Sam

Should You Go on Vacation if You’re in Debt?

Summer is already here, and you probably wonder if it is a good idea to go on vacation if you are in debt. Well, this depends on how much you owe, your monthly payment amounts, and whether you plan a short trip to the countryside or a long summer vacation overseas. This also depends on your income and expenses, the number of family members, and other factors.

When Vacation Is Not an Option

In some cases, vacation is not an option, and you may want to think of other ways to have a good time. This is the case when you have:

High-interest debts
Multiple debts with large outstanding balances
Seasonal or part-time job
Unstable income

If you have to add more debt to go on vacation, then it may be better to change your summer plans and put off your trip. If you have paid vacation days, on the other hand, this is definitely a plus. In any case, if going on vacation is a source of stress and you are in a precarious financial situation, it may be better to put off your trip. There are other questions to ask yourself before you make a decision, and one is how quickly you want to get rid of your debts. If you want to repay your debts within a short period, then going on a short vacation or putting off your trip makes more sense. If you have a 25-year mortgage with affordable payments, you don’t have to wait for 25 years to go on vacation. If, on the other hand, you have a payday loan with a short term of 1 – 2 months and a very high interest rate, then it is best to pay it off first. If money is in short supply and you go on vacation, you may incur an extremely high interest rate. This will only make things worse.

Obviously, to go on vacation, you should save enough money for plane tickets, accommodation, travel, leisure activities, dining, car rentals, and anything else. By charging purchases on your card you will spend a lot on interest charges. Interest charges add up if you only pay the minimum and you will end up paying dearly. This is especially true if you hold a high-interest credit card, whether a specialty or standard card. At the same time, if you have a travel credit card, you may want to redeem your points for airfare and accommodation to save money. Many travel credit cards feature complimentary welcome bonuses, rewards points to redeem for travel expenses, affordable travel packages, discounts, room upgrades, and a lot more.

Budget Travel

Hostels

If your monthly payments are reasonable, travelling on a budget is one option to consider. If you don’t mind staying in hostels, this will save you a lot of money. Hostels are inexpensive compared to other accommodation options such as cottages, rental homes, resorts, family hotels, etc. What is more, you can choose from different types of hostels such as boutique or luxury hostels, eco and design hostels, party and surf hostels, and others. It all depends on your budget, preferences, and destination. Some hostels even offer free food such as BBQ, baked goods, instant coffee, milk, a choice of cereals, and a lot more. If you choose a hostel that offers free breakfast, you will save more. If breakfast is not offered, then you can have a big meal at lunch. Many budget restaurants offer lunch specials for cheap. Another idea is to shop at food courts, stores, and markets near closing time which is when you will find deeply discounted food items.

Check short-term rental homes as well. Some rental homes are quite affordable, especially those that are away from busy locations. Many short-term vacation homes have a fully equipped kitchen as well. Plus if you travel with a friend or companion, you can split the costs.

Camping

If you have camping gear or you can borrow from a friend or relative, this is also an option to consider. You may also buy used camping gear and equipment. You will need camping equipment and essentials such as:

Pillows
Sheets
Sleeping bags
Tent
Thrash bags
Aluminum foil
Campfire grill
Dish pan
Cutting board
Can opener
Folding table
Folding chairs

Don’t forget to bring your first aid kit with you. Pack things such as your sunscreen, bug repellant, bee sting kit, cotton swabs, roll bandages, splinting materials, antiseptic wipes, personal medications, and anything else you can think of.

Book in Advance to Save Money

Book air travel, bus travel, hostel or hotel accommodation, and train journeys well in advance. This will save you a lot of money. It is best to book at least 1 month in advance because prices tend to go up. Usually prices go up the closer you get to your departure date or trip. To save even more, you may want to consider going on vacation during low season and off-peak season when hotels and flights are cheaper compared to peak season.

