Do you owe more than $26k, not including a mortgage?

[Tom]

A neighbor of mine was saying you get taxed on the money going into an RSSP twice. I was like noooooo... Had to explain that while your check got tax taken from it as normal, you'll get that back as a tax deduction.

[Thorin]

Ha ha ha ha ha, people are so stupid.  RRSP contributions reduce your net income.  Things that happen when you decrease your net income:

1. lower federal and provincial taxes due (if you have regular tax taken off your paycheque, then you'll get a refund when you file)
2. lower CPP due just checked this and I should stop saying CPP is based on net income, it's not
3. more GST credit
4. more AFETC (Alberta Family Employment Tax Credit) credit if you have kids
5. more CCTB (Canada Child Tax Benefit) credit if you have kids
6. more NCBS (National Child Benefit Supplement) credit if you have kids and have pretty low income
7. lower threshold before you can start deducting medical expenses (so you can deduct more)

As you can see, RRSPs make even more sense if you have a family.

[Thorin]

By the way, couples should file separately for as long as they can.  If/when a couple has children, if one of them stays home and they've always filed separately, then the one that stays home will get the full CCTB and NCBS and GST credit and this will add up to a significant amount of money, whereas if they claim together then the CCTB and NCBS and GST credit are based on the combined incomes and NCBS and GSTC are usually completely clawed back (meaning you don't get them) and CCTB is usually a fair bit lower, too.

As an example, if I had filed separately with my spouse all these years and she stayed home, this year she would have gotten:

$1,544 + $1,544 + $1,380 + $1,292 + $98 + $98 = $5,956 CCTB
$2,177 + $1,926 + $1,832 + $1,832 = $7,767 NCBS
$260 + $260 + $137 + $137 + $137 + $137 = $1,068 GSTC
$14,791 per year total.

That's roughly what I expect she'll make this year now that she's working, and if she makes that as income then she has to pay (($14,791 - $3,500) * 4.95%) + ($14,791 * 1.83%) = $829.58 in CPP and EI.

So if we'd never claimed as a couple, we'd have $14,791 in tax free money from the government plus $829.58 less in deductions.  I'll call it $15.5k.

Although then I'd lose out on the spousal tax credit and the kids' sports tax credit, which is about $3,659.90 in tax savings.  Hmm, so we'd still be about $1,000 per month ahead if we had never claimed as a couple but stayed claiming separately.

Of course this is for four kids - for one kid the numbers are much lower.

[Thorin]

So two years along and how is everyone?  Still under the $26k amount from the original post?  I've ballooned up to $37k all on credit cards (half on high interest, half on really low interest).  And with one car written off and another about to be bought, I'll be at $17k on really low interest credit cards and $47k on a zero-interest car loan.  That officially puts me at $64k, more than double the average.  At least I've got a shiny new truck to show for it, plus I've gone from eight years to pay off my debts to five years (one year after saying it would take eight years, so really it'll take six years total).  Funny, that, higher debt, lower interest, higher income, less time to pay off.

[Tom]

Slowly paying down my student loan. Be done in the next two years. My credit card debt is inconsequential.

[Mr. Analog]

I'm really close to wiping out debt altogether (outside the mortgage that is)

Maybe 6 months or something

[Melbosa]

15K in Debt, 15K left on Car.  So 30K here.

[Lazybones]

43k after consolidating the car loan. All on prime +1, was tempted to go with a prime +.5 offer however it was not as flexible.

Got to love those unexpected car purchases.

On the plus side this number is headed in the right direction. Previously I was not making much progess but by getting the interest rates down I can clearly see it shrinking.

[Thorin]

Lazy: Prime is 3% now, right?  So you're paying 4% interest?  That's not bad.  How long do you figure it'll take you to pay it all off?  And is this a consolidation loan, or did you access a line of credit of some type?

Mel: I'm hoping that $15k in debt is low-interest stuff.  High interest rates suck.

Mr. A: YOWZA, you've been sticking to your payment regime   Whatcha gonna do with the money for the payments once you're done paying off the cards?  You'll have all this extra cash!  Are we gonna see posts from Aruba every January from now on?

Tom: Good job on not racking up a bunch of credit card debt when you started working.  Seriously.  I know how easy it is to just charge it thinking that you'll pay it off when the bill comes, but then bill comes and there's groceries to buy, so then you don't pay it all off, then repeat a few times, then HOLY BIG BILL.

About a year ago we were talking about taxes for you on this thread, did you get it figured out?  Did you have more than $8,000 in business expenses to claim?  Just wondering if I was in the right ballpark with that guess.

[Mr. Analog]

Mr. A: YOWZA, you've been sticking to your payment regime   Whatcha gonna do with the money for the payments once you're done paying off the cards?  You'll have all this extra cash!  Are we gonna see posts from Aruba every January from now on

That's always an option, I'd actually like to save up a lot of money too if I can. So if I want to travel I can just go whenever. Or take a month off without worrying.

