Debt slayers

Nortel, Office Depot, Rio Tinto, the Big Three. How much more daily roadkill do we need to seriously contemplate the arrival of a deflating world?

Well, if you worry about this (and, lo, you should) then the best strategy possible in your financial life is to attack debt. Take concrete steps, for example, to minimize the destructive impact of mortgage debt on personal finances. Go and see you bank now, today, to discuss these options:

Make any prepayment against the principal that your mortgage allows, also take out any new borrowing, or convert an existing fixed-rate mortgage when it comes up for renewal, to a variable rate loan. Interest rates have dropped dramatically, and will keep on falling as governments try to rescue economic growth. A VRM will save you money in this environment and, in fact, has proven over decades to be the cheapest way of borrowing mortgage funds. In a deflationary environment there is absolutely no reason to lock in, and end up paying a premium rate to gain insurance against rate hikes which will not come.

When a loan comes up for renewal at a lower interest rate (and monthly payment) than in the past, shorten your amortization instead of opting for a lower monthly payment. That will pay the mortgage off faster and significantly decrease the amount of interest you have to cough up.

Increase monthly payments, if your mortgage allows that. Some will let you hike them by up to 15%, with that sum coming directly off the principal. Overall interest charges will drop and the loan will be retired years sooner.

The best way of killing a home loan off is to switch from monthly to weekly payments. This can have the effect of dropping the repayment period by a decade or so, and save you hundreds of thousands in interest on a sizeable mortgage. Simply take a usual monthly payment, divide it into four and ask your bank to deduct that amount from your operating account every seven days, applying it to the mortgage (most easily arranged at renewal time, but no harm in asking for the payment frequency change to be made now). By doing this, you make the equivalent of one extra monthly payment per year which does not sound like a lot, but the end result is impressive. You dramatically slow the accumulation of mortgage interest by chipping away at the loan principal every week, instead of every month, which increases equity and decreases debt. Do it.

Consider turning your own mortgage into a retirement fund, by setting up an RRSP mortgage. If you have cash or cashable investments inside your retirement plan, you can use those to replace all or part of an existing mortgage on your home. Now, instead of making interest and principal payments to a bank every month, you are making them into your own RRSP, which is a cool idea. You’ll need the help of a financial advisor or a trust company to set this up, since the mortgage needs to be administered by a third party, and you have to charge yourself market interest rates. This is a somewhat complicated move, but completely worth the effort for many people who want better performance inside their RRSPs, without taking any significant risk to get it.

For cash-strapped retired people who want to tap into RRSP funds without being nailed for taxes, you can employ a strategy called the RRSP Meltdown which can be combined with getting money out of real estate and into your hands. This is also a tad complicated, and it requires the use of borrowed money (there are times when this makes sense). Take  a secured loan against your home and invest the proceeds in financial assets, like dividend-paying stocks. The interest on that loan is deductible from your income tax. So, to make the interest payments, use funds withdrawn from your RRSP, which are taxable. That means your end tax liability is zero and, in effect you have set up a non-registered investment portfolio financed by the government.

You can also combine some of these strategies to create a tax-deductible mortgage. For example, if you have a non-registered investment portfolio (outside of your RRSP) worth $100,000, and a $100,000 mortgage at the same time, simply cash in your investments and use the money to pay off the mortgage. Then take out a secured home equity for $100,000 and buy back those assets you previously had in your portfolio. Now all of the interest on your mortgage is tax-deductible, because the borrowing was made for investment purposes, giving you in effect a tax-deductible mortgage. This can increase your financial position greatly since instead of sending money off to the bank from your after-tax income, you get to subtract the loan payments from your taxable income. At the end of the process, you still have $100,000 worth of investments, and a $100,000 borrowing against your home, but your cash flow is much improved.

If you want more, wait a month. My next book, “After the Crash” has a few hundred other strategies. Soon you will have no excuse.

86 comments ↓

#1 dd on 12.10.08 at 11:00 pm

Garth,

Great, positive, rules to live by. Yes, terrible time are coming but how to profit and survive!

#2 duped into debt on 12.10.08 at 11:16 pm

I don’t own anything. I have next to no debt and zero savings. I rent at a very low cost and I also have a good squirrel hunting camp on a river far away from cities. I work a stable fed gov job and I’m good at what I do so I’m not worried about unemployment for a good long time.

My question is… would I be totally insane to go into debt to buy bouillon?

I don’t trust anything or anybody at this point especially not the banks. Interest rates are so low now that I expect precious metals will go up and make a profit for me faster than the interest I’ll have to pay back on the loan.

So? Have I gone squirrelly mad?

#3 George on 12.11.08 at 12:29 am

garth,
You are packing some serious generosity. thanks for the heads up. hope you sleep well. sincerely

#4 ZK on 12.11.08 at 12:37 am

I agree with shortening your amortization through accelerated weekly/bi-weekly payments. But for tax-deductible mortgages, isn’t it a big risk right now since you are borrowing against your equity? Let say you borrow $100,000 from you home equity but your house value went down $40,000 then you already lose that money. And where will you put that $100,000 that you borrow? In stocks? Which is also down 30-40% you are then hit twice home equity down and stocks down. Is this the same as the “smithmanouvre” which has been a buzz word when house prices and stocks are going up?

#5 Steve in Kitchener on 12.11.08 at 12:45 am

Re:@Garth2

I used to be a FA at a major bank. Garth is right about not going to banks. Most banks offer this product thru a trust company (one of there own). However most sales people at banks are not familiar with these types of products. You might find someone who knows and will go thru all the details with you (like me if I still worked there). The problem with the banks are that they are full of under trained, and under educated staff. I am not saying everyone who works for banks just a lot of them. I would suggest if you don’t get a straight answer ask for the manager they should know. I don’t want to get into too much detail but because the way the goals are set up for sales people at most banks and the time required to do these types of deals makes them low priority for staff. (They make a lot more if they lend you the money!) They do not even train their staff on these a whole lot. Just make sure you find someone who knows what they doing, these require a lot of paper work and you don’t want any mistakes made by staff.