Choose a Budget Destination

If you have outstanding balances, it is best to choose a budget destination such as India, Vietnam, Cambodia, Sri Lanka, or Honduras. Check low-cost airlines which serve major hubs and airports. The main benefit is obviously the low price of tickets. On the downside, low-cost carriers offer fewer amenities compared to standard airlines. Budget destinations such as Sri Lanka, Cambodia, and others have plenty to offer – affordable accommodation and food, breathtaking nature, beaches and palm trees, tea and coffee plantations, waterfalls, lakes, mountains, temples, and more. An air-conditioned room equipped with amenities, Wi-Fi, dining facilities, spa and a swimming pool can cost you as little as $50 – $60. In fact, some hotels feature rooms with a view of the garden or beach and a private hot tub and sauna for as little as $50, with superb breakfast included in the price. Other budget destinations include the Dominican Republic, Argentina, Greece, Bulgaria, and Hungary.

Opt for a Cruise Vacation

One alternative is to choose an inexpensive cruise. The price of a cruise usually includes different dining options for snacks, dinner, lunch, brunch, and breakfast, your stateroom, amenities, waterslides, pools, and evening shows. The price also includes room service, youth and kids’ programs, a fitness center, lounges, entertainment and live music. Non-alcoholic and alcoholic beverages are usually not included in the price and so are specialty restaurants, photos, shore excursions, and video games. The same goes for tips and service gratuities, laundry services, beauty salon services, and spa treatments. If you have children, check whether kids under the age of 18 sail free.

Saving Money While on Vacation

There are other ways to save money while on vacation to avoid overextending yourself and adding more debt. If you plan a vacation at home, you may want to shorten it. Why not pick a desired location to spend a few days with family, friends, and loved ones? Just choose an affordable location and make it a weekend-long trip to visit places of interest, attractions, and nature wonders. Choose a location nearby or within a 3 – 4-hour drive to save on gas. This way, you will also have more time for leisure and fun activities. Instead of doing local trips, you can visit friends or family to spend time with them. If they are willing to host you, you will save on accommodation as well.

Ontario Minimum Wage Increase – Bad for Business and Bad for Employment

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According to finance experts, the minimum wage increase in Ontario will hurt the local economy and result in more unemployment over a period of 2 years. Wynne, on the other hand, believes that the proposed reform is good for the local economy because low wage workers spend their money in Ontario which helps improve the economic climate in the province. With the new minimum wage increase they will have more money to spend on goods and services. In his view, low wage workers are particularly vulnerable, and the wage increase is great news for them. Businesses in Ontario are doing well and the economy is actually booming. But is this really the case?

The New Legislation and Key Points

The liberal government introduced new legislation to gradually increase the minimum wage from $11.40 to $11.60 in 2017 and $14 and $15 as effective in 2018 and 2019. The new legislation also introduces equal pay for seasonal, casual, temporary, and part-time workers with the same job responsibilities as full-time employees. The same goes for temporary help agency employees. The proposed legislation also calls for better opportunities to join unions, opportunities to care for family members over a longer period, 10 emergency leave days, as well as a 3-week paid vacation after a period of 5 years with the same employer. Fair scheduling rules have been proposed as well for on call and shift workers.

The Impact of the Proposed Legislation

Unemployment Levels

Experts warn that the minimum wage increase in Ontario will cause more unemployment, especially among low skilled workers and younger people as well as workers outside large cities such as Toronto. The wage increase will affect regions with considerably lower average wages, including Kingston-Pembroke, the Niagara Peninsula, the Stratford-Bruce Peninsula, Windsor-Sarnia, London, and others. Towns and areas that are economically weaker will be the most affected by the proposed reform. The reason is that unemployment levels tend to spike when the minimum wage reaches 45 percent of the average wage. In Ontario, however, the minimum wage will go over the 45 percent threshold to 55 percent. The pool of employment opportunities would shrink for young people, teenagers, and low skilled workers after three consecutive increases over a period of just 18 months. This is a 32 percent increase, which makes it the biggest, most significant, and steepest in the history of Ontario. In fact, during the last 50 years, the biggest increase has been less than 1 percent (0.75 percent).

As mentioned, low wage workers would be the most affected, including those working in the food, accommodation, and retail trade services. Other categories include people with less than a post-secondary diploma, those working two or more jobs, students, and persons under the age of 30. The same goes for casual, contract, temporary, and seasonal workers and those working for small businesses. Surprisingly, workers in large companies would be affected as well because of the introduction of new technologies that replace low cost labor.