Most likely I'll just buy a tux, a monocle and drink martinis all day

[Lazybones]

Lazy: Prime is 3% now, right?  So you're paying 4% interest?  That's not bad.  How long do you figure it'll take you to pay it all off?  And is this a consolidation loan, or did you access a line of credit of some type?

Secure line of credit (setup like a second mortgage but acts like a credit cart / revolving line of credit ), with terms that allow a minimum of interest only payments (safety net for bad months only, I always pay more).

My income (changed jobs in the last year, and some of it is bonus based) and expenses (high food costs due to diet issues with the kids as well as extra care) have been highly volatile lately but if all goes well 4 years. Not including accelerating it with dumping bonuses and tax returns into it.

If interest rates go crazy however with both the mortgage and the line of credit variable that could be bad.

[Thorin]

It's a HELOC (Home Equity Line Of Credit), right?  Where you can borrow up to the difference between your current mortgage amount and 75% of the value of the home?  Those are incredibly flexible once you've got the mortgage down below the 75% value of the house.  The more you pay off on your mortgage, the more you'll have available for emergencies.  It's almost like being pre-approved for life to re-mortgage your house.

If it's a HELOC and it's the same interest rate as your mortgage, here's something to think about: cash fluidity.  With a mortgage payment, you always have to pay enough so it covers at least a portion of the principal (original amount borrowed).  With a HELOC, you could take money out to make extra payments on your mortgage (up to whatever limit your mortgage agreement specified).  This would pay the mortgage off much faster, but essentially relocate your debt from your mortgage to your HELOC.  That doesn't seem any better, except when you realize that you could make interest-only payments on the HELOC when needed or pay any amount (since there's no maximum extra contribution like with a mortgage).  This only makes sense if the mortgage and HELOC interest rates are close, though.

Another thing you can do with a HELOC is buy investments (stocks, bonds, mutual funds).  You can then write off the interest you pay on the HELOC as a cost of investing.  This write-off then reduces your gross tax owing, which typically means you'll get a tax refund as they'll have withheld too much on your cheque.

4 years for $43k is pretty dang good.  At 4%, that's just under a thousand per month for 48 months.  That's only four years away, time to start planning what you're going to do with your extra thousand a month when you get there

[Lazybones]

It's a HELOC (Home Equity Line Of Credit), right?  Where you can borrow up to the difference between your current mortgage amount and 75% of the value of the home?  Those are incredibly flexible once you've got the mortgage down below the 75% value of the house.  The more you pay off on your mortgage, the more you'll have available for emergencies.  It's almost like being pre-approved for life to re-mortgage your house.

If it's a HELOC and it's the same interest rate as your mortgage, here's something to think about: cash fluidity.  With a mortgage payment, you always have to pay enough so it covers at least a portion of the principal (original amount borrowed).  With a HELOC, you could take money out to make extra payments on your mortgage (up to whatever limit your mortgage agreement specified).  This would pay the mortgage off much faster, but essentially relocate your debt from your mortgage to your HELOC.  That doesn't seem any better, except when you realize that you could make interest-only payments on the HELOC when needed or pay any amount (since there's no maximum extra contribution like with a mortgage).  This only makes sense if the mortgage and HELOC interest rates are close, though.

Another thing you can do with a HELOC is buy investments (stocks, bonds, mutual funds).  You can then write off the interest you pay on the HELOC as a cost of investing.  This write-off then reduces your gross tax owing, which typically means you'll get a tax refund as they'll have withheld too much on your cheque.

4 years for $43k is pretty dang good.  At 4%, that's just under a thousand per month for 48 months.  That's only four years away, time to start planning what you're going to do with your extra thousand a month when you get there

The product is a secure line of credit of a fixed amount at prime +1, my montage is at a slightly lower rate but my bank did not offer an option as flexable and also the frees where fairly steep to setup.

[Thorin]

Is it a fixed maximum amount and when you go under the maximum you can take some out to bring it back to the maximum?  Or are you not allowed to take money back out if you've paid some off?  I ask because you say it's like a revolving line of credit, and revolving lines of credit allow one to access unused credit much like a credit card.

As for interest rates, the only reason they would significantly increase is if the Canadian economy improves significantly and the central bank feels a need to constrain the economy.  Given that the Canadian economy is closely tied to the US economy, and the US economy is taking a very long time to recover, I suggest that interest rates will probably be low for another ten years.  And then they'll start rising in the typical boom-bust cycle.

[Lazybones]

Is it a fixed maximum amount and when you go under the maximum you can take some out to bring it back to the maximum?  Or are you not allowed to take money back out if you've paid some off?  I ask because you say it's like a revolving line of credit, and revolving lines of credit allow one to access unused credit much like a credit card.

It is revolving like a credit card, so i have a limit of X amount, I only pay interest on the amount used, and the minimum payment IS interest only. Other than the legal binding of it to my home, it functions like a credit card and can even be bound to the savings button on my debit card.