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Welcome to the School of Credit

Knowledge is power! Empower yourself by becoming an informed consumer. Learn how lenders view and judge your financial information so that you can build a strong financial profile and be in a position to enjoy ease of credit and the lowest interest rates.

The financial industry is incredibly competitive. Lenders will try to entice you in with point programs, offers and low introductory interest rates. Some go as far as to offer you free items in the mall, if you simply apply for a credit card. They do this because they know that too many applications for credit will reduce your credit score, so an informed consumer is going to choose where they apply for credit carefully. Some of these credit products have large annual fees while others (once the introductory period is over) will charge interest rates, sometimes higher than 20%.

Whether you are just starting to establish, build, or repair your credit and finances, you can land in big trouble if you shop around for credit unprepared. Your Financial Report Card will expose any weaknesses in your financial profile and teach you how to structure your financial profile in a way that you become so attractive to the bank’s that they compete for your business.

Popular Misconceptions

1. Debt counseling agencies that offer consolidation loans sometimes misuse the term "consolidation". Here’s why. While these companies can provide immediate relief from debt and one monthly payment, they do not pay your creditors off and then allow you to pay them. In fact what they do is make a settlement proposal to your creditor’s that involves offering your creditor’s pennies on the dollar in proportion to what you owe and then forces your creditor’s to accept repayment of this settlement of a period of up to 5 years. While you think you are doing the right thing by paying your creditor’s something, it is really no better than a bankruptcy and these proposals can result in the complete destruction of your credit. Some of these companies will even charge you large upfront fees.

2. Obtaining a credit card, using it up and then making minimum monthly payments is NOT the right way to go about establishing credit. It is always best to pay your credit card in full each month.

3. Just because the bank may have turned you down for credit does NOT mean you have bad credit. Something that you may think is not a big deal, like going over your limit on a credit card or making too many applications for credit can reduce your credit score dramatically. As fast as it can be reduced it can be restored, if you make the commitment to be disciplined with your financial habits.

4. NSF's matter! If you have had returned cheques in your banking history and then want to apply for credit at the same bank where you hold that account, the bank will take N.S.F.’s into consideration when deciding if you are worthy of credit.

5. If you have a high credit score, this doesn't mean the bank will see you as a low risk. Your credit score is one of over 15 different areas of your financial profile that banks determining your credit worthiness. They will consider not only your credit, but also your stability, income type, debt service ratios, assets/liabilities, cash flow, payment habits and more...

Don’t be complacent, it could be the biggest mistake you ever make!



Understanding Your Credit Report


How to Understand the Credit Report


It’s funny thinking back to high school where it was mandatory to learn how a soda could clean a penny, but no one ever sat us down to understand credit.

- What is credit?
- What does credit mean to me?

In this day and age the state of one’s credit is more important than ever. Having good credit is not limited to qualifying for a loan or credit card, you also need good credit to open:

- Cell phone accounts
- Utility accounts
- Bank accounts
- Home insurance

In some cases, you may even need good credit to qualify for employment and to be approved for rental accommodation. If you don’t have a credit card, you will find it challenging to book travel, rent cars, hotel rooms etc…


Equifax and Trans Union


Equifax and Trans Union are credit reporting agencies that facilitate and administer the credit report. When you make a credit application and a company requests your credit report they are “making an inquiry”. When they do this, the credit reporting agency will update the information you provide on the credit application (i.e. address, employers, etc.). In addition to the information updates, the enquiries make up part of your credit report. As you gain credit, your creditors will begin to report your information to the credit reporting agency including the creditor name, amount of credit, frequency of payment.

When you authorize a creditor, potential employer or landlord or insurer, you are giving them access to all of the personal information listed on your credit report. Most authorizations include future access to your credit at their discretion which could result in future inquiries should you fall behind in payments and 3rd party collectors they employ to recover the debt.

If something has been reported incorrectly, this could influence decisions concerning our application so it is important that you be informed of your credit bureau status. Knowledge is power!

The two main credit reporting agencies are:

- Equifax

- Trans Union


The Beacon/Fico Score


Your Beacon/Fico Score is a number between 300 and 900 that is determined by the agency based on your credit history. 300 representing the poorest credit rating and 900 representing the best credit rating. Each Financial Institution has its own threshold for acceptable of scores but generally like to see that you have a minimum beacon score of 680 in order to qualify for credit. Individuals who find themselves between a 620 and 680 rating that are looking to refinance or purchase a home are best suited to use a mortgage broker who has access to private lenders, trust companies and mortgage investment corporations. In some cases, The Canadian Mortgage and Housing Corporation may insure mortgage applicants with minimum beacon scores as low as 620.


The Credit Report


Your credit report is made up of 4 main sections. Here is a basic outline of each section and how they impact your credit score.


Personal Information

This is information like your first and last name, SIN, date of birth, last known addresses, the date your credit report was created etc…

Impacts
If you change residences often or use different addresses on your credit report, this will negatively impact your beacon score as it demonstrates instability.


Inquiries

These are all the companies that viewed your credit report.

Impacts
If you make more than 4 applications for credit in one calendar year it will have a seriously negative impact to your Beacon Score.


Secured Liens, Collection Items, Bankruptcy, Consumer Proposals, Judgments

When you take out a secured a loan and a lien is registered against your property, the information will appear here. This is also the section where any collection accounts or past bankruptcy/consumer proposal will be recorded.

