Taking out a loan to pay off your debts makes as much sense as finding yourself in a deep hole and asking someone to throw down a bigger shovel. For many people this is the most appealing and most destructive course of action. But for a select group of the population taking out a debt loan can turn out to be a very wise strategy.

Most of the people I’ve met who are constantly up against the debt beast have tried the borrow until I’m out of debt strategy only to find themselves deeper in debt every time. Why does this not work for them? On the surface it made some sense. Take all your debts such as credit cards, department store cards and outstanding loans and role them all into one loan with a smaller monthly payment. For a moment and it is an extremely brief moment they can breath financially again and they even have a little cash flow happening in their lives. What do they do with the extra cash flow? They spend it. And typically on stuff that they don’t need, has no resale value or can’t afford. Now they are back to scraping by between paychecks, only with a debt load that has been stretched for a longer period of time resulting in a much higher payout for their creditors. It is the old story of short-term gain – long-term pain.

When does it make sense to take out a debt loan to get out of debt? When you can use it to build wealth as you are chipping away at your debt load. If a person took out a Registered Retirement Savings Plan (RRSP) loan of $50,000 he/she could gain in a couple of different areas. First they would create a sizeable tax benefit and they’d also get the long-term growth potential. They could take their larger tax refund and put towards their debt. Another benefit is that the RRSP will probably earn a lot more in today’s market than the low rate of interest charged on the loan.

Another plus for the smart borrower is the boost to their self-confidence when they see their net worth actually growing instead of always being in the negative. This can spur him/her on to take other positive steps to reducing debt and building wealth.

If you’re trying to sort out a bad debt problem and thinking of debt consolidation then you need to know exactly what those debts are. If you owe money for a car loan, an overdraft, a couple of credit cards and a store card, you probably have some bad debt. No wonder it’s been hard work keeping track of your spending. Debt consolidation then becomes very important consideration.

One option is to consolidate all the debts by borrowing a lump sum to pay off all the individual debts, so that you-ve only got one payment to make each month. It may seem a bit unfoolish to suggest trying to get a personal loan when you-re already in it up to your eyeballs but as long as you realise that what you-re actually doing is getting a replacement debt, then it can make sense.

Debt consolidations loans can usually be secured at a much lower interest rate then what you are currently paying for your credit cards and other bad debt loans. Just remember that they are only as good as your discipline. Pay the bad debts of with the debt consolidaion loan and then cut the cards and implement good spending habits.

Most of the studies on debt consolidation loans indicate that 80% of the people getting these debt loans go on to rack up more bad debt with their credit cards. Work at being the other 20% by using the debt consolidation loan to pay off the cards and then become frugal. Only spend your money on your needs not your wants.

A consolidation loan may well help you manage your money better but until it-s paid off, you won-t be out of the woods.There are a number of things to look out for when looking for a consolidation loan. The interest rate is obviously the most important – it should be the lowest you can find. But don-t borrow more than you need. Many lenders will offer lower rates if you borrow more but don-t fall into the trap.

You might think it would be good to have a nice holiday after getting all those different creditors off your back but remember you will still have to pay it back – and with interest too.If possible it should also be flexible so that you can pay off more than the required amount if you suddenly find you can afford to increase the repayments. Many loans incur penalties if you pay them off early – and quite a lot of people do – so a flexible loan is best.Such loans can also be secured or unsecured. Think long and hard about taking out the former as the loan will be secured against your house so, if you default, you could lose your home.

By securing a debt consolidation loan, you will be paying a lower interest rate. But the bank will want some reassurance if you get sick or be in a position to not pay it back and ask you to get insurance to secure the loan. This is not a requirment only a suggestion so be careful. Most of these insurance are over priced and not really needed. Check your life insurance policy and make sue your limits will cover the loan if you die. This is probably all you need.

You may prefer to pay for what insurers like to describe as -peace of mind- but just remember that it-s their peace of mind you-re paying for!Also, try to spread the loan repayments over as short a period as possible. The longer it takes to pay off, the more you-ll pay in interest and the less motivated you will be to stay out of further debt. The important thing is to make sure that you can comfortably make the payments.

The last thing to remember is to shop around. Don’t settle for any loan. Make sure you feel comfortable with the lender, the rate is what you want and the terms of the loan is something you can live with. This is a very imporant decision and must not be cecided immediatley.

