. Those fees alone are essentially the same as tacking another 6% onto my interest rate for the year. Why on earth would I want to do that for a drop of a couple percentage points? I'm trying to pay the thing off, not float it.

The other option offered was to look at increasing the limit on my line of credit. Apparently if I bumped the limit up to $20,000 it would put me into a different "relationship" category, and COULD possibly drop my rate 0.1 - 0.15%

Excuse me if I don't jump for joy on that one.

I contemplated the very financially dangerous maneuver of increasing my credit limit and using the money to pay off my credit card to save myself a few percentage points. I thought better of it.

If I'm going to be shopping around for a better rate, I want as few credit inquiries as possible. The financial advisor did offer me a useful piece of advice though. She said that if I have investments with another bank, I should consider looking to them because they might give me a better rate on a line of credit. Definitely something to remember.

I was just hoping to get a better rate through my existing account. The last thing I wanted to be doing was rate shopping with a balance sitting at 90%+. Not good.

Makes me want to rethink my savings vs. debt repayment plan.

Any Canadian guys/gals know what the banks are offering for line of credit or loan rates right now?

Month End - January 2011

Every once in a while I have to sit back, look at my finances, and go wtf?


This is one of those months

	31-Mar-10	31-Dec-10	31-Jan-11
Chequing	$116.66	$1,140.22	$149.68
Savings 1	$0.24	$0.26	$0.26
Savings 2	$100.00	$0.90	$0.90
Savings 3	$500.00	$0.07	$0.07
Investment	$2,189.67	$1,182.81	$1,154.89
TFSA	$0.00	$2,463.64	$2,423.86
RRSP 1	$1,525.96	$1,594.74	$1,632.31
RRSP 2	$3,868.08	$4,016.84	$4,016.41
ASSETS	$8,300.61	$10,399.48	$9,378.38
Car Loan	($13,138.27)	($9,760.77)	($9,397.49)
LOC	($10,000.00)	($11,100.00)	($11,000.00)
Credit Card	($5,155.65)	($4,978.23)	($4,433.32)
DEBTS	($28,293.92)	($25,839.00)	($24,830.81)
Net Worth	($19,993.31)	($15,439.52)	($15,452.43)

It's more a question of where my money went, so I guess I should be saying WDMMG, rather than WTF.

I know I finished off the last month with an extra pay cheque, which skewed my assets higher and mostly went to a mortgage payment, but I'm not entirely sure where the money went. My net worth changed by $13 in the wrong direction? I'm shaking my head at this one. 

I've tried writing down every penny I spend before, and unfortunately it's failed miserably in the past. I had been thinking about making it a mini goal to write down everything I spend in the month of February. This post seems to be heavily encouraging that - coincidence?

Tomorrow I'll be taking a look at my slip ups in the cash only department in January, maybe I'll be able to shed a little light on this situation? I hope so.

Interest Introspection

I was looking at my debt balances the other day, and thinking about how much I pay on them in interest every month. My credit card balance currently costs me about $55 a month in interest charges, while my line of credit costs me about $85 a month in interest charges. For a little while there I was thinking "maybe I should pay down the line of credit first, it's costing me more in interest." For a couple days now that's what I'd been thinking I'd do *shakes head*, but I sat down and gave it some thought in terms of investments this morning. The money I put towards paying off the credit card is like investing money and getting a 12.9% return, while putting money towards the line of credit is like getting an 8.52% return. Sure, I'll feel better watching the total interest I'm paying decrease every month, but it will decrease at a much slower rate than if I keep paying off my credit card first, and I'll end up paying more interest overall. If I had applied my slightly confused money sense to all of my debts I would have had myself paying off my mortgage before I paid off my credit card. Doesn't exactly make sense, does it?

Some days I wonder how I got myself into this mess. Then I have moments like these. Then I remember.

*facepalm*

Points Points Points

Apparently my bank has a points program. I have 10,000 points. I have no idea what I did to earn these points, but apparently they're there. Maybe it was from opening an account? I have no idea, though apparently these points are redeemable for merchandise. Apparently if I upgrade my banking or sign up for a specific credit card I can get more of them.

I'm not going to.