Impacts
A bankruptcy will result in your beacon score being reduced to an “R – reject beacon” until you are discharged. Consumer proposals, credit counseling and collection accounts will devastate your beacon score. Many people get confused and think a consumer proposal or credit counseling is a debt consolidation that reflects positively on their credit. It is not!


Trade Lines

This is where your creditors will list any credit accounts you hold with them. They will list the company name, the date you opened the account, the opening credit limit, the balance, the monthly payment, your payment history, the number of months they have reported the account to the credit report, the number of times you have been 30, 60, 90 days in arrears, the date of last activity on your account, and the last date that they reported information to your credit report.

Impacts
Late payments will obviously negatively impact your Beacon Score but there are many other aspects of your credit history that will severely impact your Beacon Score. One example is accruing a credit limit that is close to or exceeds your credit limit. So does closing a credit account with a balance and then making monthly payments.


The Rating System

There are 2 main types of credit products that report to the credit report.

Installment Credit – Personal Loans and Card Loans
Revolving Credit – Lines of Credit and Credit Cards

The rating system identifies the type of credit product “I” or “R” and beside it is a number between 1 and 9 that represents your payment habits:

1 = Up to date and in good standing
2 = 30 – 59 days in arrears
3 = 60 – 89 days in arrears
4 = 90 – 119 days in arrears
5 = 120 – 150 days in arrears
7 = indicates that the individual is in credit counseling
8 = indicates that a vehicle has been repossessed
9 = Bad debt right off.

If you fall into arrears on your credit 1-5 months and then pay your account up to date your rating will be restored to a “1” rating. Example: If you had a credit card that was 3 months in arrears and was reporting to your credit as a R3 rating, if you paid it up to date, it would become a R1 rating.

If you allow the debt to go 6 months in arrears and receive and “8” or “9” rating this will remain on your credit 6 years from the date the debt is settled or paid in full.

If you have a credit card that has been cancelled, this will also show even if you continue to make payments.


How Long Damaged Credit Stays on the Credit Bureau

The length of time damaged credit stays on the credit bureau depends on the type of credit and the action you take.


A loan or credit card that is 1-5 months in arrears
Length of time on bureau: Evidence of the late payment will remain on the credit report for 6 years from the date you pay the account up to date.

A loan or credit card that is 6 months in arrears
Length of time on bureau: Evidence of the bad debt write off will remain on the credit report for 6 years from the date you pay the account up to date.

A collection item
Length of time on bureau: Evidence of the collection item will remain on the credit report for 6 years from the date you pay the account up to date.

Credit Counseling and/or Consumer Proposal
Length of time on bureau: Evidence of the Credit Counseling and/or Consumer Proposal will remain on the credit report for 3 years from the date that the proposal is paid in full.

First Bankruptcy
Length of time on bureau: Evidence of the bankruptcy will remain on the credit report for 6 years from the date that the bankruptcy was discharged.

Second Bankruptcy
Length of time on bureau: Evidence of the bankruptcy will remain on the credit report for 14 years from the date that the bankruptcy was filed.


A Few Final Tips


Here are a few things that you can do to increase your Beacon/Fico Score.

1. Keep your inquiries below 4 in one calendar year.

2. Try not to apply for credit unless you are reasonably certain you will be approved. If one lender turns you down, chances are a likeminded creditor will to the same.

3. Read before you sign. Some department store rewards programs ask for credit inquiry authorization.

4. If you have any accounts that are currently in arrears, contact your creditor and make payment arrangements.

5. Make at least your minimum payments to loans and credit cards each and every month.

6. If you have credit cards that are close to, at, or over limit try to pay them down. Take a divide and conquer approach. Try to pay one card balance down to 75% of its limit at a time until all are under 75% of the limit. Once you achieve this, start on the next card.

How Lenders Assess Credit


Lenders look at more than just your credit rating when determining the level of risk you present to them. Most follow the 5 C’s of credit:


Capacity

The lender will look at your capacity which is your income/debt ratios and will assess your ability to make a new monthly payment to them.


Character

The lender will look at your stability. How long you have lived at your residence, how long you have maintained employment and your borrowing habits.


Credit

The lender will look at your credit score, your payment habits and the way you have managed your existing credit.


Collateral

The lender will look at your net worth. What assets do you have? What is the value of those assets measured against your debt?


Capital

The lender will look at your over all equity and savings.


You can have good credit but still present a high risk because you have limited stability, too much debt (even if you make payments on time each month) or have difficulty proving your income.

At the same time you could have poor credit but could have an asset with significant equity and still may qualify for credit with some lenders.

Comparing Credit Products - Credit Cards, Loans, Lines of Credit, Pay Day Loans


There are many different lenders and all have different criteria for lending money. The obvious catch is that the greater the risk you represent to them the greater the interest rate you are going to pay (if you even qualify for credit at all).


Credit Cards

When issued a credit card, the creditor will assign a credit limit and a minimum monthly payment that will typically be 1-3% of your credit limit. When credit cards are paid in full each month, no interest will be accrued (unless you take a cash advance) but if you obtain credit with intent to make the minimum monthly payments, the interest charges can:

- significantly increase the cost of that "good deal" purchase you could not resist
- make it difficult to pay down pay the principle owed

Credit card interest compounds (accrues) very differently then on most loans. Credit cards compound interest monthly (12 times per year) whereas interest on a loan is usually compounded annually or semi-annual (once or twice per year). Often times the credit card companies advertise interest rates that are based on minimum monthly payments. The minute a payment is late, you could be subject to fees and your interest rate may be increased. In some cases, the lender will reduce the card holder's credit card limit which could have a devastating impact to the card holders credit score, if they have a large balance.