Debt collection in Canada

Debt collection in Canada is governed by the provinces and territories. All the provinces and territories have similar laws, which attempt to strike a balance between giving creditors an opportunity to collect the money that is owed to them and preserving the debtors’ rights not to be unduly harassed and to be treated with dignity. Collection efforts can be persistent but collectors cannot phone at unreasonable hours or jeopardize the debtor’s job by interrupting him or her at work.

The BC Debt Collection Act is used to illustrate some of the rules and what is allowed and what is not.
Unreasonable Collection Practices
The following are the unreasonable collection practices outlined in the BC Debt Collection Act (The numbers and letters refer to the applicable sections of the Act):

14 (1) A person must not, exert undue, excessive or unreasonable pressure on a debtor, or a member of the debtor’s family or household, or the debtor’s employer

(a) in collecting, negotiating or demanding payment of a debt,

(b) in repossessing, seizing or restraining on any chattel, or

(c) in evicting a person from property.

(2) For the purposes of subsection (1) and without limiting that subsection, undue, excessive or unreasonable pressure is exerted if a person does any of the following:

(a) makes a charge, threat or promise that pertains to matters other than the collection of the debt;

(b) except for the purpose of verifying the employment of the debtor, communicates with the debtor’s employer, without the consent of the debtor;

(c) communicates with a debtor, the debtor’s family or the debtor’s employer in a manner and in circumstances that, because of the nature or frequency of the communications, alarm, distress and humiliation are likely to result;

(d) uses a summons, notice, demand or other document expressed in a language, style, or purport of a form used in a court or under the authority of an Act of British Columbia, or printed or written in the general appearance or format of that form;

(e) uses, after the director makes known the director’s objection to it, an agreement, document, letter or other collection practice;

(f) collects or attempts to collect money from a person who is not liable for the debt;

(g) collects or attempts to collect money that exceeds the amount of the debt owing;

(h) when not licensed as a collection agent, collects or attempts to collect a debt in a name other than the name in which the debt was contracted or incurred;

(i) communicates with a person for the purpose of collecting, negotiating or demanding payment of a debt by a means that the charges or costs of the communication are payable by that person;

(j) communicates with a person for collecting, negotiating or demanding payment of a debt during a day or during the hours of the day when communications are prohibited by regulations made under this Act.

(3) If, in the opinion of the director, a person is causing alarm, distress or humiliation, the director may send to that person written notice of the director’s objection and that person must not use the practice to which the director has objected.
Reporting Complaints about a Collection Agency
Consumers who wish to complain about a collection agency may contact their provincial or territorial office of consumer affairs.

British Columbia
Director of Debt Collection at 1-250-356-6035 or by fax at 1-250-953-3533.
Director of Debt Collection
PO Box 9297, Station Prov. Govt
(Wharf and Fort)
Victoria BC, V8W 9J8

Alberta
Alberta Government Services
Consumer Services Branch
13th Floor, Commerce Place
10155&-102 Street
Edmonton AB T5J 4L4
Tel: (780) 427-4088
Toll Free (in Alberta): 1-877-427-4088
Fax: (780) 422-9106
Web site: http://www3.gov.ab.ca/gs/information/consumer/

Saskatchewan
Consumer Protection Branch
Department of Justice
1871 Smith Street
Regina SK S4P 3V7
Tel: (306) 787-5550
Toll Free (in Saskatchewan): 1-888-374-4636
Fax: (306) 787-9779
Web site: http://www.saskjustice.gov.sk.ca/cpb/default.shtml

Manitoba
Consumers Bureau
Manitoba Finance
302-258 Portage Avenue
Winnipeg MB R3C 0B6
Tel: (204) 945-3800
Toll Free: 1-800-782-0067 (in Manitoba)
Fax: (204) 945-0728
E-mail: consumersbureau@gov.mb.ca

Ontario
Government Services
Consumer Services Bureau
33nd Floor, 250 Yonge Street
Toronto ON M5B 2N5
Tel: (416) 326-8800
Toll Free: 1-800-889-9768
Web site:http://www.cbs.gov.on.ca/mcbs/english/welcome.htm

Quebec
Office de la protection du consommateur
Room 450, 400 Jean-Lesage Boulevard
Quebec QC G1K 8W4
Tel: 1-888-672-2556
Fax: 418-528-0976
Web site: http://www.opc.gouv.qc.ca

New Brunswick
Justice Services Division
Office of the Rentalsman and Consumer Affairs Branch
Centennial Building
PO Box 6000
Fredericton NB E3B 5H1
Tel: (506) 452-2583
Fax: (506) 453-3651
Web site: http://www.gnb.ca/0062/index-e.asp