Good Luck

#6 Dee on 12.11.08 at 12:47 am

Your last 3 points make sense but isn’t the interest tax writeoff what got some people to the south of us in trouble? More specifically your last point?

#7 Investx on 12.11.08 at 1:20 am

Talking about low interest rates, is now such a bad time to buy seeing that prices of homes has also decreased significantly?

My real estate agent was encouraging me that now is a great time to buy rental property that I’ve been shopping for.

I responded with my expectations that the market is likely to drop further, which she agreed with, but she stated that I’ll be OK as long as I find a rental property that will “carry” (rental income covering the mortgage payments) and not to focus on the best time to buy (timing the RE market), but to focus on the right property.

Thoughts?

#8 Zoronqueen on 12.11.08 at 1:47 am

http://www.canada.com/montrealgazette/news/story.html?id=840442ee-8f22-4bea-b897-3a9c15433fd2

Garth,
Besides paying off my mortgage, what I’m really worried about is the state of health care when depression hits. Is there any thing in the book to suggest how to ride that through??

It’s already a two tier system in Canada where a person waits 6-9 months for knee ie. surgery and if you pay it is only 3 weeks wait. And I am a R.N. Insurance does not cover even the basics such as physio or transition to work program.

If you do not have money to pay for ie. your health how can you afford to pay your mortgage??

#9 Chris L on 12.11.08 at 1:51 am

Good tips and something frugal people have been doing their entire lives. Debt is a killer, but smart people move out of debt and into true ownership. Once they have met basic living needs, they can take risks, but never give up security of their basic needs.

Been chewing off debt since 2001 and have a rental property paid for, free and clear. Why would I do that? Because I had no other debt, now its all positive cash. Never think you should hold even bad debt. Pay it all off, the rest is butter. Don’t worry about paying off ‘good’ debt, it’s all bad and if you think straight you will see that paying off all sorts of debt increase your positive earnings and from there you can pay all sorts of income tax with money you’ve actually earned.

#10 Derrin on 12.11.08 at 2:18 am

This makes you think about the state of the States.

http://finance.sympatico.msn.ca/investing/news/businessnews/article.aspx?cp-documentid=15805362

Yes, a ZERO percent return on your investment.
Sounds great I’ll take some. You would be better off pickling squirrels and saving them for the spring.

#11 David on 12.11.08 at 2:29 am

With both properties that I bought in the past before renting, I opted for the open mortgage with weekly payments and always tried to throw down a few extra payments when I had some spare dollars. That meant persons had a chance of living rent free at some point in their adult lives. I doubt many bubble era mortgages issued were of that type, since there was a substantial interest rate premium for choosing that option, and the real estate industry as a whole preferred to see people chained to overpriced home mortgages for lengthy periods of time. There is not much one can do with the negative equity trap of the current market and those most likely to suffer are the folks who actually made substantial down payments. Making extra payments makes good financial sense, if a family is using less than 30% of income to support the mortgage. For others paying higher proportion of their incomes toward the home, it might be a real hardship.

#12 neutral on 12.11.08 at 3:41 am

Eventually, I see a prudent advise from Garth. Thank you. Not just greater fools have a mortgage, but many of average people, who bought more than 5 years ago. I’m one of them. Unfortunately, most of members of this “renters”-club will make a little sense of that advise. Squirrel issue – that is the only question they are able to discuss.

#13 Danforth on 12.11.08 at 5:31 am

TD Waterhouse offers a US Dollar currency self-directed stock trading account.
Is this the institution you’re thinking of ? I set up a self-directed RRSP trading account back in 1999. I’ve lost a pile of money in two waves since then. The only benefit was the one-time tax deduction!

On the positive:
I signed up for a 25 year mortgage 1y 8mo ago.
I upped the payment to the max allowable % above the calculated amount (all of $60 a week increase, very manageable), plus went from monthly to weekly payments.

Despite never having gotten around to doing any lump-sum cash bombs… my mortgage now has 15y 7mo remaining !!

#14 HalifaxFamily on 12.11.08 at 8:29 am

Chris L, you have it right. As a family, we are debt adverse unless it is for investing. Consumption debt is a dumb thing to have. High interest consumption debt is even dumber.

The frugal will ultimately win because we are able to take more risk with the free cashflow that we have.

Good job!

#15 HalifaxFamily on 12.11.08 at 8:36 am

Just an addendum. Have you noticed that gas prices have fallen, but that food and other good haven’t really kept up? I don’t trust the inflation numbers that the BOC is giving out. It seems there is selective inflation in the system – it’s the stuff that people consume on a daily basis (not TVs, computers, etc) that is inflated.

The cost of living has not truly gone down other than at the pump.

#16 Larry on 12.11.08 at 10:11 am

I’m going to rent a house for the next 12 months for about $1400 although that’s $300 higher then my actual appartment, i reckon that house prices in Calgary will have dropped the difference of $3600 in the next 12 months so i won’t consider the rental cost as being lost money.

#17 Sophia on 12.11.08 at 10:24 am

to @Garth2: glad to hear about USD denominated RRSP provider. I have been looking for one for some time. Would you care to tell me who that would be.

#18 lgre on 12.11.08 at 10:27 am

‘I responded with my expectations that the market is likely to drop further, which she agreed with, but she stated that I’ll be OK as long as I find a rental property that will “carry” (rental income covering the mortgage payments) and not to focus on the best time to buy (timing the RE market), but to focus on the right property.’