Businesses and New Job Openings

The Liberal government is spending other people’s money by pushing to pass the new legislation, and the proposed measures would hurt Ontario’s economy. Former aviation executive at the John C Munro Hamilton International Airport Richard Koroscil, for example, explains that the wage increase would make it harder for businesses to expand and create more jobs. The Canadian Federation of Independent Businesses made a similar statement, warning that it will be more difficult for Businesses in Ontario to “shoulder additional financial burdens”.

While the reform proposal is still under discussion, the key points remain unchanged, one being the minimum wage increase. Businesses oppose the reform, especially those in the food service industry and independent owners. In their opinion, the new wage increase will slow job growth by reducing profit margins. Many argue that the reform would kill small businesses, which is also the view of Restaurants Canada. The new reform will cost restaurants an extra $47,000 a year, which means that some establishments would be forced to close down. Others, including the Canadian Federation of Independent Businesses, warn that the reform will result in significant job losses. Some establishments will cut hours while others will cut jobs. These are tough decisions to make. The problem is that a higher minimum wage is associated with higher costs, which many small businesses cannot afford. Businesses that can afford it may need time to adjust as well.

The Ontario Chamber of Commerce, which represents more than 60,000 businesses, opposes the reform as well. In the words of Richard Koroscil, the new measures will curb business growth and job creation. What is more, representatives of the Ontario Chamber of Commerce warn that the minimum wage increase will result in more than 180,000 jobs being lost over a 2-year period. Ontario’s Financial Accountability Office confirms this by pointing to the fact that a $15-wage would result in about 50,000 jobs being lost.

Women would be the most affected if the proposed increase passes this year. The reason is that the majority of low wage workers are actually women. Policy Director of the Chamber of Commerce Ashley Challinor explains that the new reform is not only going to make it more difficult to expand and employ people, but many businesses would be forced to rely on automation and speed up the deployment of robots. This means that jobs will be lost to robots and new technologies.

To add to this, businesses that pay more than the minimum worry that employees would expect significant pay increases. Many small businesses simply can’t afford it.

5 Steps to Reduce your Credit Card Debt by Christmas

By Sam 2 Comments

There are many ways to go about and deal away with credit card debt by Christmas. From debt consolidation and balance transfers to cutting non-essential spending, it is possible to reduce debt and eliminate sky-high balances.

Step 1 – Add up All Debts

The first step to reduce your credit card debt is to find out how much you owe. What you can do is add up all your debts, including card balances, mortgages, vacation loans, vehicle, home equity, and personal loans, lines of credit, and so on. Add up all balances to find out the total debt amount. Then make a list of your sources of income, including wages, salary, child support, alimony, real estate investments, and others. This is a good way to figure out how much you make and how much you owe. If you make less than you owe, you are in serious trouble and it’s time to rethink your finances now that the Christmas season is behind the corner.

Step 2 – Balance Transfers: Get a Zero Interest Credit Card

Transferring balances is a good option for high interest cards and allows borrowers to take advantage of a zero or very low rate over a promo period of 6 – 12 months. In this way, you will be paying more toward the outstanding balance and less toward interest charges. An additional benefit is that borrowers are free to choose from different cards with attractive terms and add-ons. Examples include events and concert tickets, deals and discounts, complimentary bonuses, points, and more. On the downside, there is always a risk to end up paying a higher interest rate if you don’t meet the eligibility criteria. It is also a good idea to inquire about the balance transfer fee because it can cost more than interest on your current account.
A balance transfer can be a good option to save on bank fees and interest rates, but make sure you check all details with your financial institution. There are plenty of credit cards with low interest rates of 10 – 12 percent and low or no annual fees. Ask about penalty charges, the grace period, cash advance fees, foreign transaction and balance transfer fees, late and over the limit fees, etc. Some cards also go with replacement, credit limit increase, and processing or application fees. These are less common but it is always good to be on the safe side. Some financial institutions also charge returned check fees, expedited payment fees, and monthly fees.