Prince Edward Island
Consumer, Corporate and Insurance Division
Fourth Floor, Shaw Building
95 Rochford Street
PO Box 2000
Charlottetown PEI C1A 7N8
Tel: (902) 368-4550
Fax: (902) 368-5283

Nova Scotia
Mail Room, 8 South
Maritime Centre
1505 Barrington Street
Halifax, NS
B3J 3K5
Tel: (902) 424-5200
Toll Free: 1-800-670-4357 (in Nova Scotia)
Fax: (902) 424-0720
Web site: http://www.gov.ns.ca/snsmr/

Newfoundland and Labrador
Consumer and Commercial Affairs Branch
Department of Government Services and Lands
2nd Floor, Confederation Building West Block
PO Box 8700
St. John’s NF A1B 4J6
Tel: (709) 729-2570
Fax: (709) 729-4151
Web site: http://www.gov.nf.ca/

Yukon
Department of Community Services
PO Box 2703
Whitehorse YK Y1A 2C6
Tel: (867) 667-5111
Toll Free: 1-800-661-0408
Fax: (867) 667-3609
Web site: http://www.gov.yk.ca/depts/community/

Northwest Territories
P.O. Box 1320
Yellowknife NWT X1A 2L9
Tel: (867) 669-2377
Fax: (867) 873-0169
Web site: http://www.maca.gov.nt.ca

Nunavut
Community Government and Transportation
Box 1000, Station 204
Igaluit, NU X0A 0H0
Tel: (867) 975-5300
Fax: (867) 975-5305

Why do you see so many advertisements for “debt consolidation” loans? They are a cash cow for the financial institutions. Their lure is almost intoxicating. They create an image of being able to reduce all your loans into one much more manageable payment that may even leave you with extra funds left over to continue living the life that got you into trouble in the first place. What a perfect solution to a nagging debt load!

What should attract your attention is that it typically finance companies and not the banks that are offering this seemingly generous solution. Its not that the banks don’t want to reap the rewards of these kinds of loans but they are likely the ones that hold your existing loans.

Typically the prime targets for “debt consolidation” loans are people carrying thousands of dollars in credit card debt, plus have substantial balances on department or big box store cards. These are the people who actually try to pay their Mastercard with their Visa.

On the surface the idea of combining all your payments into one smaller would seem like a great solution to their current debt problem, but it a recipe for disaster. Some instances will have the borrower having their monthly payments cut by as much as 50%. The finance companies count on the borrower’s short term thinking and desire to have their spending money back to blind them from the obvious drawbacks to this arrangement.

Yes, the borrower will experience the relief of seeing all his or her balances owed to the credit card companies or big box stores, wiped clean leaving only the one payment to the finance company. Unfortunately, the borrower will have likely signed a contract that could stretch for several years. You can be sure that the interest charged by the finance company will be much higher than the other lenders. Even if the rate is the same as the other financial institution, the addition of several years of payments will mean you are paying much more in the long run.

If it wasn’t bad enough that the borrower has just signed on to longer term debt, he or she now finds themselves with credit cards with no balances. Often, in record speed, they find themselves buried under a new layer of debt. One criteria for getting a “debt consolidation” loan should be that your credit cards are destroyed and any new purchases be paid for in cash!

“I was a house wife you know, it was not always like this for me.” I was outside my office and saw a ‘street person’ digging around and asked what she was up to. An interesting conversation became of it and I think many others will follow in this woman’s footsteps. Read on and look for any similarities in your life because living on the street is really no fun.

She was forty-ish and was married for fifteen years, had children, a house and all seemed normal. Then one day letters start arriving with the final notice stamp on them. Some of you know what I am talking about, the letters from the power company saying they are turning off the heat. She never looked at the family finances before and asked her husband what was going on.

He yelled at her about something and the topic seemed to turn to unrelated stuff, she did not even notice her attention had been diverted. Later the power did go off and she decided to make some calls to the bank to see what was going on.

They where broke and I mean broke. She was horrified, what happened? Her husband was a spender.  He took the office out for lunch, and after dinner drinks. He bought lots of dust collecting stuff from the home shopping channels. She knew he liked to spend money but he always made good money. She confronted him, they fought and split up, she got onto anti-depressants, then illegal drugs, then family services took the kids and she got into the street drug scene and the downward spiral took over.

