When you speak with a financial advisor about your debt, most will recommend that it be paid off in a specific order: the highest interest rate to lowest interest rate. This obviously makes sense, as the debt which you are paying back the most on will be gone as quickly as possible. Assume you are in the following debt:

• Student loan of $15 000 at 6% interest
• Credit card debt of $9 000 at 19% interest
• Line of credit with a $2 000 balance at 11% interest
• Car loan of $6 000 at 5% interest.

Yes, you would be saving the most money by paying the credit card, then the line of credit, then the student loan and finally the car loan. This system works wonders with the people who have the self-discipline to stick to such a system and eliminates the debt as quickly as possible.

However, a large number of people don’t have the self-discipline to pay off this debt in this manner simply due to the fact that when you’re paying off a large debt, it looks like you’re making virtually no progress. The credit card debt in the above example is the debt at the highest interest rate, which would be best to pay off first, mathematically.

However, when you look at the numbers, $9 000 and $7 000 are still two enormous numbers. Psychologically, paying off the credit cards first is the most difficult as progress is much more difficult to physically get a grasp of.

This is when the system recommended by Dave Ramsey in the book The Total Money Makeover comes in: he recommends organizing the debt, not according to interest rate but according to total balance:

• $2 000 line of credit at 11%
• $6 000 car loan at 5%
• $9 000 credit card debt at 19%
• $15 000 student loan at 6%

Dave’s recommendation is to pay the minimum payments on all of the debts, but to put every extra dollar you can gather towards the smallest debt, the line of credit. Once the line of credit is paid off, move onto the car loan. Mentally, you’ll feel as though you’re making much more progress than you would if you were paying the credit card debt off first. This method of debt elimination is known as the snowball method.

You will end up paying more interest if you do this method as opposed to the traditional method to eliminate your debt. However, if you’re the type of person who is likely to give up paying your debt entirely if you can’t physically see results, this is definitely a better option. You may pay slightly more, but you will end up paying off your debt entirely, which is the end goal.

Popularity: 16% [?]

I’m going to stick a disclaimer up here just to make sure everybody understand this: this system is not for everybody. If you get a credit card and make frivolous purchases until you’ve hit the limit and then have trouble paying things off, this system is not for you. However, if you’re one of the readers who are responsible with credit cards and never (or very rarely) carry a balance, this post is for you.

In today’s capitalist society, there aren’t many legitimate ways to get free money. In fact, there aren’t many legitimate ways to get free money in any society. So when this opportunity is given to you, you should pounce on it as quickly as you can. Cash back credit cards are one of these “free money” offers.

If you have a no-annual-fee cash back credit card on which you never carry a balance, you’re going to be getting free money back. In Canada, our cash back cards are generally limited to around 1% cash back, but with the Amex Blue Cash card, our American friends can take advantage of up to 5% cash back on purchases at drugstores, gas stations and grocery stores.

1% isn’t very much money, but when you make all of your daily purchases at 1% cash back, it adds up. I almost never use my debit card, except at places which don’t accept credit. As such, almost all of my day-to-day expenses go on my credit card and at the end of the month, when I’ve spent anywhere from $500 to $800, I can expect to get a few dollars back at the end of the year. Sure, $60 to $96 isn’t a fortune, but it’s free money that I can use to go out for dinner one extra time, that I can just stick in a savings account or invest for retirement. It’s also non-taxable.

If you’re the type of person who pays off their credit card monthly, you’re losing money by not having a cash back card, so go apply for one today! For Americans I would recommend the Amex Blue Cash card and if you happen to live in Canada, the TD Rebate Rewards card or the Citibank Enrich card are two of the best.

Stay tuned, as later this week I’ll be posting a full comparison of the best cash back credit cards in Canada!

Popularity: 19% [?]