If she is agreeing that the prices will decline further, then what is the rush? Finding the correct house or whatever you are investing in is correct, but no point of buying a depreciating asset in any class, especially when the writing is on the wall.

#19 Andrew toronto on 12.11.08 at 10:48 am

so Garth if I have sold my house and want to rebuy at a latter date .. won’t it be easier for me to get a rrsp mortgage when I do buy .. Also Will I be able to claim the rent I’am paying …

#20 Tony on 12.11.08 at 11:03 am

Garth,

Thanks for the constructive post and excellent suggestions. Although none of these suggestions are new (as I’ve read your stuff in the past that contained most, if not all of these excellent suggestions), they will certainly be helpful to the many readers who one day might get a job and actually leave their parents’ basement – and buy a house…maybe…

#21 Makeorbreak on 12.11.08 at 11:11 am

Garth: “For example, if you have a non-registered investment portfolio (outside of your RRSP) worth $100,000, and a $100,000 mortgage at the same time, simply cash in your investments and use the money to pay off the mortgage. Then take out a secured home equity for $100,000 and buy back those assets you previously had in your portfolio.”

When you say buy back those assets, does it have to be stocks? Can I put it in a GIC?

If GICs are excluded, it doesn’t seem to be a good idea since we don’t know whether the stock market will hold or will plummet.

#22 Peter @ Canadian Banks on 12.11.08 at 11:41 am

Getting out of debt is important for your financial health, no question about it. The thing that many people are missing is that within a year or so inflation will be much higher (all the newly printed money has to go somewhere). Right now everybody is worried about deflation, because of crashing housing and equity markets, and almost nobody think that inflation will be an issue in the near future. What people fail to realize that you can have high inflation in food, and energy for example and severe deflation in other asset classes like real estate for example.

#23 FP on 12.11.08 at 11:43 am

Consumer debt defaults could rise, bank warns
http://business.theglobeandmail.com/servlet/story/RTGAM.20081211.wbankofcanada1211/BNStory/Business/home

“Household balance sheets are coming under pressure from weak equity markets and softening house prices at a time when the debt-to-income ratio is at a record high.”
=======================

But…weren’t we informed just two months ago that Canadians were financially prudent and that our debt-to-income ratio was at record lows?

#24 vtj on 12.11.08 at 11:49 am

Garth,

Great post – thank you. These are the ones which keep me coming back.

We’ll all fare better if we concentrate on improving our individual circumstances through the small, intelligent and proactive actions you present.

If I may, I’d like to make the point that people should have a readily accessible emergency fund set aside to cover basic living expenses for at least 3 months (6 or more is better in my humble opinion), particularly in today’s environment and the heightened possibility of job loss. I know how difficult it is to put together such a large sum of money, but I think this must absolutely be the priority for anyone interested in further securing their family’s well-being.

Once the emergency fund and some basic survival items as you laid out a few weeks ago are established, I agree wholeheartedly that a person’s best course of action today is to apply at least some of your great recommendations. As #14 Danforth illustrates, applying just two of your suggestions will have a huge impact on the average person’s mortgage amortization period (I’m doing this myself so I can really appreciate how powerful this is).

Some people will argue that it makes no sense to pay off debt since interest rates are so low and since we will likely be entering an inflationary period at some point in the future. On the latter point, who can say with any degree of certainty when this will happen? As I see it, if we don’t get hit with substantial inflation for a number of years yet, then during this time we will have paid out much more interest to the banks than was necessary.

If a person believes that inflation or hyper-inflation will hit us very soon, then perhaps it is best to hold off on paying any debt down at all. However, I know for a fact that I’m not savvy enough to know when/if inflation will once again become a huge problem, so I’d just as soon pay off the debt commitment I got myself into sooner, rather than later.

This latest post of yours has convinced me to purchase your new book when it becomes available. Thanks again.

vtj

#25 Keith in Calgary on 12.11.08 at 11:56 am

#17 Larry…..

Exactly………you can be bitter and spend $16,800 on rent……or spend $36,00 on a year’s worth of mortgage payments (with about $35K of it going to the bank as interest) while your house also depreciates another $30-60K as well.

Hmmmmm……….

#26 Keith in Calgary on 12.11.08 at 11:57 am

That should be $36,000 of rent.

#27 Keith in Calgary on 12.11.08 at 11:57 am

Errrr…….make that mortgage payments.

#28 squidly77 on 12.11.08 at 12:02 pm

Bank of Canada warns of possible mass home foreclosures
did you really think it was different here ?

#29 Keith in Calgary on 12.11.08 at 12:07 pm

Spekaing of debt……

Talking with a long time business associate of mine this morning. A guy whom I have dealt with regularily for the last 11 years…….

He is a regional manager for a huge national leasing company…….

Guess which job category is having the most vehicle reposessions these days ? And they have even been incrasing in the last 90 days.

Realtors…….heh.

They lead the pack by a wide margin over any other occupation on their books that is defaulting on their payments.

There are a lot of soon to be cheap Cadillacs, Lexus and BMW’s on flatdecks these days……..

#30 Bottoms_Up on 12.11.08 at 12:28 pm

‘synchronized (2009 global) recession’:
http://www.ottawacitizen.com/Business/Synchronized+recession+Canada+hard/1059978/story.html

‘0.9% world economic growth in 2009’:
http://news.bbc.co.uk/2/hi/business/7774199.stm

‘China to grow 7.5% in 2009’:
http://news.bbc.co.uk/2/hi/business/7774934.stm
—————————————
what to believe, what to believe….

