10| How to Recover from Debt of Any Size

Speaker: Mark Kalinowski

Money and debt tend to be topics we shy away from in conversation. Yet, with the average Canadian looking at a $4k+ credit card bill, debt affects us all. On this episode, Mark Kalinowski of the Credit Counselling Society explains the good and bad types of debt, strategies to get out and stay out of debt, and if bankruptcy is really so bad.

About the Guests


Mark Kalinowski is a Financial Educator.  While he spent years working for some big name companies, his keen interest in personal finance and desire to help people led him to the Credit Counselling Society.  He has been both sides of the lending desk as a Credit Counsellor and Banker.   To better expand his knowledge of personal finance he has completed many course including the IFIC, CSC, LLQP, AFCC and the Insolvency Counsellor Courses.  He is a Certified Educator in Personal Finance and believes that there is always a solution for any money issue.

About the Host

Morgan Berna is the host of Olympia Benefits’ podcast, The Small Business Mastermind. Her background is in marketing, journalism, and broadcasting. Passionate about small business, she aims to create content that inspires and educates listeners.


Mark Kalinowski: I don't have all the things I'd like right in front of me now, but working toward them slowly gives me a sense that I'm accomplishing something bigger. That I'm going to have happiness in the future, and it gets me out of bed in the morning.




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Morgan Berna: You're listening to the Small Business Mastermind. A podcast created by Olympia Benefits to help small businesses juggle business, finance, health and wellness. I'm your host Morgan Berna and to subscribe to the podcast visit olympiabenefits.com/podcast.



Morgan: Hello and welcome back to The Small Business Mastermind. Thank you so much for tuning in to this episode. On this one, I'm speaking with Mark Kalinowski about debt management. We talk about the best and worst types of debt, how to recover no matter how in debt you are, how bankruptcy affects you long term and more. I did want to note at the top this episode that this was recorded before the COVID-19 pandemic started to cause layoffs across Canada, so some of the numbers that we quote in this episode will no longer be accurate to the current situation. However, the information given throughout the episode is still very applicable and will hopefully be helpful to people across the country.


I'm sure this conversation is going to bring up a lot of questions, especially about our current situation. So, please feel free to send any additional questions to podcast@olympiabenefits.com and we will do our best to answer them and get you the right resources. So, without further ado, let's jump right into the episode.


Thank you so much for being here Mark.


Mark: Thanks very much for having me.


Morgan: Mark is a financial educator. While he spent years working for some big-name companies, his keen interest in personal finance and desire to help people lead him to the credit counseling society. He has been on both sides of the lending desk as a credit counselor and as a banker. To better expand his knowledge of personal finance he has completed many courses including the IFIC, CSC, LLQP, AFCC and the Insolvency Counselor courses. He is a certified educator in personal finance and believes that there is always a solution for any money issue. Could you start by telling us a bit about what your role is at the Credit Counselling Society?


Mark: Well, I've been lucky I've had two roles. I spent five years acting as a Credit Counsellor where I deal with individuals or sometimes couples who have money issues and they'd come and ask me a bunch of questions. It was kind of a funny role because people would meet us in our lobby and shake our hands and say, “Oh, I'm so happy to be here.” and you know they're not. Then often they'll come in and they'll cry or they'll fight or do what happens because there's a lot of stress. Most recently I've taken on this outside role, so I'm a Financial Educator and I'll go talk to businesses, I spent time at UFC and Calgary police services and a whole bunch of different places just talking about money.


Morgan: Oh, that's awesome.


Mark: It's fun.


Morgan: What got you interested in helping people with managing their debt?


Mark: Well, I was lucky that I've done a lot of jobs. I've worked for some really great name-brand companies like WD-40 and Whirlpool Maytag, but I also spent time with a couple of the big banks. What I've discovered is that, when people come into banks they feel they're often judged, you know, either, “Yay, I got the loan! Life is good. I can buy my house. My dreams are coming true.” or “No, you're a terrible risk. We're not giving you the money and feel ashamed.” People shouldn’t really feel that way. As a banker I never implied any shame on anyone, but I think that's how people walk away when they leave so doing this position, you know, we're not judgmental. We're not going to give you a loan or anything because that's not what we do. We're just looking to help you find the solution that best meets your life and goals.


Morgan: So you were a banker previously?


Mark: Yeah. I was a big banker I had a big office and Bankers Hall and I could get people all sorts of money.