For example:

- If you have a credit card that has a rate of 12%
- your monthly interest is 1%
- If your balance is $1,000, and your minimum monthly payment is $30.00 per/month

- The interest applied to your balance would be $10.00 for that month! After almost $100 in payments, the balance may only reduced by approximately $60!


Credit Card Lenders

This table is a guideline to help you understand how some lenders price the interest they will charge you based on your credit score.

Type of Lender Avg. Min. Required Credit Score Avg. Rate
Major Banks 680 10%-22%
Credit Unions 650 10%-22%
Finance Companies 620 19%-29%

Companies that take greater risks charge more interest. This is another reason to know where you stand with your credit rating because if your credit is good, you may still be charged high interest with high risk lenders. Do your research on lenders before you authorize them to perform an inquiry so you don't find out after that the interest charged is not appropriate to your situation.


Secured Credit Cards

Secured credit cards reduce the risk to the creditor by holding a deposit up front. Once you make the deposit, you will use and pay for the card as you would any other credit card. At no time will your deposit funds be considered as a payment so you still must make your payments on time to keep your account in good standing.

For the individual who is rebuilding credit after a bankruptcy, consumer proposal or bad credit, a secured credit card is a good way to achieve this goal. Remember to actually use this method to establish credit you must not exceed 75% of your credit limit as a balance.


Lines of Credit

Think of a line of credit as a credit card with a much larger limit. Like a credit card, they are reported as a revolving credit product and compound interest monthly. They are typically offered with much higher credit limits and are sometimes secured against home equity. Lines of credit are usually offered with lower interest rates than a typical credit card.

- Unsecured Line of Credit – Are usually offered by the bank and the interest rate is usually 1%-5% above prime. Banks will usually require a minimum beacon score of 680 to qualify for a line of credit.

- Secured Line of Credit – Usually secured lines of credit are secured by equity in the applicant’s property. If the applicant has excellent credit and a strong financial profile, they may qualify with the bank at a prime interest rate. If the applicant cannot prove their income or has had problems with their credit they may have to have at least 30% equity in their property and a minimum Beacon Score of 800. They may also be subject to a higher interest rate.


Loans

A person who has a lot of debt but also has a strong financial profile should pursue a low interest, short term consolidation loan from their bank as the best first solution. Why? Because if you qualify, a bank will offer you a low fixed rate, you will have an end date as to when the debt will be paid and one fixed monthly payment that is intended to pay down the balance within the term of the agreement. This is very different from a payment that is based on a very small percent of your approved credit amount.

Many finance companies offer loans as a means to consolidate debt. Buyers beware. Some of these loans come with strings attached. Many bear interest rates of 25% - 33% and they will sell you high premium insurance. The premiums are then tacked onto the loan principal and the interest is accrued on those insurance premiums too.

A person who has gone through a bankruptcy should consider a small high interest loan as a viable option for the purpose of rebuilding credit. Taking out a small personal loan that bears a low manageable payment is a good solution for rebuilding credit. In this scenario we are referencing borrowing from a finance company that reports to your credit bureau NOT Payday loans.

Type of Lender Avg. Min. Required Credit Score Avg. Rate
Major Banks 680 8% +
Finance Companies 600 25% +

Pay Day Loans

Pay day loans can initiate a dangerous cycle and we never recommend them as an option at all. They serve no benefit, they are expensive and do not establish credit. Beware of payroll loan companies that attempt to disassociate themselves from this label. If their products are packages in this manner, they are should be avoided.

Here is how it works.

1. If you earn $1000.00 in 2 weeks some payday loan companies will loan you up to 100% of your pay cheque equal to $1,000.00.

2. You must promise to repay the loan on your next biweekly pay period. You will be charged a fee to borrow for the 2 week period of up to $200.00.

3. On your next pay period, your bills are due but you have a cheque for $1,200.00 ($200.00 more than your pay cheque) coming out of your account to pay off this loan. Many re-loan to avoid paying the balance in full. While this may provide another $1000, it has come at a cost of $200 over the pay period. If you are paid biweekly, that's approximately $400/month or almost $5000/year in fees to borrow $1000.

Many Canadians have been forced into bankruptcy over small amounts of debt because they have accumulated payday loans.


Store Cards

You don’t have to have impeccable credit to qualify for a store card. Store cards usually bear an interest rate of 29%, while some may offer you interest free promotions if you purchase big ticket items from their store.


Comparing Credit Products - Credit Cards, Loans, Lines of Credit, Pay Day Loans


There are many different lenders and all have different criteria for lending money. The obvious catch is that the greater the risk you represent to them the greater the interest rate you are going to pay (if you even qualify for credit at all).


Credit Cards

When issued a credit card, the creditor will assign a credit limit and a minimum monthly payment that will typically be 1-3% of your credit limit. When credit cards are paid in full each month, no interest will be accrued (unless you take a cash advance) but if you obtain credit with intent to make the minimum monthly payments, the interest charges can:

- significantly increase the cost of that "good deal" purchase you could not resist
- make it difficult to pay down pay the principle owed

Credit card interest compounds (accrues) very differently then on most loans. Credit cards compound interest monthly (12 times per year) whereas interest on a loan is usually compounded annually or semi-annual (once or twice per year). Often times the credit card companies advertise interest rates that are based on minimum monthly payments. The minute a payment is late, you could be subject to fees and your interest rate may be increased. In some cases, the lender will reduce the card holder's credit card limit which could have a devastating impact to the card holders credit score, if they have a large balance.