#31 Bobby in Victoria on 12.11.08 at 12:31 pm

The only people who want you to believe that it is different here in Canada are those whose living depends on a strong real estate market. In particular, the mortgage, real estate and construction industries.

The reality is that it isn’t any different and we are lagging the US market by 12 – 24 months. Common sense dictates that the average wage earner cannot afford the average house, yet someone is buying them. A real indicator is post #30 and the return of leased cars from realtors.

Here in Victoria there were just 268 sales in November, yet there are 1300 + realtors. Obviously, some didn’t get a paycheque.

Never look at the message, but the messenger and the real story will be obvious.

#32 lgre on 12.11.08 at 12:58 pm

Tony, you still sound pretty bitter..being owned by the bank is no better then someone living in their parents basement..think before you speak.

Most people on this board had the SMARTS to sell early this year and late last…but you, obviously still holding on to that dream of having your house dispense cash like and ATM. Good luck with that.

#33 Keith in Calgary on 12.11.08 at 1:00 pm

Calgary has 5,700 realtors……and last month they sold 951 SFH and condos combined out of 12,000 listings…..now assume the old, and valid, maxim that 20% do 80% of the work…….

#34 Ron S on 12.11.08 at 1:41 pm

http://www.calgaryherald.com/Calgary+home+prices+record+biggest+drop+almost+years/1062321/story.html

New house prices in Calgary declined by 1.6 per cent in October on a year-over-year basis – the largest decline for this metropolitan area since November 1991, says Statistics Canada. The New Housing Price Index, released today by the federal agency, showed that on a national level the year-over-year increase was 1.5 per cent, a slower pace than the 2.1 per cent advance recorded in September and the smallest annual increase since October 1999.

Q:
But we have 15-20% price drop in a year. What is this 1.65%?

#35 Bottoms_Up on 12.11.08 at 1:47 pm

Anecdote:

July 2007 at an RBC in Ottawa. My fiancee and I stroll in to meet with a banker to obtain prequalification for a mortgage in order to buy a townhouse. We have a high credit rating (i think it’s called ‘R’) but he didn’t like the market (‘you know, if prices were flying off the charts we might be able to do something here’), and didn’t like the fact that I was a student (i.e. soon to be jobless), so we did not get qualification, and turned to renting. At the time my fiancee and I were pissed, but looking back we would like to thank that prudent lender (even though prices have gone up 10% since then–but likely to come back down 10-20%).

My impression: the banks are very choosy who they lend to, and probably are fairly strong relative to banks in other countries. And the local housing market definitely comes into play. If I were a banker in today’s market I’d want to see 20% downpayment and reasonable valuations, or no money would be leaving my branch!!

#36 Calgary_rip_off on 12.11.08 at 1:47 pm

Tony you make a good point about self sufficiency.

It is indeed difficult in a city of Calgary in which SFH values are $200,000 in excess of true value. Please consult median house prices 2004 calgary for full description of the current “bubble” condition.

This excessive pricing does not bode well for anyone. For homeowners there is a deceptive equity value which isnt real; these costs are past on to renters and new buyers. As a result, most people in Calgary who are in a position to buy with what in most places would be sufficient income are no longer qualified for a decent place. Do you really think people are going to spend $300K on either a condo or a house that is in reality worth half that? The statistics reflect this dawning awakening in the media in calgary and the population’s general mentality.

Many people want to buy a house and be done with it. However, it is either a choice not to, or not having sufficient income to purchase, and/or the amount for the product not being equivalent for what you are buying.

As it stands, a serious crash is needed desperately in Calgary. Long time owners wont be affected. Only those who out of desperation to alleviate feelings of insecurity will be hung out to dry. This crash most likely wont happen. OPEC just dealt a blow to the lowering of oil, and many sellers in Calgary will simply remove their house from market. A coalition government may not take power as Harper is using his time out to staff his senate and prevent it. Therefore more than likely the Calgary prices for housing will remain disgustingly overpriced. One of the best things for prospective buyers to do once their blood pressure raises after looking at the mls.ca crap is to do something else and not think about it. Home ownership of anything decent in Calgary still at this point is part of some exclusive and elusive conservative club. So much for kids leaving their parent’s basements. It’s just a wee bit more complicated than that.

#37 Bulls eye on 12.11.08 at 1:58 pm

# 33 Igre

– Tony is just bitter. He’ll probably go back home to his parents basement. He can find loose change there. Expect more like this as things creep lower. Things will get Bitter-sweet!

#38 dd on 12.11.08 at 2:22 pm

All you anti oil / anti albertians must hate it when oil goes up.

http://www.globeinvestor.com/servlet/story/ROC.20081211.2008-12-11T181808Z_01_TRE49B3Y6_RTROPTT_0_CBUSINESS-US-MARKETS-OIL/GIStory/

http://www.globeinvestor.com/servlet/story/ROC.20081211.2008-12-11T190347Z_01_TRE49B3Y6_RTROPTT_0_CBUSINESS-US-MARKETS-OIL/GIStory/

#39 Evelyn Guzman on 12.11.08 at 2:25 pm

Those sure are debt slayers. If followed to the letter, the debtor will no longer owe money and be a slave to the lenders. Actually someone we know did the same, that is mortgaged their house, and bought some investments and were able to deduct the interest but the trouble is the market is considerably down now.