Morgan: Cool. What amount of debt is common among Canadians?


Mark: Well, that's an interesting question. I guess. It depends on the type of Canadians. I saw a number on Global News. I think it was Global News, and they suggested that the average non-mortgage debt for Canadians was something like twenty two- twenty three thousand dollars on credit cards and things like that. Of course at credit counseling, because we see people that are maybe suffering and struggling a little bit more. If you take our organization as a whole Ontario or to the West Coast, I think thirty thousand dollars would be our normal client and in Alberta, we tend to be higher around $35,000.


Morgan: So this is excluding mortgage, is this excluding car payment?


Mark: This is talking about unsecured debt. Things like lines of credit, credit cards, payday loans.


Morgan: So, day-to-day purchases that are adding up over time – that type of thing?


Mark: Very much so and adding up over time is a good way to look at it for many people.


Morgan: What are some common reasons that Canadian's fall into debt?


Mark: The funny thing is everyone thinks it's because people are irresponsible and horrible. They just don't manage their money and I guess especially being from Calgary where we've seen such, you know a period of happiness and great incomes to a point where we've really fallen off and people don't have those big paychecks anymore. The truth is it's usually because something that they don't expect happens. More often than not, job loss is a big driver of people accumulating debt because of course so many people have [inaudible] but when you drop from making $100,000 a year to making $24,000 a year, it takes a long time for your lifestyle to shrink and become accustomed to that. So people put it on their credit cards for a little while. A lot of that ties into not want to disappoint their families. Christmas just came by, no one's buying less gifts for their families because things have gone bad they want to perpetrate them that things are going well and they can keep going, so job loss, sometimes separation and divorce, death, illness. There are those people that spend excessively, I won't say there aren't but that's generally not the key driver into debt from where I sit.


Morgan: Yeah, a lot of what you're seeing is outside circumstances.


Mark: Absolutely. That's a great way to put it.


Morgan: Is there a difference between good debt and bad debt?


Mark: Very much so, debts a great tool and when we’re using debt as a tool, the whole idea is that it's going to enrich our life and you know, I do a lot of presentations at school and many students have student loan debt which can be a great thing. So long as it's going to help you prosper in the future. I have a history degree. Honestly, they're not calling out for a lot of historians right now. I don't know if going back 20 years. I'd be so eager to get a history degree, but if I'm going to be an engineer or someone in communications, a doctor? That of course will make your life better and sometimes houses are the same way. I often look at houses as-- for savings accounts. They're really hard to get the money out of and you put money in for a long time. But at some point you own a hard asset that you can sell for cash.


Sometimes that businesses, small businesses can be a great way to use debt to grow it and build a great life. Where you're using debt for consumerism is another thing, going on holidays and not being able to pay them off. When I see people buy you know, $100,000 pickup trucks. I know they're advertised for $29,999 or whatever in the newspaper, but you walk out with $100,000 car loan. I am concerned that they're buying into a lifestyle they can't afford.


Morgan: On cars, would all car purchases be a bad debt or would it be okay if it's within your means or if it's a smaller amount?


Mark: People have to get from A to B. Calgary is very cold in the winter. I like having my car.


Morgan: I tried commuting. It ended quickly.


Mark: Sadly, my wife takes the bus and she would rather drive but driving is a very expensive option. I think when we’re using our car to promote ourselves, a lot of salespeople have to have cars, I understand that but driving a Mercedes to look like you're something big and fancy when a Ford will do and that payment is causing you ongoing stress that's consumptive and that's self-destructive. People should buy things that are comfortably within their means that don't cause them upset and stress and then their lives are happier.


Morgan: Yeah. Great point. What would be the worst types of debt to have? So, you mentioned consumerism - so just purchasing things we don't need?


Mark: Well, I think the worst type of debt is when you're in debt because you can't afford your lifestyle and your lifestyle might be very basic. Many people come in where they've got let's say, a payday loan. People don't really understand the cost of payday loans. They're very, very expensive and the problem with getting one payday loan you know, “I'm short on paying my rent that's due on Monday, and “I just don't have the money. So I'm going to go get $300 from a payday lender.” Well, at 400 plus percent interest, when you annualize the fees and the interest rates, you know, people don't usually end up with one payday loan. They get a second to pay the first, and the third pay the first two, and I think the most I've seen for any one person is 21 payday loans and what they're doing is they're using that to make basic needs relevant in their life affordable. But at some point that breaks, so that's the worst type of debt I think when we're doing high interest lenders just to make the rent buy groceries for our kids.


