Monday, 12 November 2018

Dealing With Debt: The Avalanche vs Debt Snowball

Face it, when it comes to debt, no matter how big or small, it can be a major source of anxiety for Canadians. Paying debt off is a priority for most people but many worry how they will do it. According to the most recent MNP Consumer Debt Index, Canadians are increasingly worried about their ability to repay their debts. With interest rates rising many are finding themselves struggling financially. The MNP Consumer Debt Index finds, one-third of Canadians now say they are unable to cover their monthly bills and debt repayments. Even more concerning, 48 per cent say they are $200 or less from not being able to meet their monthly financial obligations.

If the debt is starting to feel unmanageable there are a few ways to tackle it to get it paid down as quickly as possible. One is called the debt snowball the other is the avalanche method. Both are highly effective if done right. But both have their own pros and cons.

The Debt Snowball

How it works?
The debt snowball works by paying the smallest loan off first and working up to the bigger loans. For example, if a person owns $100 on one credit card and $1000 on the other, they would pay the $100 first and make only minimum payments on their other debt. The idea is the momentum built from paying the smaller debt off quickly will carry us through to the ultimate goal of being debt free.

The snowball method was popularized by personal finance educator David Ramsay. On his website he gives these tips to get started:

Step 1: List your debts from smallest to largest.
Step 2: Make minimum payments on all your debts except the smallest.
Step 3: Pay as much as possible on your smallest debt.
Step 4: Repeat until each debt is paid in full.

According to an analysis done in the Journal of Consumer Research and published in the Harvard Business Review, the snowball method is more effective, because these small wins are a bigger motivator than just paying debt down from most expensive.

Who’s it for?
This debt reduction strategy is great for anyone who gets motivated when they see things getting done rapidly. For example, for someone that always makes a to-do list and feels accomplished when they cross everything off it by the end of the day, the debt snowball may work for them. It taps into the same emotion we feel finishing that to-do list. By crossing small loans off the list easily we continue to be motivated to pay all the debt down.

The major drawback in the debt snowball strategy is you end up making more interest payments than needed. But, according to Ramsay, the debt snowball works because it is about behaviour modification, not math. The debt snowball keeps you motivated to stay on task, because you see progress. There are other debt reduction strategies that will get you debt free sooner with the same amount of money. That’s because the overall interest payments are less.

The Avalanche Method

How it works?
The classic advice when paying debt down has been to start with the highest interest debt and work your way down while making minimum payments on all your other debt obligations. This is often referred to as the avalanche method, you tackle it all together and with veracity. How this method works is by listing debt from most expensive (highest interest rate) to the least expensive (lowest interest rate.) In most cases, this means credit card debt is paid first, then followed by a line of credit and then a mortgage. In some cases, there may be overdue utility bills that are costing the most. In that case, pay those first.

ProsThis is where the avalanche method is better because debt is coming down fast by tackling what costs the most, rather than how it makes us feel. The added benefits is, in most cases, your smallest debt is usually the most expensive, like credit card debt, and the largest debt is usually the cheapest, like a mortgage. So in many cases, it ends up that employing the avalanche method means reaping the benefits of the debt snowball too.

It can take longer to see results. Even though it’s costing less, it can seem like the same number of bills need to be paid, albeit with smaller balances. To stay on top of this, recommends getting organised with a spreadsheet that tracks all the debt, how much interest is being paid and what payments have already been made. This might help keep the momentum going as that one big number comes down quickly.

Keep in mind
Debt repayment for many is overwhelming and getting started can seem impossible. Pick a payment plan that works with you and your personality. When it comes to paying down debt the key is to be consistent and keep up the payments. Most importantly, do not wrack up any more new debt on the side while getting the old debt paid off.

Your money: Are you in control? Come meet me at the Ottawa Public Library to find out more

We are all a work in progress when it comes to our personal finances. 

Every one of us has the ability to save more, spend less, invest better, and make more money. So what are we doing about it? Personal finance journalist Rubina Ahmed-Haq will explain major roadblocks to saving money along with steps you can take today, no matter your financial situation, to be better with your money.

Rubina's website is Rubina is a business and finance columnist who has been covering money matters for more than 10 years. She weighs in on money and workplace matters on CBC Radio, CBC TV and CBC News Network as well as Global News. Her goal is to get Canadians to take control of their personal finances on their own.
Join Rubina during Financial Literacy Month. 