There are two lessons here, first is know what is the financial situation of you and your family. Normally one family member is in charge and does most of the work in that area. It is important that both of you know where the money is, how to get it and what are the family expenses. The biggest reason is if the “family banker” got into an accident and was in hospital for a few weeks. Could you run the household for that time?

The second reason is for a ‘closet spender’. This is a person who is secretly spending you into the poor house, or in this lady’s case no-house. After 10 years in medicine I have seen people do things I never dreamed anyone would. I have seen people I thought I knew, under pressure, do incredibly foolish things. There is a saying ‘do you really ever know someone?’ The answer is no.

This is not about trust, I trust my wife 100%. It is about sharing responsibility, sometimes that responsibility can get people to do very strange things. One of my responsibilities in this relationship is to let my wife know if I think she is doing something crazy and she is to let me know the same.

Knowing how your family’s finances work can take some time for you to learn depending on your background. Anyone can learn it, you do not need to have any ability in math anymore, and computers make it all very easy. Initially some partners will wonder why you are ‘snooping’ around the money stuff, assure them you are just making yourself useful incase you are needed to do some banking. It is the same as both of you likely can drive the family car.  Well both of you need to know how to access your money and know what bills are coming from where, basically driving the family’s finances.

Relationships have lots of responsibilities and learning about the money is just one of them. Start today. There are resources available with banks, schools, libraries or myself to help you understand it all. Trust me, moving your family into a cardboard box isn’t as glamorous as it sounds.

Do you want to be broke? Or rather, do you like being broke? I’ve never met anyone yet who does. How many people do you know who are in the same situation? You don’t have to look beyond your own community to see that personal debt is ballooning and bankruptcies are on the rise. Yet at the same time there are more millionaires being made per year than existed before this century.

There are all kinds of factors that help poor and middle-income people stay there. It is not the lack of income that is the cause of most financial hardships. I have known several people that managed to retire very comfortable but only earned a modest salary their whole working careers. I know people now in there 30’s that retired on $300,000 and live a comfortable life. Now how did a thirty year old get $300K and what are they doing to live on that is a topic for a future article. A hint is they do what’s in this article.

Lets agree for the moment that the amount of money we make is not the biggest factor to our future wealth. Then what is, race, color, creed? Nope, the number one thing you will need to do if you want to be wealthy is, control how advertising affects you. That’s it! You only have to master your emotions and feelings and grow immune to your buddy’s teasing you about not having the latest gizmo.

You see, advertising works. If you say it does not then go look around your basement. Do you have any workout equipment you haven’t used in a couple of years? Or how about in the kitchen, do you have the ‘ultra nonstick pot’ guaranteed to never burn your food, have you used it in a year? Go to your garage and see what things you got on sale at the hardware store, it seemed like such a good idea at the time. Trust me advertising works.
What can advertising get us to do? There is more money spent today on keeping a child entertained than was spent educating the parents. Hmmm, it is something I have noticed, most teens seem to be a walking electronics store. I saw a commercial for back to school and it was for parents to learn all the hi-tech gizmo’s the kids ‘had to have’.

What does this have to do with wealth accumulation, everything. Most of you are up to your eyeballs in debt, where did you get that debt? The shopping mall, getting your kid a cell phone, Ipod, laptop, blue tooth, and a thumb drive. Because they really need that, are you kidding me? Did Einstein, Bell, Edison, Mozart, Gandhi have that stuff. The advertising executives will say, imagine what they could have done if they did have that stuff. Most school children could not do math without a calculator and without that basic understanding of how numbers work you are not going to go far compared to an Einstein.
Life is better now and these modern conveniences are nice to have if you can afford them. Here is a way to get those things and retire wealthy. It is the simple savings plan, when I was a kid if I wanted something ‘I just had to have’ my mom would set up a sheet of paper and I would earn points towards the purchase of the item. After I got enough points we all went down to the store and I got to purchase my new gizmo. Then we would go out for supper to celebrate my accomplishment.

Another way is you take a percentage of your paycheck each month and when there is enough money in it to buy whatever, you go get it. The temptation to buy now is huge, there is so much pressure from TV, radio, friends, heck it is everywhere you look. I could write several books on the evils of most advertising and what it does to the financial destruction of many families’ financial stability. If you watch any kind of media you are being subjected to advertisements and their sole purpose is to get you to give them something, likely money. Be on guard of your emotions to go and buy something. Think about it, do you really need it. If not leave it in the store and know you are one step closer to financial freedom. Be smart, be wealthy.