I’ve seen quite a few people make quite a few financial mistakes over the years, and heard of others as well. Part of saving money involves not making awful financial decisions which will cost you more in the long run. Here are five of these decisions that I strongly advise you stay away from at whatever cost:

• Payday loans. These are absolutely one of the worst financial choices you can make as once you’re in it’s incredibly difficult to get out of the loop. They charge outrageous fees that will cripple you the first time you use the service and force you to go back. From there, it’s an endless circle. If you’re stuck for cash for a few days, ask a friend or a relative for a temporary loan, use a credit card (with the full intent of paying it off of course) or try selling some books or CDs at a pawn shop for a few bucks. Anything except payday loan places

• Not having emergency funds. I couldn’t count the number of people I know with absolutely no form of emergency funds. If you get sick and can’t work, if you’re in an accident, if your car breaks down and you need to fix it, these are all things that emergency expenses are supposed to cover: the unexpected, which does happen! You need to be prepared for it, and not having emergency funds is a great way to spiral yourself into credit card debt and financial suicide.

• Paying off your debt with retirement savings. You’ll not only face penalties for doing this, but you’ll lose all growth potential that money had in the first place. If you start spending that money there’s a good chance you’ll continue to spend that money until your retirement savings are all but gone. Always do your best to keep your retirement savings for just that purpose: retirement.

• Credit card debt. This one is pretty obvious: when you’re paying up to 30% APR on credit cards, only a few years can result in you paying double what you initially did for a certain item. Try getting 0% APR cards and paying them off as quickly as possible, using this article as a guide to avoid being penalized.

• Using a HELOC to try and get rid of debt. At first glance, this may seem to be a good option: using the equity in your house to bring your debts down to a manageable level. However, you haven’t considered that while that HELOC may only be at 7% instead of 20%, the loan is over 30 years. You’ll normally end up paying more in interest over those 30 years than you would if you just did your best to pay the credit cards off within a year or two.

Stay away from all of these options. There’s no good to come of using any of them and they’ll do you more financial harm than good in the long run. A lot of them are common sense, but they do bear mentioning: if you’re in the situation where you’re doing any of the aforementioned, you need to do your best to get out of that situation for financial freedom.

Popularity: 87% [?]

If you read yesterday’s article about the traps balance transfer cards have, then you should be well aware that in order to take advantage of these cards you need to be extremely careful.  However, if you are organized and willing, you can pay off some old debts.

Not only can you pay off debt with these cards, but you can also profit if you’re in a situation where you have no high-interest debt. What follows is a step-by-step guide for those looking to pay off high debt with 0% APR balance transfer cards and those looking to take advantage of the system to get a little bit of extra cash.

Getting the Money:

Once you’ve received and activated your new 0% APR balance transfer card, you need to be able to either receive that money as a cheque or to transfer it to a current high-rate credit card. The easiest way to do this is to call the credit card issuer and request a balance transfer cheque and then deposit it in your bank account. Then either use that money to pay your high-interest credit card bill or put it in a high yield savings account to profit.

Some companies don’t issue balance transfer cheques however, which makes this next part slightly more complicated: you’ll need a second credit card, with no balance. Request a balance transfer from the new 0% APR card to your existing card with no balance, and then request a credit balance refund from the existing card (as you will now have a credit on the account). If that card is from a physical bank (such as TD, CIBC, Chase, etc) you can always go into the branch and they can give you the money on the spot or just transfer it into your chequing account.

Profiting (or paying off debt):

The safest way to profit from balance transfer cards is simply to stick the money in a high yield savings account.  All you need to do is stick the money in the account and remember to have the money available to make the minimum payments. Personally, I would recommend having minimum payment money available in your chequing account and budgeting that cost in rather than taking money out of the high yield savings account every month. It takes ING Direct up to 5 days to put money into my regular bank account after I’ve requested it: by knowing you have enough money in your savings account to pay the minimum payments in time you don’t have to worry and you don’t have to withdraw your money up to a week early to make sure you can get that money in time. To be on the safe side, I would also pay the minimum 48 to 72 hours ahead of when it’s actually due, as that’s how long it can take for electronic bill payments to be processed.

If you’re using your new card to pay off debt, the strategy to use is more or less the same, except you’re transferring your balance to a credit card (or HELOC, or car loan, etc) instead of a high yield savings account. Again, make sure you have the funds to pay the minimum immediately available, and take care to pay a few days in advance to avoid technical glitches resulting in your interest rate reverting back to the default.

If you have a 0% balance transfer card with a $5000 limit and put it in a savings account at 4%, you will make $200 over one year. It’s not much, but considering it takes very little effort to make that kind of money, accumulating cards and continuously doing this can result in a good amount of extra cash. As for debts, you can save yourself a year’s interest at 20% on your debt which can make a huge difference to your financial lifestyle.