  • Doors open at 5:30 pm. 
  • Programs starts at 6:00 pm. 
  • Light refreshments will be served. 
  • Hosted by Ottawa Public Library at Bayview Yards.

Access: Buses stopping on the Transitway at Bayview or, closer, at Tom Brown Arena, are a short walk away. There is free parking in the evening in the gravelled parking lots on Bayview Road.

Get your FREE tickets here

Thursday, 8 November 2018

AG Sessions firing a warning for speculative investors

US Attorney General Jeff Sessions is out of a job after President Donald Trump reportedly forced his resignation after mid-term elections ended in the U.S.

The firing of Sessions comes as no surprise, as Trump had made it clear that he was not happy with how Sessions had handled his response to the Russia investigation. #Trump accused him of protecting the investigation that is looking to see if the President himself obstructed justice.

The President was also upset with Sessions with not taking a tougher approach to illegal immigrants.

In an undated letter to the president released after,  Sessions wrote:

"At your request, I am submitting my resignation."

He added.

"Since the day I was honored to be sworn in as Attorney General of the United States, I came to work at the Department of Justice every day determined to do my duty and serve my country," 

Sessions went on.  

"I have done so to the best of my ability, working to support the fundamental legal processes that are the foundation of justice."

President Trump was quick to announce Sessions departure on Twitter and his temporary replacement.

Trump adds. 

This move came as no surprise, but the reaction in the markets was.

Pot stocks immediate rallied after it was announced that Session was resigning. In particular, Tilray was up a whopping 30 per cent while Canopy Growth and Aurora Cannabis rose 8.1 per cent and 9 per cent respectively. Cronos Group added 8.4 per cent.

But today those same stocks closed lower as the excitement of the news wore off. Tilray, in particular, closed down almost 15 per cent.

Sessions was seen as regressive on pot policy.  In his short time as AG, he rolled back Obama era rules that would protect those using pot in states where it was legal. He also once said, "Good people don't smoke marijuana."

The news of session leaving is a lesson to all those invested in sensitive to breaking sectors like cannabis and marijuana. Where despite recreational use being legal in Canada there are still many unknowns as to how it will be received around the world.

Interested investors are already asking the obvious question.

Thursday, 18 October 2018


On November 4th and 5th I will have the great honour of emceeing the 2018 Canadian Personal Finance Conference. The conference is in its sixth year and will be presented for the first time at the gorgeous Design Exchange in downtown Toronto.

CPFC18 is a two-day conference aimed at personal finance bloggers, journalists, and anyone with a passion for learning more about finance. The theme for this year is, how we can all start pushing personal finance boundaries and rethinking our approach to money.

This is my third time attending the conference. Once as an attendee in the audience, then as a speaker on a panel about women and personal finance and this time as the emcee. To return to CPFC 2018 in this role is an honour. As a personal finance journalist and expert, this conference has become a must-attend each year.
As always the conference has an impressive lineup of speakers including:

Whether you’re an industry professional, blogger or even just looking to soak in financial insights and gain inspiration, CPFC 2018 has something for you.

Hope to see you soon!

Monday, 15 October 2018


When we think financial restart, it’s usually at the beginning of the year. Who can blame you, after the expensive holiday season it’s a natural New Year’s resolution ---to save more money. But the fact is summer is a more expensive time of year. The two-month long event is filled with expensive vacations and family BBQs.  All this fun can make a big dent in your financial progress. That’s why the Fall--- not Winter--- is the best time to do a financial check-up.

How much are we spending?
In its latest survey of summer spending, BMO said Canadians planned to spend an average of $5,605 during the summer.  As well a survey conducted by another bank -CIBC - revealed half of those surveyed will need to dip into their savings or use their credit cards to make the most of the warm summer months. As well, 40 per cent say they spend more money in summer than during any other season. No matter how you look at it the bills pile up more in the summer than any other time of year and that is why a financial checkup is so important in the Fall.

How to get started on your Fall Financial check up
The first step is tally up how much your summer fun costs you, then figure out how much of that is debt. This includes a line of credit loan, charges on your credit card or even a loan from a friend.  

It’s good to have have a clear picture of your personal finances.