For example:

- If you have a credit card that has a rate of 12%
- your monthly interest is 1%
- If your balance is $1,000, and your minimum monthly payment is $30.00 per/month

- The interest applied to your balance would be $10.00 for that month! After almost $100 in payments, the balance may only reduced by approximately $60!


Credit Card Lenders

This table is a guideline to help you understand how some lenders price the interest they will charge you based on your credit score.

Type of Lender Avg. Min. Required Credit Score Avg. Rate
Major Banks 680 10%-22%
Credit Unions 650 10%-22%
Finance Companies 620 19%-29%

Companies that take greater risks charge more interest. This is another reason to know where you stand with your credit rating because if your credit is good, you may still be charged high interest with high risk lenders. Do your research on lenders before you authorize them to perform an inquiry so you don't find out after that the interest charged is not appropriate to your situation.


Secured Credit Cards

Secured credit cards reduce the risk to the creditor by holding a deposit up front. Once you make the deposit, you will use and pay for the card as you would any other credit card. At no time will your deposit funds be considered as a payment so you still must make your payments on time to keep your account in good standing.

For the individual who is rebuilding credit after a bankruptcy, consumer proposal or bad credit, a secured credit card is a good way to achieve this goal. Remember to actually use this method to establish credit you must not exceed 75% of your credit limit as a balance.


Lines of Credit

Think of a line of credit as a credit card with a much larger limit. Like a credit card, they are reported as a revolving credit product and compound interest monthly. They are typically offered with much higher credit limits and are sometimes secured against home equity. Lines of credit are usually offered with lower interest rates than a typical credit card.

- Unsecured Line of Credit – Are usually offered by the bank and the interest rate is usually 1%-5% above prime. Banks will usually require a minimum beacon score of 680 to qualify for a line of credit.

- Secured Line of Credit – Usually secured lines of credit are secured by equity in the applicant’s property. If the applicant has excellent credit and a strong financial profile, they may qualify with the bank at a prime interest rate. If the applicant cannot prove their income or has had problems with their credit they may have to have at least 30% equity in their property and a minimum Beacon Score of 800. They may also be subject to a higher interest rate.


Loans

A person who has a lot of debt but also has a strong financial profile should pursue a low interest, short term consolidation loan from their bank as the best first solution. Why? Because if you qualify, a bank will offer you a low fixed rate, you will have an end date as to when the debt will be paid and one fixed monthly payment that is intended to pay down the balance within the term of the agreement. This is very different from a payment that is based on a very small percent of your approved credit amount.

Many finance companies offer loans as a means to consolidate debt. Buyers beware. Some of these loans come with strings attached. Many bear interest rates of 25% - 33% and they will sell you high premium insurance. The premiums are then tacked onto the loan principal and the interest is accrued on those insurance premiums too.

A person who has gone through a bankruptcy should consider a small high interest loan as a viable option for the purpose of rebuilding credit. Taking out a small personal loan that bears a low manageable payment is a good solution for rebuilding credit. In this scenario we are referencing borrowing from a finance company that reports to your credit bureau NOT Payday loans.

Type of Lender Avg. Min. Required Credit Score Avg. Rate
Major Banks 680 8% +
Finance Companies 600 25% +

Pay Day Loans

Pay day loans can initiate a dangerous cycle and we never recommend them as an option at all. They serve no benefit, they are expensive and do not establish credit. Beware of payroll loan companies that attempt to disassociate themselves from this label. If their products are packages in this manner, they are should be avoided.

Here is how it works.

1. If you earn $1000.00 in 2 weeks some payday loan companies will loan you up to 100% of your pay cheque equal to $1,000.00.

2. You must promise to repay the loan on your next biweekly pay period. You will be charged a fee to borrow for the 2 week period of up to $200.00.

3. On your next pay period, your bills are due but you have a cheque for $1,200.00 ($200.00 more than your pay cheque) coming out of your account to pay off this loan. Many re-loan to avoid paying the balance in full. While this may provide another $1000, it has come at a cost of $200 over the pay period. If you are paid biweekly, that's approximately $400/month or almost $5000/year in fees to borrow $1000.

Many Canadians have been forced into bankruptcy over small amounts of debt because they have accumulated payday loans.


Store Cards

You don’t have to have impeccable credit to qualify for a store card. Store cards usually bear an interest rate of 29%, while some may offer you interest free promotions if you purchase big ticket items from their store.


Building A Strong Financial Profile


In order to have a strong financial profile you must work towards demonstrating:

- Good stability
- A Beacon Score greater than 680
- Credit Cards that are paid in full each month
- A GDS ratio below 30%
- A TDS ratio below 40%
- Provable Income

Once this is achieved you will qualify with the banks to borrow money at lower interest rates, flexible terms and you will increase your overall borrowing power.


Get Started on a Path to a Stronger Financial Profile

1. Request your Financial Report Card – this will allow you to go through your budget and will generate your TDS, GDS, Cash Flow, Net Worth, Debt Load and more…. This will give you insight and explain to you the strengths and weaknesses that exist within your financial profile.

2. Set goals and focus on strengthening those weaknesses.

3. Request your credit reports from both Equifax and Trans Union and follow-up on anything that seems incorrect.

4. Devise a plan to pay down existing credit cards.

5. Look for ways in your budget to reduce expenses.

6. If you are self employed, review your GDS, TDS against our books. Consider the income that you declare and how it is impacting your borrowing power.