After that it's consumerism for the sake of consumerism I think, people are wise to focus on the things they need and plan long-term to achieve what they’d like. That really comes down to savings and I preach savings to everyone I talked to. I have a vacation account. I have a Christmas account. There's a birthday account, and I don't have all the things I'd like all the time right in front of me now but working toward them slowly definitely gives me a sense that I'm accomplishing something bigger. That I'm going to have happiness in the future and it gets me out of bed in the morning. You know, I love doing what I do. I'm a lucky person but knowing that I'm working toward something better in my life and work’s a part that, definitely makes it even better.


Morgan: I had just chatted with someone on a previous episode about financial wellness and they were mentioning for something like Christmas or holidays to start saving for it in the New Year because it comes up every year and I think the majority of us act surprised every time we get that bill in January and we're like, “Oh, how did this happen?”


Mark: Blue Monday in January. It's, everyone's so sad and we actually—this year credit counseling society put together a presentation on behalf of a really large organization here in Calgary called the Holiday Hangover, because that stress that carries over from the holidays eats into an employee's productivity and their overall wellness and happiness so I think it's a big thing that we're careful when we do save.


Morgan: I was reading a stat that was saying that the average credit card balance this year might be increasing to $4,465. How bad is it to have an outstanding balance like that on your credit card?


Mark: If you're comfortable with it, I guess it's okay, but I don't think anyone wakes up in the morning saying, “Yay! I owe $4,500 to someone.” At the end of the day, debts an obligation and we have all sorts of different obligations in life. And it's that obligation that tends to stress people out. I mean, I've seen people who are crying in my office because they owe $500 and I had another guy he owed the government I think a quarter of a million dollars kicked his boots up onto my desk and spit chewing tobacco into a ball and said, “Well, what are you going to do?” It's all relative, but it's the sense of obligation that we have to work towards accommodating that often freaks people out and with credit card debt, because it can be so long lasting. I mean if you own a $5,000 credit card and just make the minimum payments and a regular credit card one that everyone has a 20% interest, it would take you 65 years to pay off that credit card. I'm 46 now, in 65 years I will probably be dead. 55 years like it's a big deal.


I think it’s well worth people exploring means and avenues where they can pay more than just that minimum payment. Where they can make progress and pay it off and then that credit card can be used in an emergency.


Morgan: What about something like using a line of credit?


Mark: Lines of credit can be good. There's a big misconception that lines of credit are always a great alternative to credit cards. Where in some cases, I've seen banks consolidate numerous credit cards for an individual at a higher interest rate on a line of credit and while admittedly making one payment is easier than making three, four, five payments. If all of a sudden you're paying 20% interest instead of 12.9%, you've really done yourself a disservice. I do like the idea of lines of credit and for many of us, they are a cheaper alternative, but let's make sure we know what we're buying into when we accept them and we consolidate on to them.


Morgan: What are some common misconceptions you see with credit lines just credit card, line of credit.


Mark: Well, first and foremost, I see a lot of people using homeowner’s lines of credit and a homeowner's line of credit is functionally a mortgage against your house. Well, great. I'm going to consolidate my vacations and my Christmas presents and maybe the roof on that I just had to put on my house against my house. Well, the problem with this type of line of credit is that it often only requires an interest payment. So you really eaten into that equity and when you go to sell the house, that's money you don't have.


Morgan: Because you owe it still?


Mark: You owe it. You never pay it off and these lines of credit have a tendency to grow and grow and grow and people don't realize that they've eaten into that equity. They don't have that savings to retire. Do the bigger things they’d like to do. They do grow and grow and grow. The availability grows and grows and grows and when we have that type of product, it's great. I used to joke with my wife. She used to travel a lot and if she ever got kidnapped we were going to use the line of credit to buy her freedom. She didn't laugh that much when we used to say it, but that was the idea. The money would be there for a big real emergency life-changing event. As people eat into them earlier and earlier consolidating credit cards and lifestyle into them, that money's not there when they need it.

Morgan: So what about a mortgage, will this be considered debt as well?