Next list your debts in order of interest you are paying. Start with the most expensive and work your way down. Any debt held on a credit card and store cards will be first and lower on the list will be your line of credit debt or a loan from a friend.
Finally, check if there are any bills you forgot to pay. This could be a utility bill or mortgage payment. Anything that slipped your mind during the summer months.

Lay out a plan
Start your plan by finding out what your minimum payments are on each debt you owe. Now can you pay more than that? If you can put those extra payments towards your highest interest loans start there. 

Next, see what bills you can hold off on paying until October. This may seem like a bad move, but by paying a small late fee, you could free up enough cash to pay off your most expensive loans. This could result in more money to make payments on your other bills in October. Be sure to contact the companies you’re planning to make a late payment too to make sure it won’t affect your credit score.

Finally, this is a good time to check in on how much RRSP contributions you have done. Are you on track to save what you wanted for 2018. Also once your bills are paid start putting some money away for the Christmas holidays. Even $50 a week will add up to $450 in 9 weeks. Fall is the best time for a financial checkup. 

The best part is in January when everyone is scrambling to get their personal finances in order, you will be feeling completely in control of your money.  

Friday, 12 October 2018


I’m honoured to be speaking at Startup & Slay on the "Managing Your Money" panel.

Organized by #howshehustles, Startup & Slay, is part of a full-day meet-up in downtown Toronto for diverse female entrepreneurs to share information, inspiration and advice on how to start & scale a business.

My job is to help female entrepreneurs manage their money better.

Here are five tips:

Separate, Separate, Separate
When you first start your business it’s very easy to use your personal bank account to pay invoices and deposit income.  Even if there is a bank fee involved, the best way to keep information separate is to have a separate business bank account, or at the very least a new account that you plan to use to manage your business from.  Also for expenses apply for a new credit card to charge them too. When it comes to tax time it will be easy to reconcile all your business receipts.

Be Consistent with Invoicing
Invoicing is the way small business owners and entrepreneurs get paid. It can be overwhelming especially if you come from a background where you worked full time for a company and did not have to worry about the administrative side of your job. Set aside one-half day a month to review all your invoicing, send out current invoices and remind clients of any invoices that may be overdue. Once a month is how I do it, but if you have a busy business you may have to do this bi-weekly, weekly or even end of the day. But whatever you choose, be consistent.

Don’t Forget to Save
As a small business owner, you are required to remit HST to the CRA.  You are also responsible for paying income tax throughout the year. This amount is based on what you claimed as your total income for the previous year. When you get paid make sure you're putting money aside to pay these bills. As a small business owner, there’s no pension plan. Don’t get off track with your retirement planning, make sure you are putting away at least 10 per cent of your before-tax income. As an entrepreneur, your income can fluctuate, make sure you have an emergency fund, in addition to your retirement savings, which represents at least 6 months of your cost of living.

Watch Your Expenses
It can be really easy to overspend if you see everything as a tax write off. While its true many expenses that were out-of-pocket during full-time work can be write-offs. Parking fee for an event where you’re speaking at, write off. Pens and paper for your home office, write off.  Tickets to a conference in your field, write off. But remember you will get only a portion that money back, it only works to reduce your overall income tax bill. Keep spending in check, otherwise, you may be spending all your profits without knowing it.

Use Technology for Good
We are all guilty of putting our bills on autopilot. We set them all up to be paid directly from our credit card or bank account and forget about it. Now, this can help avoid late fees and ensure your bills are always up to date. But it can also cause us to miss extra charges and fees that we should be disputing. Also when we don’t see the bill its harder to be critical of when costs go up. Use technology, whether it be to manage you invoices, pay your bills or add up your expenses, but also keep an eye on what is coming in and out of your bank account to see where too much money has been spent. 

Video from last Startup & Slay event. 


For more for than 10 years, Canadians have enjoyed record low rates, borrowing until their heart's content.  That has left Canadians with record high debt and sent housing costs soaring in major Canadian cities.

But the days of cheap money are coming to end.  

The economy is doing well, unemployment is near a record low and inflation is in check. Added to this, south of the border the U.S. Federal Reserve continues to raise its benchmark interest rate and Canada has finally hammered out a new deal with the U.S. that will replace the old North American Free Trade Agreement or NAFTA.  

Called the United States Mexico Canada Agreement or USMCA, it lays out what our trade relationship with the U.S will look like going forward.   Good or bad, Canadian businesses and investors now have certainty. This means they can invest with confidence and make better decisions about their money.