Evelyn Guzman
Debt Challenger

#40 roy on 12.11.08 at 2:50 pm

Good advice Garth!!! About 6 years ago I could see this mess coming. So my partner and I started to save all of our receipts for a 3 month period. We had a big glass jar and All receipts went into it. After the 3 months we calculated that we were each spending at least $300 a month on silly, needless, things. So we opened up a joint savings account. We had an automatic debit set up from each of our chequing accts. in the amount of $150 every pay day. $150×2 pay days per month = $300…$300 x2=600. $600X12 months =$7200.. WOW… This account required 2 signatures for all withdrawals so the withdrawals had to be done at the branch. At the end of every year we applied this money as a lump sum payment toward our mortgage. By doing this we had the mortgage paid off 9 years early and saved a pile of money in interest costs. It’s a bit of an adjustment having less money every pay day but after a few months you will find that you don’t miss what you don’t have. We also got rid of the debit cards and went back to paying cash for everything. I know a lot of people don’t like to carry cash so the solution to this is only carry the amount you will need. By calculating the receipts I could see that each trip to the supermarket was approx.$45. So I would carry $50. We lowered the limit on our credit cards to $1000. And then put them in the safety deposit box and used them only in an emergency.We also pay all of our monthly bills at the bank. When you have to go to the bank for everything, impulse buying becomes a thing of the past. On the way to the bank it makes you think about the necessity of the purchase. Standing in line at the bank may sound like a pain in the arse.. but guess what …there is no line.. and when there is it’s a small one. We live in a world of plastic and convenience. The banks and credit card companies rely on that and charge us huge interest costs and service charges for that convenience. So work on your time management a little bit of inconvenience can save you big bucks. Get into the habit of going to bank instead of using the plastic and you too will become debt free. And please remember this…. Boom is always followed by bust ……

#41 Jiminy Cricket on 12.11.08 at 3:18 pm

Yes, #3, invest in boullion. Heavily. In fact, I know of a wonderful bouillon hedge fun. They have another that trades heavily in options on chicken broth, too.

#42 Jimmy on 12.11.08 at 3:24 pm

time i headed for greener Alberta pastures! ..giddyup!!

Dec. 11 (Bloomberg) — In electronic trading of Nymex oil options, March $77.50 calls, bets that oil will rise above that level, were the most actively traded. The call contract rose 26 cents to $1.40 a barrel, or $1,400 a contract, on volume of 1,000 lots.

#43 Bobby on 12.11.08 at 3:38 pm

On the horizon?
Falling US dollar
http://quotes.ino.com/chart/?s=NYBOT_DX&v=d6
Rising oil/price at the pump
will crush the consumer

#44 TorontoBull on 12.11.08 at 3:39 pm

@roy
wow, that sounds like a lot of pain. I personally refuse to live like that, since as far as I know we live only once. Don’t get me wrong it is admirable what you are doing, but it will not work for everyone. Instead my partner and I saved money and took a 4 month trip to Europe this year. In the meantime some of our friends bought houses, and guess what, now they have seen their equity (equal to what we spent in Europe) evaporate.
My father used to say “the only money that is yours is the one that you’ve spent”
Cheers,

#45 George on 12.11.08 at 3:47 pm

Garth,
This is off discussion – why do you recommend a buyers agent? Can’t you play off the greed of the realtor anticipating double ending his commission and manipulating him into pressuring his sellers into accepting a lower offer?

#46 The First Rick on 12.11.08 at 3:50 pm

#30 Keith in Calgary on 12.11.08 at 12:07 pm Spekaing of debt……

Talking with a long time business associate of mine this morning. A guy whom I have dealt with regularily for the last 11 years…….

He is a regional manager for a huge national leasing company…….

Guess which job category is having the most vehicle reposessions these days ? And they have even been incrasing in the last 90 days.

Realtors…….heh.

They lead the pack by a wide margin over any other occupation on their books that is defaulting on their payments.

There are a lot of soon to be cheap Cadillacs, Lexus and BMW’s on flatdecks these days……..
========
Yeah, but the best car detailer couldn’t get rid of the stench.

#47 squidly77 on 12.11.08 at 3:50 pm

jimmy..when you understand oils relationship to the USD
you will understand price fluctuations
http://ctvdb.globeinvestor.com/invest/investSQL/ctvx.show_chart?iaction=Generate&pl_period=12D&pl_primary_listing=FXCAU-I
http://ctvdb.globeinvestor.com/invest/investSQL/ctvx.s

how_chart?iaction=Generate&pl_period=12D&pl_primary_listing=OILC-I

see anything in common between the two above charts

can you spot the rip job played on canadians this past summer

#48 dekethegeek on 12.11.08 at 3:53 pm

Geez #41 ! warn me when yer gonna do that ! I almost snarfed a chicken sandwich through my nose>
I thought I was the only one that chuckled at #3″s spelling of Gold Bullion.
Invest in Boullion ! Oxo Cubes are going through the roof !

#49 squidly77 on 12.11.08 at 4:13 pm

oil in july $147 USD bbl= $88 CDN bbl when converted
oil in dec $44 USD bbl = $55 CDN bbl when converted
so why did fuel prices double

want another cruel joke.compare the TSX in CDN and USD from peak to trough..1 point as 1 dollar
tsx in june at 14,900 cdn = $16,241 usd
tsx at trough 7,800 cdn = $5,8500 usd

lets try nexen and can nat
nxy at peak june = $43 CDN share = $47 USD
nxy at trough nov = $13.30 CDN share = $9.97 USD

cnq at peak june =$111 CDN share = $121 USD
cnq at trough nov = $34 CDN share = $ 25.50 USD

if you want to see something really bad..convert our bank
stocks from peak to now in USD

we are in some serious trouble here folks
where as you may relish a higher dollar it would destroy our markets even further

#50 BC Resident on 12.11.08 at 4:14 pm

Garth has given very germane ideas.

In the 70’s, when we had 22%/24% interest rates, there were plenty ideas for how to save money and expenses.

…..The best one to save money was, two people taking a bath(life partners of course)…honest injun.

…..Rent out rooms in your house, helps pay the mortgage…Double up freeloading children.