Mark: Mortgages debt, it’s an obligation you have to pay it. But I think it can be a very positive thing and that it's one of the great ways people can build the equity in their life. It's for saving, they make a payment every month. Yeah, a lot of that especially with the first half goes towards the interest but then a little bit I've saved and when I sell the house, I'm going to get that back out. Where mortgages can be detrimental is when people buy houses they can't afford. It's important to look just beyond what the cost of the mortgage is. Property taxes are a big deal. Utilities aren't getting any cheaper. It's really worth considering, “can I afford this house?” and not just right now while interest rates are low. I think my mortgage right now is probably below 4%. My dad had a mortgage at 21%. If mortgages go rocketing back up to those high interest rates. Is it sustainable?


Morgan: Yeah and property taxes change pretty often.


Mark: Ever see them go down?


Morgan: No.


Mark: No, me either. Oddly enough, and I was telling someone this I bought a house about a year ago, and it's a pretty fancy house for me and I lived in a little box for a long time. I bought this big house. My house diminished according to the property tax roll by about sixty thousand dollars and yet my property tax seems to have jumped up about $500.


Morgan: Interesting.


Mark: Interesting and sad.


Morgan: In my reading reading, the average mortgage by the end of this year is going to be around $286,000. Which coming from BC sounds pretty good. [laughs]


Mark: Well, I'm from Toronto originally and I'm looking at my family. My brother, he bought a normal house and now it's a million dollar house. Great, but that money is not accessible until you sell it or unless you use your homeowners line of credit and yeah, Calgary is still cheap.


Morgan: For someone who's debating, I'm not sure this in your wheelhouse, debating mortgage or renting - would you have a suggestion either way?


Mark: I owned two houses at once. Honestly, in terms of housing. It's up to you which way you want to go and the nice thing about a house is that it is forced savings to some extent. The drawback is that there are many costs as you go along. Roofs need to be replaced, furnaces go. You're just going to update it and decorate it. When I looked at the difference between owning and renting because there is a saying rent and invest the difference. So long as you're very dedicated investing the difference you're still going to come out with a big whack of money in the end and it just comes down to a question of markets. You know, how are the interest rates played? Has the stock market done or whatever you've invested in. If you rent and invest the rest, I think you could probably stay pretty close to having bought the house in the first place, but a lot of variables coming to terms with that. It's up to you as an individual. Having been a homeowner, I'm looking forward to renting when I retire because we'll pick up and we'll travel and we'll do all sorts of different things and if we don't like it, we'll move. But I do enjoy the security having kids at home still.


Morgan: Yeah. I enjoy right now being able to call my building manager and say, “Ahh, drawer broke. Come fix it.”


Mark: It's nice because when the drawer breaks at home, it's, “Hey you get up here and fix it.” So…


Morgan: Can you talk a bit about what the consequences would be of not repaying debt on time?


Mark: When we don't pay debt it becomes really, really stressful. Bank of Montreal put out a study not too long ago where we saw that people that are not paying their debt and feel tremendous amounts of stress are about 40% more likely to have migraine headaches or headaches on a regular basis. They have stomach issues. They're about 30 percent more likely to have an anxiety issue and about 25% more likely to be depressed. Their overall, they're not doing well. They're not mentally well, they're not physically well. So there's a tremendous burden about it. So to the individual themselves, it's life-changing because it makes it hard to manage everything that you do. You fight with your wife more, yell at the kids more, you're a less productive person at work. That's a big factor. The second factor, of course is that when you don't pay your debt, you know, the only person that ever cares more about the money you borrowed than you is the guy that needs to get it back. So there is the stress that you know, the banks are going to punish you in some way or the other or the credit card companies.


When they punish you it's not like it's a physical thing except it does affect you physically and emotionally it's that they're going to call you all the time. They're going to send you off to collections. There's the possibility of getting sued. Having done the credit counseling job, two things people seem to fear, taxman and courts. No one wants to go to court. No one wants to deal with the government. So there are lots of things that can happen whether or not they happen, really depends on the situation.


In Alberta, I think they can go to small claims court for $50,000 and under, which makes it an attractive option to take someone that owes a sizable amount of money through courts to collect the cash. And if that happens, well, there are steps you can take to remedy it.


Morgan: At the extreme - bankruptcy. Is it as bad as people say it is?


Mark: I think it comes down to that sense of obligation. When people go bankrupt they feel like they’ve not morally met their obligations. But as I mentioned earlier, a lot of their time people are in trouble because something has swiped them out of the blue. Job loss, death.


Morgan: Something out of their control. Yeah.


