Expert: tbaarr - 10/27/2009

Question
Hello there, I am struggling with what to do with my financial situation pretty badly and could use some advice. I am 35yr old male from Canada. I will list my debt first below.
Student Loan: owing $14K, min payment of $155/mo over 10 years (this is the lowest rate possible and about 3 years in)
RRSP loan: owing about $7-8K, payment is $125/mo over 10 years and about 3 years in.
Credit Card Debt: Mastercard, owing $11K @ 11.4% interest min payment $220/month ($110 is interest), Visa, owing $7K @ 11.4% interest, min payment $80/month ($60 is interest)both these cards I have been trying to pay off for years but minimal amounts.
Total debt between these three: $42K
This is the dilemma I have: I broke my neck and back 3 yrs ago on a work ski trip in the mountains. It was covered under Workmans Compensation Board (WCB)Employer Insurance in Canada. I was recently paid out $12K for the accident. I have another $2K roughly also, so about $14K in my bank account in cash. Now the WCB payout is tax-free dollars just to keep in mind. What I was going to do was put $10K of the $14K (accident money fund)into an rrsp now and get about $4K back from taxes. This is when I thought I could get a loan for a condo but now realize my debt to income ratio is probably too high to get a loan for that. The problem lies in where to best put the $14K that is sitting in my bank account to get me the furthest ahead or out of debt? If I put all of the $14K savings into an rrsp, yes I will get $4K back, but now the money is tied up in an rrsp. Because the WCB payout is tax-free I will now get dinged on something that was tax-free to begin with. It doesn't make much sense then to do that unless the money put into the rrsp is used towards a first time home purchase where is the $14K would then be tax free in canada as long as it has been in an rrsp for at least 90 days. I guess the ultimate goal is to stop renting and start owning (especially now that interest rates are so low and purchase price is also lower than previous). The problem is I cant get a loan with such a high debt to income ratio. So the the bottom line is : What should I do with that $14K that I have sitting in my bank account and how can it be best utilized to help me progress in the near future? Oh, I forgot to tell you that I have a solid job for the last year selling chemicals to Oil companies that always need them. I make about $52K per year and see a bright future. I hope this hasn't sounded too complicated, but any advice you could give would be very very appreciated! Thanks and talk to you soon hopefully.

Darrell

Answer
what I would try is pay off 1 credit card in full. IF they have a life of the loan low interest balance transfer offer available.

then I would cycle that offer to the next card
to lower both interest rates

I would also try to get some more credit cards with 1 year 0% offers and use them to knock down the loans as you make the same payment but it all goes to principal

 i stated paying off the cards first because these people have a vested interest in making money

and if you leave their card empty they make nothing and become real friendly to get your business back.

what is the interest rate on your student and your rspp loan

if its less than 6% then these are the last loans you pay off.

I also would keep a bill pad in the bank that covers 2 months total bills if you can.


since you make 52k a year thats 4k a month.

figure out your monthly reoccuring bills

figure out what bills can be paid with a credit card at no extra cost.

use a 1% cashback card and pay those bills.

if the card you use is empty and you pay it off each month

you get to use their money interest free for 25 days.

this allows you to apply your paycheck to knocking down a bigger chunk of debt

as you have at least 2 weeks 14 days of pay that is freed up

let me know your monthly pay your monthly reoccuring debts like gas groceries cell bill cable bill etc

and let me know what bills can be paid with a card at no extra fee.

I suggest you go to wal mart and apply for their discover card that is backed by GE bank.

this assumes that wallyworld is the same in canada as in the usa where I live

hope this helps for now

if your country allows mortgage interest to be deducted as a tax write off like mine does

I suggest you get the biggest loan you can

then pay debt with it. and put the rest in tax free investments