Back in the 50’s, my parents and I shared a flat, one bathroom, with another family in Kensington Market…honest injun.

More later….

#51 Bottoms_Up on 12.11.08 at 4:14 pm

#40 roy on 12.11.08 at 2:50 pm
———————————-
Thanks for sharing. Personally I encourage everyone to save receipts for at least 1 month and follow all of your spending to see exactly how much is going out. It is a good exercise, and opened my eyes to how much it costs to live in todays society.

#52 Bobby in Victoria on 12.11.08 at 4:31 pm

For Igre, post #19. Of course your realtor wants you to buy now. If you don’t buy, she doesn’t get paid!
It’s rather simple.

#53 squidly77 on 12.11.08 at 4:41 pm

broken links and bad math on oil prices..me bad

#54 lgre on 12.11.08 at 5:08 pm

bobby – so your realtor determines when you buy your house? does your mom determine when you buy underwear? If you are a smart buyer, as we witnessed that there arent to many of those..then you wouldnt care what you realtor wants or even what their input is.

it’s common sense that sales people will push their product regardless of circumstance, BUT..the last say should be yours..unfortunately it didnt happen that way for a lot.

#55 dd on 12.11.08 at 5:57 pm

#42 Jimmy,

Options for March at $77 … nice, however, that is an option. Doesn’t mean oil will be there. Predictions are all over the map. Alot of supply has to be taken out of the market or demand has to pick up more for oil to head to $77 in the short term.

#56 Cara on 12.11.08 at 6:44 pm

Roy, I admire what you’ve done (post 40). My husband and I recently completed a book by Dave Ramsey who basically advocates exactly what you’ve already done. Get “back to the basics”. There are studies that show that you actually spend more using debit, and even more using credit, but that paying “cash” for something registers in the “pain” center of your brain. Everything in our culture has been marketed to part us from our cash… it’s time we woke up. It might be too late for some, but better late than never.

Garth, finally a post I can enjoy! It’s one thing to tell people the sky is falling everyday (we know), it’s a great service to tell them something they can proactively do to help themselves.

#57 nonplused on 12.11.08 at 7:00 pm

But it is so hard to resist…. all these sales…. Canadian Tire unloading tools at 30% of regular price…. must buy tools…. must spend…. generators 40% off… can justify to wife as emergency equipment… reference Garth’s site…

OK the electric quad for my 3 year old can’t be justified as emergency preparedness but it was 50% off!

And for those of you who want to shoot your squirrel meat rather than snare it, I noticed they had all their air guns on sale today too! Wee! I love deflation.

#58 brazer on 12.11.08 at 7:06 pm

Bank of America to cut up to 35,000 jobs
http://finance.yahoo.com/news/Bank-of-America-to-cut-up-to-rb-13810998.html

Eventual losses may be “substantially higher” than 35,000, with many coming from the middle ranks, said Gustavo Dolfino, president of WhiteRock Group LLC, a New York-based recruiter.

Financial companies worldwide have announced plans to eliminate close to 300,000 jobs since the global credit crisis began nearly 1-1/2 years ago.

#59 roy on 12.11.08 at 7:14 pm

Remember the old saying …….Their are no victims only volunteers…..Words to live by people…………

#60 brazer on 12.11.08 at 7:21 pm

JPMorgan CEO warns of “terrible” fourth quarter
http://finance.yahoo.com/news/JPMorgan-CEO-warns-of-rb-13810409.html

NEW YORK (Reuters) – The chief executive of JPMorgan Chase & Co said on Thursday the U.S. bank has had a “terrible” November and December, blaming the “normal culprits:” mortgages, credit, and high yield bonds and loans.

“November itself has been a terrible trading month … (and) December so far is pretty terrible,” Jamie Dimon told CNBC. “It will be a tough quarter.”

Dimon said he was referring to the trading, loans and mortgage segments of the largest U.S. bank.

Looking ahead, the CEO said U.S. housing prices — which spawned the current credit crisis — could fall another 20 percent. He said that, “if we’re lucky,” the market could start to recover after two more quarters.

#61 brazer on 12.11.08 at 7:26 pm

New home prices fall, first drop in 10 years
http://business.theglobeandmail.com/servlet/story/RTGAM.20081211.whousing1211/BNStory/Business/home

Toronto-Dominion Bank economics strategist Millan Mulraine said the report “underscores the weakness in the Canadian housing market, including the new homes market.”

Mr. Mulraine said the “correction” is nowhere near the magnitude of the market slump in the United States, “but clearly we’re out of the boom period” in Canada.

“We expect prices to continue moderating …so for November and December, we’ll expect both existing and new home prices to continue falling,” Mr. Mulraine said in an interview.

#62 brazer on 12.11.08 at 7:28 pm

More layoffs, wage freezes to come: Watson Wyatt
http://business.theglobeandmail.com/servlet/story/RTGAM.20081210.wlayoffs1210/BNStory/Business/home

Almost 45 per cent of Canadian employers have already laid off employees, or plan to, “as the global financial crisis takes a tighter grip on the economy,” according to a survey released Wednesday by consulting firm Watson Wyatt.

The poll of 138 companies, conducted last month, also found that 41 per cent have frozen hiring or intend to.