Mark: So, you know, it's not really a moral issue. I've been a banker, I’ve been a credit counsellor. I know lots of bankruptcy trustees. From our perspective, it's money. It's not you as a person, this money needs to be dealt with. So no, it's not the end of the world. Where it really stresses people out is the thought that they may have to give up a house. They may lose all their RSPs. All their dreams fall apart and may never come to happen. That's not true.


In Alberta, we’re kind of a safer place than other places to go bankrupt. RSPs, registered retirement savings, registered education savings plans, things like whole life insurance and pensions are generally exempt from bankruptcy if you're not drawing on them. In terms of houses, if you have a house this might be many of us as house prices have dropped tremendously. But if you only have forty thousand dollars of equity in your house, you get to keep that and if you can make your mortgage payments, well the trustee might let you keep your house. So if you think that's the way you need to go you should probably seek more information on bankruptcy or maybe a consumer proposal from someone that has information on it. A great place to go, you know bankruptcy trustees are overseen by the government. You can go talk to them. It's free to go in and talk to a trustee, you don't have to sign on. In fact, I tell people that go into trustees “don't sign on to you talk to someone else.” Just so you can explain exactly what the process is. Non-profit credit counselling agencies are a great place to go. The Credit Counselling Society, the place I work, or Money Mentors in Alberta is a good place to go talk to. They’re all nice people. They're going to give you the straight scoop, but no, bankruptcy is not the end of anything. Having been a lender, I've given someone a loan that's being bankrupt 3 times. You just go into the penalty box for a period of time.


Morgan: What are some strategies you’d suggest for repaying debt once it's passed a point where someone's not going to be able to pay this off in a couple months? I saw on the Credit Counselling Society site, there's a mention of debt repayment programs. Is that something you'd suggest? Can you talk a bit about that and any other suggestions you might have?


Mark: One strategy, when people have debt and they're struggling, I think the first thing to do is go and look at the things you can act on, on your own. First and best is go to your budget. It always sounds trite and people roll their eyes when I say it but have you tracked your expenses? Do you know what you spend on coffee? And everyone goes, “Yeah. It's like three bucks a cup.” Well, I'll tell you I used to drink eight extra-large Tim Hortons every day. And people say, “No that's not true.” Honestly. It was eight extra larges every day. It was 15 bucks a day on coffee. That was my hobby, and that's what I did. That's like 5,500 bucks a year. It's a lot of money on coffee. Is that something you can change? I am now so cheap because I've watched people drink all this coffee on their credit cards, I drink instant at home. It doesn't taste good, but it's still coffee. It's a change you can make.


Morgan: You’re just getting the drug anyway.


Mark: I just want the caffeine. It's one example, but what can you change in your own life? Go back revisit your budget. Track those things that bring you happiness or that go in your mouth and say, “Hey, can I make a change?” Sometimes that's enough, where you can really start putting money towards debt. If that doesn't work, the people that are most interested in the money are the lenders. Go talk to one of them. Your banks are there to help you. I've never known a banker who did not want to help their clients. Bankers want you in mortgages. They want you to invest. They want to help you if you can't so you can in the future. Talk to them. They will help you. They're nice people.

If the banks can't help you, that's when things get a bit more difficult. We've seen a lot of people actually go and talk to their elderly parents about helping them out. You know, “I've lost my job.” “I can't pay my mortgage.” “What am I going to do?” If your parents can help you or if you have friends or family that can help you, that's fantastic. Make sure you're not putting them in a situation where they fall into a rut and can't get out of it. That's kind of happened a fair bit in Calgary lately. Seniors are the fastest growing number of people coming into credit counseling, as of late.

Some people can sell stuff. You want a house? Would you sell it? Almost universally the answer is no. I've told people to sell their houses and we send a surveyor to everyone we counsel. If you tell them to sell their house or their Harley—bad survey off the top. They'll come in and say, “Tell me anything just don't tell me to sell my house.” So you have to sell your house, bad survey. But it's on honest advice, that's where a lot of people's money are.


If that doesn't work, that's when you have sort of two other alternative routes. The first route is to go and look at a non-profit who might offer consolidation program. Our program, it's pretty good. The drawback to coming in and doing our program as opposed to doing it yourself or through a lender is that it kind of kicks your cred in the back side for a little bit, but it's not a permanent stain. It goes on your credit report.


Morgan: What is the program?


Mark: It's called a debt management program. We’ll consolidate 100% of the unsecured debt into one payment.