The lack of trade policy decision was seen as a major roadblock
to raising rates. After the last interest rate meeting, when the Bank left rates unchanged at 1.5 per cent, the Bank noted, that it’s “monitoring closely the course of NAFTA negotiations and other trade policy developments, and their impact on the inflation outlook.”

Bank of Canada Governor Stephen Poloz has shown concern that the lag on negotiating on NAFTA was weighing on business investment decisions as well. Both domestic and especially foreign. With those concerns now lifted, business investment is expected to pick up.

Added to that Canada’s Gross Domestic Product (GDP) grew twice as fast in the second quarter compared to the first, accelerating to 2.9 per cent.
Exports to the U.S. are up as well.

All of this points to higher rates soon and fast. 

In his special report on the USMCA, BMO Chief Economist Douglas Porter says this move, along with recent positive economic data in Canada this “all but cements a rate hike at the next policy announcement on October 24, barring something truly shocking over the next three weeks.” Looking further down the road, most of the downside risk to the economy has been cleared. Porter says BMO economics is “now calling for three rate hikes in 2019 (January, April, and July).”

If that forecast is right, at this time next year, Canadians will be paying at least one percentage point more to service debt.

Many might be concerned about what higher rates will do to our economy and homeowner’s ability to service debt.   In some cases, they can be angry that rates are predicted to go up so fast, after remaining so low for so long. Also considering the Bank of Canada has already raised rates four times since July 2017.

Those higher rates are already affecting Canadians right now. A report by Environics Analytics shows Canadians are starting to feel the “sting” of rising interest rates.  In the report, it says, “Increasing debt levels coupled with rising interest rates mean the average Canadian household spent $544 more on interest charges in 2017.”

Some part of Canada are harder hit, the Environics report says “The effects of rising interest rates were particularly acute in Vancouver, where households on average incurred an additional $1,152 in interest charges. Overall, Canadians paid $9.0 billion more in interest charges in 2017 than they did the prior year.”

Despite all this, Canadians need higher rates, to pump the brakes on our out of control indebtedness and penchant to rely on credit to fund our lifestyle.
If Canada fails to raise rates we could face other problems. Like spiking inflation and excessive risk-taking and artificial bubbles.  A report back in 2013 by the CD Howe Institute called, “The Dangers of an Extended Period of Low Interest Rates: Why the Bank of Canada Should Start Raising Them Now,” warned of just that.

More than five years have passed since it was published.
Since then Canada has seen two emergency rate cuts by the Bank of Canada in 2015.

So rates are going higher, and an entire generation of borrowers is going to witness what it feels like to pay more to service their mortgage when they go to renew and there is a huge segment of Canadians that will be renewing soon if not already this year.

A recent CIBC report estimates that nearly half of (47 per cent) of all existing mortgage will be up for renewal in this year. That is almost double the average mortgage that is renewed every year. Many Canadians have been enticed by lower rates for shorter terms, effectively creating a glut for 2018 of the number of loans that need refinancing.

For many of those that took out a mortgage before the new rules came into effect, they may feel stuck. Some, mortgage holders will find it hard to shop around as moving your mortgage to a new lender means going through the stress test the Federal Government brought in this year. High ratio mortgage holders might fail the new test, even after year r of paying their original mortgage down.

Renewal or not, these ultra-low rates have created a generation of people who have no idea how to function in a higher interest rate environment. For the last decade, rates have only gone down and investments have only gone up. We have been winning all the time everywhere.

Over the summer federal analysis by the Finance Department revealed their concern of how higher rates will impact “highly indebted households.” These are homes that have debt-to-income levels of at least 350 per cent. According to the report, 12 per cent of all Canadian households finds themselves in this situation.  These households are middle-income earners under the age of 45 are likely self-employed and live in Ontario or British Columbia. 

But, higher interest rates will immediately get Canadians thinking more about paying debt down, saving more and being more careful when borrowing.
When rates shot up to more than 22 per cent in the early 1980s Canadians reacted by saving more and paying off debt. Then, Canadians were socking away 19 per cent of their savings. With lower rates today and little incentive to save, Canadians today are barely putting away 5 per cent of their earning. Creating more issues in the years to come with retirement income.

The economy is poised and ready to raise rates, and Canadians deserve, if not for anything but to learn how to operate in a normal interest rate environment.