The key to your success is the awareness of spending and borrowing.

Leveraging Your Assets to Get Out of Debt


Many Canadians and Americans have assets like a home, car, investments and saving. Some assets can be leveraged and some cannot.

As an example, a homeowner who is carrying a lot of debt but also has $15,000 in savings and $20,000 invested in RRSPs may not see the benefit of using their savings or RRSPs, as an attractive option consider to pay off debt. For these individuals, refinancing their home to consolidate, may be a more viable option if they are carrying more than $15,000 in debt and:

- have credit cards that are close to, at or over limit and you are only making minimum monthly payments.
- have a large tax debt.
- have accounts that are currently in arrears or in collections.
- have an interest only private second mortgage.

Getting into the cycle of making minimum payments to credit cards will result in interest only payments.


Making Difficult Financial Decisions


From time to time people find themselves in situations where they have to make difficult financial decisions. Some find themselves in severe debt that has accrued over time while others encounter an unexpected expense like a tax/government debt, family emergency and more.

There are many avenues that one can take to pay debt that include:

- Unsecured debt consolidation

- Home equity refinancing

- Leverage Assets/investments/savings, to get out of debt

- Bankruptcy/Consumer Proposal


Before rushing into a decision that could lead to more stressful circumstances, it is important to understand your situation as a whole in order to make the choice that will benefit your specific needs. Trueassess.com is an easy to follow online service that will help you understand your financial situation before you make a difficult financial decision and provide you with strategies to build credit and get out of debt.

Your True Assess Financial Report Card is based on the expertise of professionals and is completely confidential. No one will contact you or solicit you for business.

Your True Assess Financial Report Card provides you with an in-depth financial assessment and provides you with an insider lender perspective of your financial profile. You will receive an informative report that assesses your stability, income, income type, debt/income ratio’s, net worth, cash flow/budget, creditors and more. You will also be provided with practical options to help you make decisions that will build better credit and a stronger financial profile.


Refinancing Your Home


Refinancing Your Home May Be The Best Solution

Mortgages have a term and an amortization over an extended period of time that often results in a more manageable payment. The term is the length of time your lender has agreed to extend you a mortgage. The payment is based on an amortization, usually 15-30 years. When refinancing your home you can make slight changes to your amortization which will save you a lot of interest that represent greater savings than the closing costs associated with refinancing.

Here is an example:

John and Barbara own a home worth $300,000.

1. They have a mortgage with their bank in the amount of $170,000.

2. Their monthly mortgage payment is $1087 based on a 6% interest rate and a 25 year amortization.

3. They had accumulated credit card debt of $20,000, with minimum payments of totaling $600 per/mo.

4. They also had a $11,000 tax debt with the CRA that was costing them $400 per/mo.

5. Their total monthly payments to their mortgage and creditors totaled $2087 per/mo.

They went to a mortgage broker and were presented with the following option:

Based on their current mortgage amortization of 25 years, at the end of their mortgage they would have repaid $326,100.

If they refinanced their mortgage from $170,000 up to 205,000 (to pay off the debt and cover the closing costs) at a rate of 6% and based on a 15 year amortization their new monthly payment would be $1,721 per/month.

This option will:.

- Pay off their home 10 years sooner
- Save over $16,000 in mortgage repayment
- Reduce the monthly payments from what they were used to paying in amount of $2087 per/mo to $1721 – total monthly savings $366 per/mo.


Is refinancing the best solution for you?

That really depends on the amount of debt you have, the interest rates, the equity in your home and more.

Types of Mortgages


Mortgage refinancing is one of the fastest, most effective ways to eliminate debt. It makes sense to use the equity in your home to consolidate debt or for big ($10,000 +) ticket purchases is. This will allow you to finance the debt/purchase at affordable mortgage rates (lower than unsecured credit products) and you will have more flexibility with repayment to repay your debt faster as your situation improves.

The financial institution that you do business with will be able to advise you if you meet their qualifications but before you do, obtain an in-depth assessment through Trueassess.com to avoid unnecessary inquiries on your credit. With an assessment, you will have a better idea of the type of financial lenders that would consider your situation based on your individual needs.

You should also consider working with a licensed mortgage broker can introduce you to a wide array of different mortgage products available through private banks, trust companies, mortgage investment company’s and more. You may not qualify with your bank but some of these companies will refinance your property even if you don’t have a high credit score or if you have difficulty proving your income. Remove the stress of finding the right solution for you. When you work with a licensed mortgage broker, you benefit from their established network of lenders and years of experience to provide you with the support you need when making important financial decisions.

High Ratio Insured Mortgages

The reason Canadians and Americans are able to sometimes purchase homes with small down payments is because of high ratio default insurance that it offered to the mortgage company by the insurance company. In Canada the largest high ratio insurer is The Canadian Mortgage and Housing Corporation (CMHC), in the United States it is AIG.

These insurance companies offer financial institutions “high ratio default insurance”. If you meet the insurance companies lending criteria and your lending institution is able to obtain the insurance you may qualify for lower interest rates and be able to refinance more equity from your home.

Here is some of CMHC’s main criteria, the applicant must:

1. Be at least 1 year on the job
2. Have provable income and at least 2 years of T4’s or tax assessments
3. Have a minimum Beacon Score of 620
4. Must not have a GDS that exceeds 32%
5. Must not have a TDS that exceeds 42%
6. Must not have any late payments or unpaid bad credit in the past 24 months
7. Must have at least 2 years of re-established credit after being discharged after filing for bankruptcy or consumer proposal.