Morgan: Does unsecured debt mean like credit card, credit line—


Mark: Credit cards, lines of credits, payday loans, utility bills, sometimes. We’ll consolidate that and you'll make one payment. The interest rate is often reduced to zero and every month you pay us and we pay your creditors for you, but it does affect your credit for either two years after your last payment or six years from the start. But all that while you have a counselor who's talking about rebuilding credit and savings, we’re big on talking about savings because people who save don't have credit issues. It's an amazing thing. But while people will come in and look to do it, it's not appropriate for everyone. Either they can't afford it in their budget. It will harm them. It won't work or the creditors will see a better alternative. When you’re a creditor, of course you want to get as much money as you can back as fast as possible. We've had people come in and they say, “We want to do your program.” Great, let's take a look—well I'm sorry you own three houses outright and you just don't want to pay credit card interest? That's not right, and the creditors are going to say no. But it is an option. Maybe it works for one in five people.


When that doesn't work, that's when you do go seek the help of a bankruptcy trustee. They're not scary people. All the bankruptcy trustees I know are really nice people, most of them do it because they believe they're helping people, and they are. They're taking this huge stress. They're putting you through a legal process in terms of a bankruptcy and they're going to tell you what you have to pay, how long you have to pay for, what you have to report, and at the end of it the debt is cleared off. Now, a big issue with bankruptcy whether it be a bankruptcy or consumer proposal is that it stays with you like bad luggage. I call it the big book of bankruptcy. Put into the bankrupt registry. I think it's held by the office of the superintendent bankruptcy in Ottawa and he goes, “Oh, it's a permanent stain on me.” I've been a senior banker. I've been a credit counselor. I've never once looked to see if anyone's been bankrupt. I'm not. I don't know who does look other than bankruptcy trustees, but I don't think it's the end of anything.


Morgan: Their current state matters more.


Mark: It's the current state and you're going to rebuild your credit score and you know, you're going to get mortgages again. You're going to get loans. I wouldn't worry too much about it. Where the issue is, of course, if you're doing a bankruptcy for a second time, it's much more punitive in terms of the time you don't have major lending. First time bankruptcy would impact you for upwards of eight years. Whereas the second time bankruptcy could affect you for upwards of 17 years. So when you add them together that's like 25 years here in the credit penalty box.


Morgan: And like you're saying too, there's all that physical stress that this causes… It's nice to hear that you're so reassuring about it all and that all the different professionals we can go talk to are also there to help, there to be reassuring because at the end of the day, it's debt, it's money, but your physical health is very important.


Mark: Well money is a funny subject because it's taboo. You're not allowed to talk about it. You can-- mental health, like someone has a mental issue. You're allowed to now come out and say, “Yeah, I have this problem. It doesn't make me a bad horrible person.” I just have a problem and we can deal with that. With money? Shame. “You have a money problem.” “Whoa, what's going on?” And that's an issue because people refuse to seek help and when they seek help, they're literally grasping for a life raft in a middle of the ocean. Anyone that offers any solution, they'll go and grab onto. The problem is when you have a money issue people often know it's like you're bleeding in the water and they’re sharks. They're coming to get you and take what's left. I think it's really important if people have a money issue that they go and seek reputable source, and there's--you can search out charity or non-profit credit counseling organizations. They're a good source. You can search out bankruptcy trustees. They'll take a look at your situation if what they do is not appropriate. They're probably going to send you to a non-profit credit counselling agency. You can go to your bank and your bank will sit down and take a look and go, “This is more than we can deal with let's get you off to our help center. Let's get you off to a charity or non-profit that will help you.”


Morgan: If someone's wondering at what point they should go talk to someone, would you say the second you start wondering about it?


Mark: If you're wondering you should talk to someone about it. Why wait? We've seen people that have had a small issue that's mushroomed into something scary and dangerous. I'll bring up an example. I had this really nice couple come in, and they were new to Canada. They fell into a tax issue their first year. They ended up owing $10,000 in CRA tax after their first year. They didn't know how to pay it. What do they do? They went and got a credit card and got a cash advance. Super! The tax issue’s gone. Now all of a sudden they have a $10,000 credit card. Well, they couldn't pay it, so they got a second credit card to pay the first, a third pay the first two, a fourth and finally when they sat down with me they had a combination of 15 credit cards. They're sitting there, they're not super stressed about it, but clearly they know that they're in trouble. I said, “Well what brought you in?”, “Well, we couldn't get another credit card.” and I said, “Well at what point did you think this was not going in the right direction?” “Well right now, because we couldn't get another credit card.” And it’s like, “If you’d come to see us with the tax debts. We probably could have talked about how we address that, and you would now own a condo instead of rent a condo. You would own a car instead of lease a car. You would have retirement savings.” The minute you think you need help is the minute you need help.