Step 3 – Consolidate Your Debt

Debt consolidation is a good choice for people who pay multiple card balances. If you have two or more cards with high interest rates, then consolidation is a solution to look into. Apart from balance transfers, there are other options to consolidate your debt, including a line of credit, home equity loan, and unsecured personal loan. The choice of financial solution depends on factors such as available cash, credit rating, types of debt, total debt amount, and others.

Step 4 – Join a Credit Union

Try to join a credit union if you are not a member already. Credit unions usually offer cards and loans with lower rates and competitive terms. Unions are non-for-profit entities that cater to their members and pass through profits in the form of benefits such as low interest rates, low annual rates, etc. Many unions offer credit cards with interest rates that can be as low as 6 percent. What you can do is try to pay the balance in full and keep your current card. Then you can apply with your local credit union to benefit from the rate they offer. Alternatively, you can transfer the existing balance the same way you would do at a traditional bank.

Step 5 – Cut Unnecessary Spending

Splurging and non-essential spending are the main culprits for piling debt, and this is especially true for low-income persons and households. If you tend to splurge and overspend, it is time to have a good look at your expenses. There are basic necessities to cover, including food, electricity, gas, water, etc. Routine expenses also count toward essential expenses. Examples include appliance replacement and repair, deductibles, medical costs and medications, car repairs, emergencies, and so on. Discretionary spending, on the other hand, includes things like parties, baby showers, birthdays, anniversaries, and holidays. If you have a piling credit card debt, then you may want to look at your budget and identify the things you can go without. They are destroying your budget. Non-essential expenses include vacations, luxury clothing, dry cleaning, going to the gym, going on outings or to the pub, and others. If you have a huge debt load to pay off and are living paycheck to paycheck, it is important to cut unnecessary spending. Then if you have a seasonal or part-time job and your income is very low, you may want to cut utility expenses as well (like opt for a basic internet plan).

There are other ways to reduce your credit card debt by Christmas, and one is to ask your financial institution for a lower interest rate. If you are a regular customer, your bank may be willing to slash the rate. If you have a very good or spotless credit score, you are likely to get a lower interest rate. If you use multiple cards, one way to reduce your debt is to pay off one card at a time. It is easier to start with the lowest balance first. If your goal is to improve your credit rating, however, you may want to start with the card that has the highest utilization rate. A third option is to apply for a loan through a peer to peer network to pay off existing credit card balances. Peer to peer lenders offer affordable loans with rates that are significantly lower compared to standard cards. A spotless or very good credit score and a steady job is all you need to qualify.

Higher Interest Rates and Strong Loonie – What Does That Mean for the Canadian Economy

By Sam 1 Comment

The Bank of Canada increased the key interest rate in September this year, justifying the move with a steady and sustainable economic growth and higher consumer spending. Interest rate hikes result in higher borrowing costs, help control inflation, and have a cooling effect on hot housing markets and economic growth. Low interest rates, on the other hand, encourage borrowing for both consumers and businesses and thus stimulate economic growth. A strong loonie indicates economic growth, makes imports cheaper, and affects exports.

Consequences

Strong Loonie, Exports, and Economic Growth

Canadian businesses that buy services and goods south of the border benefit from a strong loonie. Consumers also benefit from lower prices in the U.S. and discounted travel and vacations. At the same time, Canadian exports suffer, and the reason is that the U.S. is Canada’s major export partner. Together with real estate, the mining industry is the main driving force behind economic growth in Canada. The resource sectors, including forestry, metals, mineral extraction, and gas and oil extraction make for about 16 percent of Canada’s gross domestic product. Exports, on the other hand, account for about 32 percent of GDP, and the natural resources sector dominates by far. Exports stimulate economic growth but a strong loonie makes domestic goods and services less competitive. When the loonie is strong, manufacturers, exporters, the hospitality sector, and tourist operators are the main losers. A weak dollar has the opposite effect by triggering inflation and making goods more expensive in Canada.