Popularity: 14% [?]

I’m sure we’ve all gotten 0% balance transfer card offers in the mail, and many of you may have even taken them up on the offer. Unfortunately, people have a tendency to see that 0% and go “hey perfect!” but end up paying more than they did before.

Credit card companies, as a rule, aren’t nice. They don’t want anything except your money and those 0% balance transfer cards aim to take just that: your money. Today I’m going to cover just how exactly credit card companies manage to make money off you with 0% introductory rates and tomorrow I’m going to cover how you can do your research and be able to use these cards to make money.

The first thing to watch out for is balance transfer fees. These are generally more or less low, around 3% of the balance transfer with a minimum of $5 and a maximum of $50. If you’re transferring $2000, this would result in fees of $40, which is still something to consider, especially if you’re low on funds or using the 0% cards to try and make yourself some money.

Next, when you’ve got the card and are trying to activate it, the credit card company will try to sell you insurance. And trust me, they will TRY. Always refuse. I normally tell them that I have a savings account with $100 000 in it, so if I lose my job I’m not going to have huge trouble trying to make my minimum payments. This isn’t true (keeping 100k in a savings account before you’re retired is a terrible idea!) but it shuts them up pretty quickly. This “insurance” is nothing but a scam to get free money from you.

After you’ve made your balance transfer, the credit card companies still have ways to try and get more money out of you. The first part is by keeping you from reading the fine print. On balance transfer cards, most of the time the 0% balance is only good on transfers, not purchases. If you transfer $1000 onto a card with a limit of $1500 then go buy a new Nintendo Wii, not only are you going to be paying a full interest rate on that Wii (think 20%) but the spend part is what the credit card will pay off last. You would have to pay the full $1000 balance transfer amount before you can even start paying off that Wii.

Next, the credit card companies love to hit you with fees - and sometimes even take away your introductory rate - if you make even one late payment. It’s not unusual to see a $30 charge if you’ve made just one late payment on the card and it’s also not unusual to then see that 0% take a sudden leap to 19%. If you’re going to be using a 0% balance transfer card, you need to know that you’re responsible enough to ALWAYS pay that bill on time.

Finally, if you’re going to be using another 0% balance transfer card when your current deal ends, make sure you apply for it well in advance - at least four to six weeks ahead of time. This ensures that any problems that might be encountered can be settled and that you have enough time to be able to make the balance transfer before your introductory deal on your original card ends. This will ensure you don’t need to pay heavy interest rates for any period of time after the introductory period on your first card ends.

By making sure you know what you’re doing where 0% balance transfer cards are concerned, you can make sure that you actually are saving money, rather than spending more on fees and hefty interest charges than you would be had you stuck with your standard card.

 Stay tuned for tomorrow’s post on how to make money from these cards!

Popularity: 23% [?]

While at work a little while ago, I was wondering about the disastrous affairs of people’s finances. Personally, I am extremely debt-averse, and do my absolute best to keep some money in my chequing account.

I work for one of the big five Canadian banks, and see first hand the state of people’s finances. However, our society’s dependence on debt and the average financial knowledge of people only became clear to me after a conversation with a coworker, who was looking to get a line of credit. I asked her whether she was returning to school, whether she was going to purchase a car, or what. She answered “no” to everything.

She then told me she wanted to get this line of credit, not because she needed it or was even in any sort of financial trouble, but because she wanted a little bit of extra spending money. I asked her whether she thought paying back a line of credit at 11% per year was worth this, letting her know that on $5000 she would have to pay back over $500 per year. I explained to her that she could be investing that money, or putting it towards saving for a home, but that getting a line of credit for the sake of being able to spend more at Guess wasn’t the greatest idea.

It was from this conversation that I decided to create this blog. We can all use some basic financial tips, and sometimes some not-so-basic ones that can help keep our finances in order and save us more money for whatever we wish: a vacation, our retirement, that 42″ LCD TV at Best Buy and yes, even clothes.

Drop by for new daily tips and advice to make your money work for you. You’ll also find links to great offers, coupons and other money-savers!

Popularity: 7% [?]