Morgan: But it is a good point. We don't talk about it and if there was more talk about it, maybe they would have known to go talk to someone right away instead of trying to find solutions on their own.


Mark: I spent some time at Reeves College today talking to some students and a student came up to me after and he said, “The problem is no one taught me anything about this as I left school. So I left school. I got a cell phone and I ruined my credit for six years.” First thing he did was ruin his credit, because he didn't understand. It's not that he wasn't paying. He said he wasn't following the rules and that's what broke his credit. If we could open up the conversation and in my house because of what I do, there's a lot of conversation around money. I'm pretty open about it, and our office. The funny thing is I've been there for eight years. I've never once opened a paycheck. The guy next to me opens them and takes a look and says “Yeah, you got paid this week Mark.” Because he knows how and I don't know how. I don't care. It's money. He doesn't care. It's money, but for everyone else in the world, it's just this big wall that they're afraid to peek around. But yeah, there's a lot of shame tied to money and it's unfortunate because it's this huge stressor. It impacts everything we do. It keeps us from achieving our dreams and if we just had the conversation, everything would work out smoothly for everyone.


Morgan: What are some ways that people can rebuild their credit after they've gotten themselves out of debt?

Mark: Well, you can actually rebuild your credit while you're still in debt. In terms of going and doing a bankruptcy or consumer proposal or a consolidation program through a non-profit organization, it's quite possible that you could start with a secured credit card. A secured credit card means you're probably going to a credit card bank. I'm going to pull the Capital One for example, big well-known credit card bank. You’re going to apply for what's called a secured credit card. They're going to ask you for five hundred dollars as an example, and they’re going to put that in a savings account. Now they’re going to give you a credit card with a $500 limit. If you pay that credit card, it will grow your credit. Your reports exactly like any other credit card. You have to pay interest on it when you don't pay off the balance in full, but over time they're going to see that you’re great batch and they're going to say, “You know what, you use this this credit card perfectly. Here’s your five hundred dollars back, go on with life.”


Morgan: Oh interesting.


Mark: If however, you get that credit card, you tap it out. You don't make any payments on it. They're going to take that $500. Report negatively on your credit report and pay off your credit card for you. So that's a great way to start rebuilding your credit.


A lot of people talk about buying cars when they have bad credit to sort of improve their credit score. I hesitate on that because quite often if you have really bad credit the interest rate on a car loan can be upwards of 30% and cars depreciated at a ridiculous rate anyways. So if I have a 30 percent credit card and my car depreciate by 25%. The first day I drive it off the lot. I'm 50 plus percent to the negative.


Morgan: Yeah, those first couple miles and you're like, “Oh, no!” Lost ten grand on this car.


Mark: But the other thing is when you have really bad credit, you'll go into some car dealerships and they'll point to the cars that are going to let you buy. This one’s been on the lot for a long time and yeah, it's got a crack in the windshield, but that's the car for you because I'm not selling you the nice one next to it. That's not fair either. So I don't really like people purchasing vehicles or going to credit rebuilding companies where they sell you something at an inflated price and then have you pay for it over a long period of time at high interest rates. Better to be patient, start with a secured credit card, maybe get a cell phone where you're buying the phone from the company that can help report positively on a credit report as well. And your credit can actually rebuild quite quickly once the bad information is falling off it.


Morgan: What are some tips you’d have for people to avoid debt? You mentioned savings. Why aren't we doing it?


Mark: Because we have no patience if you ask me, and I'm an anomaly. I love saving money, you know how some people will go out and they will see something, and they buy it, and they hug it. My daughter got new Converse shoes. She loves these shoes. Look at these shoes I bought, they’re great. When I buy it actually hurts me to physically go spend money at a store. I'm not allowed to take the kids shopping because I refuse to buy them stuff. I love to watch the money grow. It's reinforcing and I know that great things are happening. Other people like to buy. They get that immediate hit of adrenaline. People don't have patience. if I want to go to Vegas and I can't save thirty nine dollars every two weeks to go at the end of the year. “Well, I just put on my credit card.” Well, if you can't save? You can't pay your credit card off. You can't pay your credit card off? There's no more trips to Vegas. It's really about putting the cart before the horse and saving is the key way we do it.