Strong Loonie and Strategies to Adapt and Deal with It

When it comes to exports, it looks that Canadian exporters have adopted successful strategies to remain competitive and adapt to appreciation. These include enhanced efficiency and productivity, the use of imported raw materials to reduce production costs, and expansion to new markets. Imported raw materials and other inputs, for example, help boost productivity and offset the negative effects of foreign exchange exposure. Export diversification is another successful strategy to adapt when the Canadian dollar is strong. In 2003, for example, many companies began to export goods and services to new markets. While in 2002 some 70 percent of exports went to the U.S., a year later this figure fell by whooping 14 percent. This means that the percentage of goods and services exports to emerging markets rose substantially and actually doubled. As a result of diversification strategies, exports to the European Union, the Middle East, and Asia rose in proportion. The reason why this strategy turned out successful is that the loonie does not appreciate equally against the Euro and other major currencies. Thus businesses enjoy better profit margins through diversification. Another strategy that Canadian exporters use is to establish sales and distribution offices when expanding to new markets. This is less expensive than maintaining production facilities abroad and fosters cooperation with new partners to increase after-sales. Many are working on joint projects as well. Finally, buying imported goods and services is another strategy to offset the negative effect of a strong loonie. This helps boost the purchasing power of manufacturers, and the reason is that imported components, parts, and raw materials are cheaper and help cut production costs. This strategy works well by increasing productivity through investments in advanced technology to reduce production and operational costs and eliminate waste.

Hikes in Interest Rate, Real Estate, and Household Debt

Real estate, together with construction, insurance, and finance, accounts for about 27 percent of Canada’s gross domestic product. During the last years, low interest rates made borrowing cheaper and contributed to economic growth. Cheap debt and construction helped offset the negative impact of low oil prices. At a time of quick economic growth and expansion, hikes in interest rates help keep inflation in check. The recent move by the Bank of Canada can be explained by robust growth in all sectors and areas, including consumer demand, exports, and employment levels. Low interest rates resulted in a significant increase in consumer demand, partly fueled by debt. What is more, low rates made mortgage loans more affordable but also resulted in heavy borrowing, including more home equity lines of credit and uninsured mortgages. Individuals and households with high debt loads find it more difficult to adjust to income changes, whether as a result of loss of employment or a job change. A growing number of heavily indebted persons and households can have a negative effect on consumer spending, the financial system, and the economy as a whole. In this line of thought, interest rate hikes and a subsequent cooling of the housing market can have a positive effect on the Canadian economy. At the same time, finance experts agree that a housing bubble like the one south of the border is unlikely to occur. The reason is that Canada has higher underwriting standards for mortgage loans. Mortgage protection through insurance and other measures also means that a state of chaos is an unlikely scenario in Canada.

The Bank of Canada kept rates low in an attempt to offset the negative effects of low oil prices. For some experts, speculators and lack of housing supply are to blame for skyrocketing property prices in housing markets such as Vancouver and Toronto. For others, however, low interest rates are to blame and rate hikes can help fix this.

What Borrowers Can Do

Higher rates mean higher costs for Canadian financial institutions. Many worry that interest rate hikes will affect mortgage payments but this is not the case. With a rate increase from 1.7 percent to 1.9 percent on a $500,000 mortgage, borrowers pay about $40 more a month. A subsequent hike in interest rates is expected to have a similar effect. Even in this case, borrowers have the option to lock in their rates and opt for a fixed-rate mortgage loan. This is what many choose to do when interest rates rise. However, experts point out that a fixed-rate mortgage is a better option only if rates go up by 0.69 percent or more during the next couple of years. What we have seen so far is interest rates going up to 1 percent and then dropped by 0.5 percent over a 5-year period. With this in mind, a variable-rate mortgage with a low interest rate (i.e. 1.9 percent) makes more sense than a fixed-rate mortgage with a rate of about 2.6 percent. And according to Bank of Canada experts, subsequent rate hikes, if any, will be gradually implemented.

Are Housing Prices in Ontario and GTA Finally Going Down?

By Sam 2 Comments

Housing prices in Ontario and the GTA are down by 26 percent after the decision of the Ontario’s government to introduce a foreign-buyer’s tax. The new tax applies to corporations purchasing certain properties, non-permanent residents, and foreign nationals. The measure was introduced in an effort to cool down the housing market and stabilize residential property prices. The new tax also aims to curb speculative activities and is aimed at individuals who are in the game for a quick profit.

