Date: 20 Feb 16
By: Frank Gue, B.Sc., MBA, P.Eng.,
2252 Joyce St., Burlington, ON L7R 2B5 905 634 9538
Re: Predatory Lending, Feb. 17 Spec 722 words
What to do when “unable to pay the payday bill”, Feb. 17 Spec
Payday loan firms emerged 25 years ago, unregulated. Hamilton’s current good initiative on payday loans is better late than never; and the city can now get ahead instead of 25 years behind. Let the City warn borrowers in the tax letters and in media ads to point out some facts and give helpful advice.
* At a compound interest rate of 22%, in only three years a debt nearly doubles; and that takes only days if the interest rate is in the hundreds of percent charged on some payday loans. Clearly, some financially unwary families are paying these rates, as cited in your Feb. 17 article (“Unable to pay bills”).
* Statistics Canada says 53% of Canadian adults are unable to do arithmetic – unable to subtract or add two numbers. Such adults would not understand this quick doubling of debt. And even some of the remaining 47% of the citizenry who are mathematically capable may not notice this pitiless predation, either.
* If you can’t do this arithmetic, get help. There are several excellent credit counsellors in the area, or perhaps Grandma can help, because she got old-fashioned schooling and can do arithmetic.
* For a month, record the total of everything you spend, by cash or credit card. Sort these records into food, entertainment, gas, etc. Compare their total with your take-home income. You will find that your expenditures exceed your income, because that’s how you got into this debt hole. As the saying goes, if you find yourself in a hole the first thing to do is: stop digging. And so –
* Get your expenditures below your income. Starting with the biggest, identify expenditures that you can reduce or eliminate. Here are a few:
* Auto expenses are a horror – tires, hundreds of dollars a pair. Can you walk? Use public transport? Share a ride? Could you sell the car, since insurance, depreciation, repairs and taxes cost thousands per year?
* Eating out is always a biggie: can you resume home cooking?
* Do you need to eliminate occasional impulse-buying? Make a shopping list and stick to it, buying nothing just because it’s there and you like it and you can put it on the card.
* Do you really NEED that newest smart phone or those game apps?
* Can your family visit a science centre instead of a hockey game?
* Continue this process with clothing, spring plantings, etc. until you’ve accounted for every category.
* Don’t live like a hermit – just don’t blow so much money on so much stuff!
* Calculate the money per month you need to get ahead instead of falling behind. It’s a tricky calculation. A credit counsellor will help you. Your banker may, too. Or else check how much your debt increased in the last three months, average that and add perhaps 25%. Add the result to the reduced “expenditures” above. If the result is more than your income, take a deep breath and go back through “Get your expenditures below your income” again. You have no alternative.
* Don’t try to save until your debt is retired: you can make no better investment than retiring debt.
* Make a household budget for food, gas, etc. that uses up your income. Stash the cash in named envelopes if that helps. When the envelopes are empty, stop shopping; use-up what’s on hand, it’s probably in the freezer!
* Discard your credit cards. If you absolutely must keep one for travel etc., ensure that it is used solely for purchases you would have been making anyway, not just because you have the card. Always pay down the card on or before the card’s month-end. Time big credit card purchases for early in their month – you get to use their money for a month, which is a nice change!
* Tot up your outstanding current debts and figure the biggest amount that you can spare to pay them down, biggest first, and much more than the $10 “minimum payment” shown on the bank’s credit card statements. Their arithmetic is wrong. Yes, the bank’s arithmetic is wrong; your interest payments are nearly always higher than their $10 “minimum payment”, and so your credit card debt would grow indefinitely even if you charged nothing more and paid only their $10.00 per month.
Stick with it and remember: $1000 removed from your expenditures is a full, tax-free, $1000 pay raise for which you didn’t have to ask the boss!
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