Morgan: Did you have any other suggestions?


Mark: Well I’m going to take it back to that tracking. Again, if we're not drinking coffee all the time, if we're not smoking cigarettes or if we find a cheaper way to do it, let's do the cheaper thing and then put the rest of the money aside. Savings can be automatic lot of people say, “Oh it’s so hard.” All my savings comes off my paycheck the day I'm paid like I'm asleep in bed and I get paid 30 seconds later the money's off to SunLife or Bank of Montreal wherever else I'm saving money. I don't even feel it, what’s in my checking account; it’s mine to make life work.


Morgan: It's much less painful when it comes out automatically, I find.


Mark: Better if you just don't see it. I'm terrible. If you know my son says I need $20 for a field trip. So I'll go get it for you first thing this morning Henry. Get 20 bucks. I buy coffee, I buy coffee, I buy coffee, I buy coffee. On my way home, I stopped at the bank got another 20 bucks and give it to him. I'm out 40 bucks.

Morgan: I wanted to ask what you thought of this. I was reading that the outstanding credit card balances in Canada last the third quarter of 2019 have exceeded—It was 100 billion dollars. What kind of debt does this do to our country with us each having so much personal debt?


Mark: Well, it's risk, of course people use debt to buy things they like and that drives economic growth because we make more of the things we like and people are employed as a result, but at some point people carry so much debt that they can't buy anymore, that they're at the point where they actually have to address the debt and start paying it down.


What happens when we can't borrow anymore? And we can't go buy new cars, and we can't go buy new washing machines? And you know, we're struggling to pay our mortgage or we can't pay our mortgage? Everything sort of stops. So we do put ourselves at risk that the economy will get worse, which is it spins negatively because when the economy gets worse, people lose jobs, people can't pay their credit more, and it just becomes more and more damaging. [Inaudible] do say that people offer you credit all the time and I agreed, they offer me. I was in my bank the other day getting a new bank card, something silly. First thing they say is, “Oh you've been approved for fifteen thousand dollar line of credit.” I said, “Whoo hoo” “Oh, can we sign you up for that?”, “No”. The teller was not happy with my decision not to take it.


Morgan: Oh, they never are. Yeah.


Mark: I have a line of credit. I have a credit card. I don't need another line of credit. Well, it doesn't cost you anything if you don't take it. What if someone steals it? Gets my checkbook and writes checks. How hard I am I going to have to fight to get you to cover that? There is a cost to it, and my peace of mind isn't worth more credit. If you can say no so much more, the power to you.


Morgan: So it sounds like it all comes down to live within your means, track what you're spending, save, try to make it automated?


Mark: Really it's so simple. It's so straightforward and we all struggle with it because we don't talk about it.


Morgan: Yeah, I think that's a great start to the conversation.


Mark: Excellent.


Morgan: Did you have anything else you wanted to add?

Mark: Well I could add in terms of credit rebuilding, another really important fact is to not apply for credit all the time.  When we apply for credit all the time, every time we apply our score goes down a little bit and the other thing is not to use too much of the credit we have. We talked about that Capital One credit card, that secured credit card with a $500 limit. We really don't want to exceed 50 to 60% of that limit, like never for a minute go over 300 dollars of that $500 credit card because it looks like you need the credit to get by and your scores to drop. So three important keys, pay on time all the time, don't use too much of the credit you have, and don't apply often.


Morgan: That's great, applying so--so applying to get a new credit cards. But when people look at your credit score that can damage it also right?


Mark: When they look at your credits to give you money, to lend you money, that can bring your score down. If you want to go look at your credit yourself, and you should probably twice a year just to make sure that no one's applying under your name or that there’s credit cards out there that you don't know where they are but someone's using them. There's a lot of fraud. Yeah, if you look for yourself, it doesn't hurt. If I look as a credit counselor because I'm not lending you any money. It's fine. But any time someone looks with the purpose of giving you a loan that brings your score down a little bit.




Morgan: Thank you so much for tuning in to this episode of the Small Business Mastermind. I hope you enjoyed the episode and that you got some useful advice out of it. If you'd like to be notified when future episodes will be available, please subscribe by visiting olympiabenefits.com/podcast. I hope you're keeping safe and I look forward to talking to you again very soon. Until next time.