What Experts Say

Some experts warn that the market in Toronto and Ontario in general is in a bubble much like the 1980s. Others counter-argue by pointing to the fact that indicators such as demand for residential properties, population growth, and interest rates are more stable today than during the 80s. The situation was also very different then, with different factors at play, one being that the province was on the verge of recession. The only similarity that some experts see is that housing prices skyrocketed. Chief Economist Sherry Cooper also highlights the fact that in 2008, the U.S. experienced largescale foreclosures, market collapse, financial crisis, and underwater mortgages. In Ontario, none of this is happening.

The question now is – are housing prices finally going down for good? The drop in demand can be explained partly by the fact that many homeowners were quick to list their properties before housing prices reach peak values. At the same time, demand dropped substantially. When it comes to the introduction of the new foreign-buyer’s tax, experts point to the fact that foreigners are a small percentage of all buyers to cause prices to plummet. Plus, the majority of foreigners who purchase a property in Ontario qualify for a rebate. In fact, a press release by the Toronto Real Estate Board reveals that less than 5 percent of home purchases in the Greater Toronto Area involve a foreigner.

Some experts claim that the sharp decline in property prices is mainly caused by domestic investors withdrawing from the housing market. There is a significant decline in demand for residential housing purchased to rent. The main reason for experts is that investors wait to see how the new set of measures will affect the market. If this is the true state of things, then the housing market will continue to fluctuate.

Counter-Arguments: Prices Are Not Going Down

The Toronto Real Estate Board, for example, published a report according to which housing prices are expected to grow due to a high demand and a more limited supply of new listings. The expected increase in sales prices is up to 16 percent. The average price for residential housing is in the range of $800,000 – $850,000. Townhouses, semi-detached houses, and detached homes will see the strongest price increase in 2017. Affordable housing is a concern for many in light of the fact that prices are expected to increase at a quicker rate compared to income growth. According to the Toronto Real Estate Board, policy makers must devote time and energy to develop policies to solve the main problem and namely, the shortage of residential housing for rent and sale. Close cooperation between non-governmental organizations, businesses, and the public sector can help to this end.

Trends

A recent survey by Ipsos shows that the majority of new homebuyers are ready to make a considerable down payment of more than 27 percent. Money comes from different sources, including home equity, gifts from family members, savings, etc. This is an indicator that demand is stable and the market is not cooling down.

The Toronto Real Estate Board analyzed how factors such as price growth, supply, demand, and affordability come into play. The Canadian Centre for Economic Analysis was tasked to study the link between housing prices and factors such as Metrolinx and enhanced transit in general. The study reveals that Metrolinx has a positive impact on home prices in the Greater Golden Horseshoe and the Greater Toronto Area. This is due to the fact that more and more residents have the chance to commute and benefit from the improved infrastructure. The RER is expected to increase home prices by as much as 12 percent.

At the same time, a survey conducted by RBC shows that about 25 percent of residents plan on buying or investing in a residential property. This figure was 30 percent in 2016. There are three factors that come into play, one being uncertainty whether the Canadian economy is performing robustly. Housing affordability is another factor and a growing concern. A third factor is the belief that prices will eventually go down. Whether this will happen and whether prices are finally going down is still unclear. Figures show that prices have gone up by as much as 33 percent in just one year.

Premier Kathleen Wynne admits that measures and policies to cool down the housing market often have unintended consequences. The provincial governments and authorities are not in the position to control residential housing price growth or capital gains taxes. The only tool that provincial governments have is land transfer tax. What they already did was to increase the land transfer tax rebate, which resulted in savings of about $2,000. The Finance Minister announced that the government will develop a set of new measures to cool down housing prices but there is no clarity on what the measures will be. When it comes to policy making, the problem is that stakeholders can’t reach a consensus on the root of the problem. Some experts argue that the real problem is the shortage of land, others point to the shortage of low-rise residential homes, and still others argue that foreign buyers are to blame. And while it is still unclear whether prices in the GTA and Toronto are finally going down, it is clear that rising prices mean high demand and vice versa.