#63 Jennifer on 12.11.08 at 7:43 pm

Looks like the Saskaboom has gone Saskabust. Good luck unloading your $300k shacks now…

http://www.thestarphoenix.com/Business/Agrium+laying+nearly+employees+Vanscoy/1063798/story.html

http://www.canada.com/saskatoonstarphoenix/story.html?id=afc0fb6b-a1d4-46e8-b8aa-750047a3ac08

#64 eddy on 12.11.08 at 7:46 pm

Great mortgage advice Garth.
This link is off topic. It’s a study about Toronto’s land transfer tax. my 2 cents is that mayor miller didn’t have the guts to cut spending or raise property tax for everyone, so he figured, let’s just piss off some of the people. Also, i just renewed my driver’s licence and it’s not $74 like yours Garth, no no no, equality for all Ontarians would be just too fair, i paid about 50 bucks more for the crime of residing in the Peoples Republic of Toronto

http://www.cdhowe.org/pdf/commentary_277.pdf

#65 Paul B on 12.11.08 at 7:53 pm

Garth – I have a question for you:

I know we are now in a period of deflation….but could we be heading for a period of high inflation or currency collapse down the road? The reasoning is thus:

(1) The US government is continuing to borrow massive amounts since it continues to run a huge deficit. I think most of this is through bonds.
(2) At some point, the debt may become so large that the government may not be able to pay the interest on the bonds through its regular cash flow of taxes and borrowing…
(3) When that happens, the US govt will have to print money to pay its interest…which will lead to inflation.
(4) Which will then lead to a currency collapse and dollar devaluation.

Is this scenario remotely possible?

#66 George on 12.11.08 at 8:20 pm

Hey Garth,
If inflation is the endgame, what do you think of getting the seller to take back some paper on an offer since inflation will devalue that loan and shred that debt. Anyone not reading your books isn’t going to see it coming and you get a free chunk of money off the property. I hear in Zimbabwe a bus fare is a million bucks.

#67 Just a Girl on 12.11.08 at 8:21 pm

Most of you on this blog are financially savvy, but I want to share how I taught debt and interest rates to my teenage children, just having their first jobs, debit cards, and learning to manage their own money.

I told them to draw a circle (a big round pie) – this represented all their debt. Then I had them cut the pie into wedges — each wedge representing the proportionate share of how much interest they were paying, for how much of their debt. A small slice at 18% – that was the wedge for credit card debt. A large slice at 0% – that was a free loan from Mom and Dad. Etc. etc.

The idea was to try to make as much of the pie, as low interest as possible. Those wedges at higher numbers were undesirable. At the same time, try to shrink the pie (debt) into a smaller circle, until it was all gone.

It sounds simplistic, but I have had several staff do this simple exercise, and it was an eye opener for them. Even just listing out their debt for the first time, and realizing how much it was costing to carry that debt. Some just like to bury their heads in the sand. You know, La La La, you can’t hear anything? ;)

Draw your pie … then try to get rid of your pie.

#68 timbo on 12.11.08 at 8:35 pm

good post Garth,

one thing to pass on that my mom told me to do way back that I let slide.

With us we sorted our debt’s from highest interest to lowest, opened a bank account without a debt card and had 2 account holders for withdraw. We placed 10% of our gross income into account and at the point when the savings account exceeded the priority debt we payed it in full and started on the next one. Sort of basic and felt slow but we did not miss the money and before we knew it, our debt’s were being retired one by one. We are now at the point where July 2009 will be the 1st free and clear month in the budget.

the account with the two signatures was key , sort of a forced savings and made you think before going to the bank to buy on impulse.

or you could always get arrested for a ponzi scheme–
big fish….throw them all in jail…wow!!

http://www.marketwatch.com/news/story/Investment-Adviser-Former-Chairman-NASDAQ/story.aspx?guid={2EBBCCED-8D76-4B9B-BF8F-34E2C26F8CDE}

#69 timbo on 12.11.08 at 8:42 pm

sorry garth broken thread

http://www.theimproper.com/Template_Article.aspx?IssueId=9&ArticleId=2854

or
http://www.marketwatch.com/news/story/Investment-Adviser-Former-Chairman-NASDAQ/story.aspx?guid={2EBBCCED-8D76-4B9B-BF8F-34E2C26F8CDE}

#70 jolm on 12.11.08 at 9:11 pm

Time for a new plan . Governments leaders need a visionary solution . GOOD LUCK TO ALL

#71 timbo on 12.11.08 at 9:17 pm

last one..

expiry date on fiat currency and a tax on savings. forced purchasing… holy!!

http://www.lewrockwell.com/blumen/blumen10.html

p.s. sorry I’m posting a bit off topic. just throwing out what I see in the new media stream. love the net, turned off the TV.

peek in tomorrow and telling people about the blog..

#72 pjwlk on 12.11.08 at 10:44 pm

A co-worker told me his nephew has just returned from Fort McMurray Alberta where he worked as a carpenter. “New home construction was shut down just like that” he said, “it’s like they just turned out the lights”.

Adios to the era of the $500,000 park model trailers…

#73 Nicholas P on 12.11.08 at 11:13 pm

What about personal debt outside of mortgage debt i.e. credit cards, student loans etc?

Surely a book tackling the issues facing a financial world “after the crash” will have a broader spectrum of financial sotutions, no?

#74 Keith in Calgary on 12.11.08 at 11:18 pm

Well……I was in the DeWalt tool supply store here yesterday……..they had a couple of tables full of nailguns, saws, drills, etc that were warranty repair itmes which had not been picked up in 90 days time.

They were for sale at 15 cents on the dollar……

Now, I don’t know about you, but if my $400 tool was fixed for free and ready to go, I’d go back and pick it up…….unless I had no work and had gone back home to collect pogey.

#75 anonymous on 12.11.08 at 11:25 pm

Lots of questions about inflation on the forum tonight. Yes, once the economy is fixed and starts churning up again, we could see massive inflation.

But that could be three, five or even ten years away.

We know how to deal with inflation, it’s deflation that nobody knows how to address.

Inflation should be welcomed right now. I would love to see 2% inflation right now instead of the pit-of-hell that the economy is spiraling into.