Why? It would cost me money to do so, and they aren't offering a net benefit to me. Why would I sign up for a credit card with a 19.99% interest rate that charges $50+ a year just for the privilege of earning points that are worth pennies on the dollar? It doesn't make sense. It's like signing up for a cash back credit card that offers 1% cash back, then charges you $50 a year to use it. You'd have to charge $5000 a year on that card just to break even on it. Carry a small balance for a month and your cash back is wiped out. It just doesn't make sense.

Don't get me wrong, I'm happy to have the points. In fact, I'm going to cash in 9,000 of them for $75 worth of Starbucks gift cards that I can use when I go for coffee with my friends. The other 1,000 points are just going to sit there afterwards. I didn't do anything for them, they don't cost me anything to sit in the account, so why do I need to spend the account to zero? I don't. And I certainly don't need to "top up" my points just to use that last 1,000. Most of the rewards that are handed out by companies are little more than a way to entice us to spend more money we had no intentions of spending in the first place. Banks in particular are really good at it, as a credit card companies.

If the points are free and can improve my quality of life, awesome. I don't need to pay for them, thanks. I'd rather just save for an item in the catalogue myself.



Take Charge Now: A Woman's Guide to Personal and Family Finance
The Smart Cookies' Guide to Making More Dough and Getting Out of Debt
The Wealthy Barber: The Common Sense Guide to Successful Financial Planning

What If You Weren't Allowed to Pay Down Your Debts?

I was cruising the frugal and money blog circuit when I came across a post by Kelly over at Almost Frugal about saving money when theres nothing left in the budget to save.

http://almostfrugal.com/2009/01/14/saving-money/

What struck me about the post wasn't the solution, but her comment that in France it's incredibly hard to make extra debt payments. I froze when I read that, not because I think it will become my reality, but at the thought of it. I've always paid off debts very aggressively; what if my credit card was like a mortgage? What if I was restricted in my ability to make extra payments? I could have been chipping away at my student debt 20 years, rather than the year and 2 months I actually spent paying it off. What if my credit card forced me to make minimum payments only? I remember opening my credit card statement a little while back and reading their calculation of how long it would take to pay off the balance making only minimum payments:

Almost 30 YEARS.

That's a mortgage in itself. By the time it was paid off I'd have paid for the balance several times in interest alone. That's a scary concept, and unfortunately it's one that people live with all too frequently. I've been to France a couple times, and I love the French lifestyle, but I would not be okay with paying off my debt like the French. At. All.

So why would someone restrict your ability to pay them back? Wouldn't they want their money back as soon as possible? The answer is quite simple really, I've already alluded to it above: they make more money by lending it to you than they do by keeping it in their own pocket. How much interest do you make on your savings account? 1%? How much are you paying on your debt? 20%? You and I quite frankly, are high interest savings accounts to the lenders of the world. How does it feel? I know if I was a lender I'd want to lock that rate in and get as much for my money as I could.

I'm unfortunately painfully aware of how much my debt is costing me in interest every month, and I don't want this albatross hanging around my neck for the rest of my life. I'm going to pay this sucker off as fast as I can. Kelly, I wish you the best of luck, and I hope you can convince them to let you pay a little extra when you can.

And the next time I go to France, I'm paying cash.


The Wealthy Barber: The Common Sense Guide to Successful Financial Planning
Debt Free For Life: The Finish Rich Plan for Financial Freedom
Debt-Free Forever: Take Control of Your Money and Your Life

Red Alert Financial Read

http://money.ca.msn.com/savings-debt/yourmoney/article.aspx?cp-documentid=26728358

A reminder for those borrowing that the rates won't last forever. I know I personally bought a bit more than I should have, and I was definitely enticed by the low rates. I have 4 years left until I have to renew my mortgage, and I have no idea what the rate will be when that day comes. All I know is I want as many things paid off as possible before then.

Bank of Canada Governor Mark Carney is telling people to smarten up. It's like he's talking to me when he's giving his speeches. Actually, he is talking to me. Me and everyone else who has access to cheap credit. When inflation hits again, I'll know full well that I was warned. Hopefully I can get myself into a position where I've properly heeded his warning, the guy knows what he's talking about.

I have a little personal finance crush on Mark Carney. Can you blame me?