Equity Mortgages

An applicant who does not qualify for high ratio insurance generally does not qualify because:

1. They have high income/debt ratio’s or issues with credit
2. Cannot prove their income
3. Limited or poor stability

If the homeowner has equity greater than 25% of the value of their property (Example: a $200,000 home doesn’t have mortgages that exceed $150,000), there are many large, credible finance and trust companies that will offer “equity financing”. This means they will still agree to loan you money against your property equity based solely on the fact that you have a certain amount of equity in your home.


Types of Lenders


Comparing Lender Requirements

The following tables show you how lenders determine the percentage of equity that they will loan a homeowner based on their income and credit score.

Legend

LTV – Loan to value is the % of equity is owed in proportion to the value of the property
Beacon Score – Credit Score
GDS – Gross Debt Service Ratio
TDS – Total Debt Service Ratio
n/a – the information is not available or the applicable item is generally not required by that type of lender
DQ - Do not qualify




You Have Proof of Income

Major Banks

Credit Score Max LTV Max GDS Max GDS
Less than 550 DQ DQ DQ
551-619 DQ DQ DQ
620-679 DQ DQ DQ
680+ 90% 30% 40%

Trust Companies

Credit Score Max LTV Max GDS Max GDS
Less than 550 DQ DQ DQ
551-619 80% 32% 42%
620-679 85% 32% 42%
680+ 85% 32% 42%

Credit Unions

Credit Score Max LTV Max GDS Max GDS
Less than 550 DQ DQ DQ
551-619 DQ DQ DQ
620-679 90% 30% 40%
680+ 90% 40% 30%

Investment Corporations

Credit Score Max LTV Max GDS Max GDS
Less than 550 75% n/a n/a
551-619 75% n/a n/a
620-679 75% n/a n/a
680+ 75% n/a n/a


You Do Not Have Proof of Income



Major Banks

Credit Score Max LTV Max GDS Max GDS
Less than 550 DQ DQ DQ
551-619 DQ DQ DQ
620-679 DQ DQ DQ
680+ 70% 30% 40%

Trust Companies

Credit Score Max LTV Max GDS Max GDS
Less than 550 DQ DQ DQ
551-619 75% 32% 42%
620-679 80% 32% 42%
680+ 85% 32% 42%

Credit Unions

Credit Score Max LTV Max GDS Max GDS
Less than 550 DQ DQ DQ
551-619 DQ DQ DQ
620-679 70% 30% 40%
680+ 70% 40% 30%

Investment Corporations

Credit Score Max LTV Max GDS Max GDS
Less than 550 75% n/a n/a
551-619 75% n/a n/a
620-679 75% n/a n/a
680+ 75% n/a n/a


Major Banks - Canada (With Insurance Divisions)
Canada (British Columbia, Ontario, Alberta, Saskatchewan, Manitoba, Quebec, Newfoundland, New Brunswick, Prince Edward Island, Nova Scotia, Northwest Territories, Yukon)

TDCT - TD Canada Trust
TDCT - TD Canada Trust General Insurance
TDCT - Canada Trust Visa
RBC - Royal Bank
RBC - Royal Bank of Canada
RBC - Royal Bank General Insurance
RBC - Royal Bank Visa
Scotia – Scotia Bank
Scotia – Scotia Bank Visa
BMO – Bank of Montreal
BMO – Bank of Montreal Insurance
BMO – Bank of Montreal Master Card
CIBC – Canadian Imperial Bank of Commerce
CIBC Insurance
CIBC Visa


Major Banks – United States
Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, , Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming

Bank of America
Bank of America Master Card
JPMorgan Chase Bank
JPMorgan Chase Investments
Wachovia Bank
Wachovia Insurance
Wells Fargo Bank
Wells Fargo Financial
Wells Fargo MasterCard
Citibank
Citibank (South Dakota) N.A.
Citibank (South Dakota) N.A.
Citi Bank MasterCard
U.S. Bank
SunTrust Bank
National City Bank
Branch Banking and Trust Company
Regions Bank
PNC Bank
HSBC Bank USA
HSBC MasterCard
TD Bank North
TD Bank USA, National Association
RD Bank North Insurance
TD Bank Visa
RBS Citizens
ING Bank, fsb
ING Savings Accounts
ING Mortgages
ING Insurance
Capital One
Capital One Bank (USA)
Capitol One Master Card
Capitol One Secured Master Card
Key bank
Merrill Lynch Bank USA
Merrill Lynch Bank and Trust Co.
Merrill Lynch Investments
The Bank of New York Mellon
Morgan Stanley Bank
Morgan Stanley Investments
Union Bank
Sovereign BankManufacturers and Traders Trust Company
Fifth Third Bank
Comerica Bank
The Huntington National Bank
Compass Bank
Goldman Sachs Bank
Goldman Sachs Hedge Funds
Goldman Sachs Investments
Bank of the West
Marshall and Ilsley Bank
Charles Schwab Bank
Charles Schwab Investments
Fifth Third Bank
USAA Federal Savings Bank
E-Trade Bank
E-Trade Insurance
Discover Bank
Discover MasterCard
Harris National Association
Harris National Bank
Harris Bank Mortgages
Ally Bank
Citizens Bank of Pennsylvania
Hudson City Savings Bank
Chase Bank USA
Chase Bank Visa
Chase Bank Blue Print
State Street Bank and Trust Co.
Colonial Bank
RBC Bank (USA)
Royal Bank of Canada (USA)
Banco Popular de Puerto Rico
Associated Bank

CANADA Comparing Bankruptcy to Consumer Proposals


In September of 2009 the Bankruptcy and Insolvency Act was amended in such a way that it making filing for bankruptcy more difficult and in some circumstances a very expensive, long term option.