Interesting that deflation is often caused by housing and/or oil bubbles that bust.

30’s, 70’s, 08… we’ve been here before.

dd,

Man, I’ve had an incredible week in the market… all week I have been taking profits on energy and the banks and rolled 50% of my portfolio into short positions in commercial real estate and china (which HAD it’s best week in 10 years, lol). I bought a little health care today, too. And I’ve got some cash on the sideline. I use my gut to buy and my head to sell. And they have been firing on all cylinders.

Better to be lucky than good sometimes, I guess.

#76 JET on 12.12.08 at 12:00 am

auto bail out fails (for now):

http://money.cnn.com/news/newsfeeds/articles/djf500/200812112303DOWJONESDJONLINE001122_FORTUNE5.htm

The union refused to agree to a deadline in 2009 on reducing worker compensation. Now, the workers may have no employment! Pretty stupid if you ask me.

#77 Aizlynne on 12.12.08 at 12:58 am

Terrific advice for everybody, regardless of income level.

Awesome post Garth. Not a thing I would argue with. Just some of it isn’t achievable if you don’t have any liquidity (my biggest issue for converting my mortgage).

As for Fort Mac, things will pick up once oil prices go up again. The magic number for energy producers is $50 a barrel. Anything less than that then it isn’t worth it for them to continue exploration and development. Fort Mac always crashes hard during downturns, but is one of the first to bounce back. That’s the nature of this kind of commodity.

What’s interesting is that consumption is only off 2% from last year. OPEC is definitely going to make more production cuts in the coming week so hopefully this puts us up over $50, although there will have to be some sustainability in that number before O&G gets going again.

But we are still producing jobs out here, and just not retail, low end jobs. However, trades are usually the worst hit during down times in the O&G industry.

#78 patriotz on 12.12.08 at 1:40 am

she stated that I’ll be OK as long as I find a rental property that will “carry” (rental income covering the mortgage payments) and not to focus on the best time to buy (timing the RE market), but to focus on the right property.

Actually she’s right provided that you also add on taxes, insurance, maintenance, etc. If the rent covers all expenses you don’t have to worry about possible declines in market price because you’re making money every month.

So on what planet can you find a property like that?

#79 Bobby on 12.12.08 at 1:50 am

http://www.bloomberg.com/apps/news?pid=20601087&sid=adXuRpUpScIo&refer=home

I’ve got a better plan to solve the crisis
Let’s just give everyone a free home and two
new Chevs
We’ll figure out how to pay for it all later
Maybe the Chinese will pick up the tab

#80 BC Resident on 12.12.08 at 2:00 am

…Should we see a collapse of the U.S. dollar, then “EVERYTHING” loses value….even our Canadian dollar.

….Invest in China?….There would be like 500 million unemployed there…who will buy whatever manufactured goods they produce?

Canada will be viewed as the strongest G20 economy.

….Did I ever mention, with the collapse of New York based banking and Eastern U.S./Canadian manufacturing…Vancouver will become the new Financial/Trade centre of North America?

#81 HalifaxFamily on 12.12.08 at 6:08 am

http://www.cbc.ca/money/story/2008/12/11/consumer-confidence-north-america.html?ref=rss

http://www.theglobeandmail.com/servlet/story/LAC.20081212.RBANKSCONSUMERS12/TPStory/Business

#82 HalifaxFamily on 12.12.08 at 6:12 am

These two sites are quite telling.

http://www.theglobeandmail.com/servlet/story/LAC.20081212.RBANKSCONSUMERS12/TPStory/Business

http://www.cbc.ca/money/story/2008/12/11/consumer-confidence-north-america.html?ref=rss

#83 HalifaxFamily on 12.12.08 at 6:16 am

Here’s another article. We’re leveraged to the hilt, and it’s starting to unravel everywhere.

http://www.theglobeandmail.com/servlet/story/RTGAM.20081212.wibdebt12/CommentStory/Business/

#84 Future Expatriate on 12.12.08 at 11:13 am

#80… “…Should we see a collapse of the U.S. dollar, then “EVERYTHING” loses value….even our Canadian dollar.”

One Canadian currency won’t be losing value in that case… on the contrary, it will be skyrocketing.

The gold Maple Leaf.

But Garth is right, deflation has to run its course first and the Fed(s) need to hyperinflate. Which they inevitably will, it’s their only and quite nuclear option.

#85 Rob in Madrid on 12.13.08 at 3:52 pm

Canadians are in deep shit, a rare mention of Canada by a US blogger

http://needtobedebtfree.blogspot.com/2008/11/debt-trap.html

#86 Name on 02.13.09 at 7:59 pm

Ahh… nothing like being right, isn’t it Garth?
Problem is, you are not.
Mark my words. Within 12 months we will have galloping inflation. From that point on, it will only get worst.
Whay? simple. The government has sunk 100 Billion dollars into the market.
As this “funny money” makes its way into everybody’s pockets (starting with the banks) we will be in a Stagflationary condition.
We will not get out of it from some time. Can you say 3 to 5 years?
And, do you know what will happen with an VRM then? The interest rates will go through the roof!
The Austrian school of economics clearly predicted this debacle long, long time ago. It is also predicting high inflation.
Me? I will be locking-in for 10 or 15 years asap the rates go down to something like 4.5 %.
Take the money for the mortgage (yes, I could pay it off today) and buy Gold with it. Over the years, Gold will slowly increase in price over and above inflation. Result? I will end up paying down the mortgage by pennies on the dollar while everybody else with VRM’s will be broke. You know, it is nice to be a contrarian. It is nice to be right while everybody else is sinking.

Within 12 months we’ll be lucky to have our noses above water. — Garth