I want a new drug…
— Huey Lewis
Here’s one for you, Huey: the credit card cheque. They are very tempting – borrow whatever you have available on your credit card at a very low rate of interest – typically 1.99 percent, give or take.
I can’t argue that in isolation there are times when it makes sense to take advantage of the offer, even if the low rate is for only a limited time. If you have an outstanding credit card balance, for example, how could it not make sense to refinance at a much lower rate? At the very least it buys you time.
The problem is: you would not need the additional credit if there wasn’t an underlying problem. In other words, how did you get to this point in the first place?
But where does it lead? Are you buying time, or is it more like kicking the can further down the road? What happens if you don’t have your financial house in order by the time the low-interest period is up? Will you have alternatives to the 20 percent or so your credit card company will then want to charge you?
Quite possible, since you probably wouldn’t have been offered this credit to begin with were you not creditworthy.
Chances are you have assets (i.e. real estate) as well as equity. You have the means to pay them back – one way or another. If you have a house there is the possibility that it is worth more. You can refinance if necessary. Chances are your bank will be there for you – as long as you have assets to go after if things go awry.
But what if your house falls in value? What if this credit induced real estate boom of recent years loses steam? What if interest rates go up? Chances are you’ll still have the equity to cover off your debt.
But what will you be left with?
If you have credit card debt, or if you find yourself consolidating debt to pay off credit card debt, chances are there is an underlying problem that is not being addressed — you are living beyond your means.
Don’t feel bad. Lots of people are doing it. Our credit card companies make it easy and hard to resist.
Where will it all lead? Who knows? And why speculate when the best course of action is to take control and do something about it. There is a better way.
To learn more join us May 23 for our presentation entitled Peace of Mind through Debt Control. To register call 250-594-1100 or e-mail paige.renouf@raymondjames.ca.
Jim Grant, CFP (Certified Financial Planner) is a Financial Advisor with Raymond James Ltd (RJL). This article is for information only. Securities are offered through Raymond James Ltd., member Canadian Investor Protection Fund. Insurance and estate planning offered through Raymond James Financial Planning Ltd., not member Canadian Investor Protection Fund. For more information feel free to call Jim at (250) 594-1100, or e-mail at jim.grant@raymondjames.ca. and/or visit www.jimgrant.ca