The changes have made Consumer Proposals a much more viable option to a consumer or business who has significant debt and little or no equity in their home.

Let’s compare Bankruptcy's and Proposals against one and other:


Bankruptcy

- You have to report all income to your trustee on a monthly basis.

- If you are assessed to have surplus income you will have to pay into your bankruptcy for a minimum of 21 months before you are eligible to be discharged.

- If you are assessed to have surplus income you have to pay 50 cents on the dollar of that income to trustee.

- The bankruptcy remains on your credit for 6 years from when it is discharged and causes more damage to credit.

- You will give up all assets (excluding exempted assets)


Consumer Proposal

- You do not have to report your income to the trustee monthly.

- Consumer Proposals are not subject to surplus income and a “discharge” period.

- The trustee makes a proposal to your creditors based on a percentage of your debt, asset and income.

- Proposing a monthly payment of up to 5 years.

- If it is accepted that’s it. You simply make your one fixed monthly payment to the trustee monthly.

- If you come into a lump sum of money you can pay the proposal in full.

- The proposal remains on your credit report for 3 years from when it’s paid off.

- You get to keep all your assets.



USA Comparing Chapter 7 Bankruptcy to Chapter 11 Bankruptcy


Chapter 7 Bankruptcy

A chapter 7 bankruptcy case does not involve the filing of a plan of repayment as in chapter 11. Instead, the bankruptcy trustee gathers and sells the debtor's nonexempt assets and uses the proceeds of such assets to pay holders of claims (creditors) in accordance with the provisions of the Bankruptcy Code. Part of the debtor's property may be subject to liens and mortgages that pledge the property to other creditors. In addition, the Bankruptcy Code will allow the debtor to keep certain "exempt" property; but a trustee will liquidate the debtor's remaining assets. Accordingly, potential debtors should realize that the filing of a petition under chapter 7 may result in the loss of property.


Chapter Seven Bankruptcy


One of the primary purposes of bankruptcy is to discharge certain debts to give an honest individual debtor a "fresh start." The debtor has no liability for discharged debts. In a chapter 7 case, however, a discharge is only available to individual debtors, not to partnerships or corporations. Although an individual chapter 7 case usually results in a discharge of debts, the right to a discharge is not absolute, and some types of debts are not discharged. Moreover, a bankruptcy discharge does not extinguish a lien on property.

1. A chapter 7 case begins with the debtor filing a petition with the bankruptcy court serving the area where the individual lives or where the business debtor is organized or has its principal place of business or principal assets.

2. In addition to the petition, the debtor must also file with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a statement of financial affairs; and (4) a schedule of executory contracts and unexpired leases.

3. Debtors must also provide the assigned case trustee with a copy of the tax return or transcripts for the most recent tax year as well as tax returns filed during the case (including tax returns for prior years that had not been filed when the case began).

4. Individual debtors with primarily consumer debts have additional document filing requirements. They must file: a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling; evidence of payment from employers, if any, received 60 days before filing; a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest the debtor has in federal or state qualified education or tuition accounts. Id. A husband and wife may file a joint petition or individual petitions.

5. Even if filing jointly, a husband and wife are subject to all the document filing requirements of individual debtors.

6. The courts must charge a $245 case filing fee, a $39 miscellaneous administrative fee, and a $15 trustee surcharge. Normally, the fees must be paid to the clerk of the court upon filing. With the court's permission, however, individual debtors may pay in installments. The number of installments is limited to four, and the debtor must make the final installment no later than 120 days after filing the petition. For cause shown, the court may extend the time of any installment, provided that the last installment is paid not later than 180 days after filing the petition. The debtor may also pay the $39 administrative fee and the $15 trustee surcharge in installments. If a joint petition is filed, only one filing fee, one administrative fee, and one trustee surcharge are charged. Debtors should be aware that failure to pay these fees may result in dismissal of the case.

If the debtor's income is less than 150% of the poverty level (as defined in the Bankruptcy Code), and the debtor is unable to pay the chapter 7 fees even in installments, the court may waive the requirement that the fees be paid.

Filing a petition under chapter 7 "automatically stays" (stops) most collection actions against the debtor or the debtor's property. But filing the petition does not stay certain types of actions, and the stay may be effective only for a short time in some situations. As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments. The bankruptcy clerk gives notice of the bankruptcy case to all creditors whose names and addresses are provided by the debtor.

Between 21 and 40 days after the petition is filed, the case trustee (described below) will hold a meeting of creditors. If the U.S. trustee or bankruptcy administrator schedules the meeting at a place that does not have regular U.S. trustee or bankruptcy administrator staffing, the meeting may be held no more than 60 days after the order for relief. During this meeting, the trustee puts the debtor under oath, and both the trustee and creditors may ask questions. The debtor must attend the meeting and answer questions regarding the debtor's financial affairs and property.


The Chapter 7 Discharge

A discharge releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor. In most cases, the bankruptcy court will issue a discharge order relatively early in the case – generally, 60 to 90 days after the date first set for the meeting of creditors.




Chapter 11 Bankruptcy

The chapter of the Bankruptcy Code providing (generally) for reorganization, usually involving a corporation or partnership. (A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in chapter 11.)



