For the past few weeks, I have been advertising my credit counselling services in Toronto's major newspapers. The phone has been ringing off the hook. Interestingly, very few people call hoping to enter into a consumer proposal or even bankruptcy. Most want to borrow MORE MONEY, as a way to solve their financial problems.
No wonder some surveys say that six out of ten Canadians would be in financial trouble if their paycheque was as little as a week late.
Here are some types of people who have called for help.
The strong but illogical
These people are home owners and often have equity in their homes. But they have one or two car payments; several credit card debts (typically $20,000 to $30,000) and some new financial emergency to deal with.
They want to borrow money (typically $10,000 to $20,000) on an unsecured basis at a very low interest rate. Usually, their credit score or their debt servicing (relative to their income) will mean they would not qualify for such a loan.
But when I point out their cheapest source of capital is the equity in their home (either consider a refinance of their first mortgage; or increase their existing HELOC; or maybe a second mortgage even), their eyes glaze over and they stop listening.
The hopeless
They invariably have damaged or bad credit (or simply no credit history); and no one will lend them money. They are in a bind - they just need (typically $1,000 to $5,000) for a short while, and by the way can they pick it up this afternoon? Their income is sometimes very high; often marginal - but with a poor credit history - most doors will be closed to these people.
I hate to hear of people who got into payday loans = these seem to be the financial equivalent of crack cocaine = and just as damaging. It's a bus that once you get on it's very hard to get off.
I always tell people "banks love to lend money; the trick is to look like you don't really need it - that's when they will be most generous"
Want to float a business
Either it's a new business venture; or an existing business fallen on hard times; but another $30,000 to $50,000 would solve everything !! (One lady wanted $500,000 on spec - just in case she came across a good opportunity!
Most small(ish) businesses will need the owner's personal guarantee when it comes time to borrow money. So not only must the business make sense and be financially viable; the owner should ideally have a healthy net worth, a good income, and an excellent personal credit rating. Most callers go quiet when they hear that short list.
The unrealistic
Often people are already in debt over their heads ($40,ooo to $100,000 in unsecured debts) and they are looking for either a consolidation loan (a practical thought but much harder to do than people think) or even more unsecured credit.
These people should be instead considering a consumer proposal. One combined payment; debts reduced by more than 50% usually, and no interest payments.
The last word
For the most part, if borrowing money at this time really does make sense for your circumstances - you gotta have a squeaky clean credit history to have any chance. I want to educate thousands in the years ahead about the better way to live.
And if borrowing money at this time does not make sense for your circumstances, then something else does. Talk to us - chances are we can help you figure that out.
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