Chapter 11 Bankruptcy


A case filed under chapter 11 of the United States Bankruptcy Code is frequently referred to as a "reorganization" bankruptcy.

1. A chapter 11 case begins with the filing of a petition with the bankruptcy court serving the area where the debtor has a domicile or residence.

2. A petition may be a voluntary petition, which is filed by the debtor, or it may be an involuntary petition, which is filed by creditors that meet certain requirements.

3. A voluntary petition must adhere to the format of Form 1 of the Official Forms prescribed by the Judicial Conference of the United States. Unless the court orders otherwise, the debtor also must file with the court: (1) schedules of assets and liabilities; (2) a schedule of current income and expenditures; (3) a schedule of executory contracts and unexpired leases; and (4) a statement of financial affairs.

4. If the debtor is an individual (or husband and wife), there are additional document filing requirements. Such debtors must file: a certificate of credit counseling and a copy of any debt repayment plan developed through credit counseling; evidence of payment from employers, if any, received 60 days before filing; a statement of monthly net income and any anticipated increase in income or expenses after filing; and a record of any interest the debtor has in federal or state qualified education or tuition accounts.

5. A husband and wife may file a joint petition or individual petitions.

The courts are required to charge an $1,000 case filing fee and a $39 miscellaneous administrative fee. The fees must be paid to the clerk of the court upon filing or may, with the court's permission, be paid by individual debtors in installments. Bankruptcy Court Miscellaneous Fee Schedule, limits to four the number of installments for the filing fee. The final installment must be paid not later than 120 days after filing the petition. For cause shown, the court may extend the time of any installment, provided that the last installment is paid not later than 180 days after the filing of the petition. The $39 administrative fee may be paid in installments in the same manner as the filing fee. If a joint petition is filed, only one filing fee and one administrative fee are charged. Debtors should be aware that failure to pay these fees may result in dismissal of the case.

Generally, a written disclosure statement and a plan of reorganization must be filed with the court.

The disclosure statement is a document that must contain information concerning the assets, liabilities, and business affairs of the debtor sufficient to enable a creditor to make an informed judgment about the debtor's plan of reorganization.

After the disclosure statement is approved by the court and the ballots are collected and tallied, the court will conduct a confirmation hearing to determine whether to confirm the plan.


The Automatic Stay

The automatic stay provides a period of time in which all judgments, collection activities, foreclosures, and repossessions of property are suspended and may not be pursued by the creditors on any debt or claim that arose before the filing of the bankruptcy petition. As with cases under other chapters of the Bankruptcy Code, a stay of creditor actions against the chapter 11 debtor automatically goes into effect when the bankruptcy petition is filed.


Acceptance of the Plan of Reorganization

As noted earlier, only the debtor may file a plan of reorganization during the first 120-day period after the petition is filed (or after entry of the order for relief, if an involuntary petition was filed). The court may grant extension of this exclusive period up to 18 months after the petition date. In addition, the debtor has 180 days after the petition date or entry of the order for relief to obtain acceptances of its plan. The court may extend (up to 20 months) or reduce this acceptance exclusive period for cause. In practice, debtors typically seek extensions of both the plan filing and plan acceptance deadlines at the same time so that any order sought from the court allows the debtor two months to seek acceptances after filing a plan before any competing plan can be filed.

Any party in interest may file an objection to confirmation of a plan. The Bankruptcy Code requires the court, after notice, to hold a hearing on confirmation of a plan. If no objection to confirmation has been timely filed, the Bankruptcy Code allows the court to determine whether the plan has been proposed in good faith and according to law.


The Discharge

Section 1141(d)(1) generally provides that confirmation of a plan discharges a debtor from any debt that arose before the date of confirmation. After the plan is confirmed, the debtor is required to make plan payments and is bound by the provisions of the plan of reorganization. The confirmed plan creates new contractual rights, replacing or superseding pre-bankruptcy contracts.





Dealing With a Tax Problem


If you have a tax debt with the taxing authority (CRA or IRS) this is very serious and should be addressed immediately.

Whether you have dispute over the amount that you owe, or just simply can’t pay, it’s important to think about ways to address your tax problem to avoid enforcement action.

Above all else, if you already owe or are going to owe money to the taxing authority (CRA or IRS), you have a financial problem. The best thing to do is come up with a strategy to deal financial aspect of your tax problem and then pursue your dispute after the fact.

This will prevent the taxing authority (CRA or IRS) from taking further collection action and give you the time to organize, an advocate, an accountant or even legal representation(if necessary) to deal with your dispute.

If you have no dispute over the amount that you owe, having a financial strategy to deal with your tax debt will help you work through resolving your issue. Whether it is:

- Addressing the financial component of your tax problem (whether you owe now or are going to owe – even if you have a dispute)

- Dealing with taxing authority (CRA or IRS) enforcements and collections

- Getting past due returns prepared and filed

- Making a Tax Payer Relief Application



Owing Money to the Taxing Authority (CRA or IRS)


If the taxing authority (CRA or IRS) believes you owe them money, whether you agree you owe them the money or not, they will try to collect it!

If you want to arrange an interim payment plan or permanent payment plan with the taxing authority (CRA or IRS), it is possible, but it is tricky. The taxing authority (CRA or IRS) will try to extract as much financial information as possible and if you miss a payment could use that information to pursue enforcement action against you.

It could be that you are in no financial position to pay the taxing authority at all, then what do you do?

Prior to initiating a negotiation with the taxing authority you may want to review your financial situation to see what, if anything you are able to propose. You will find this easier if you request a True Assess Financial Assessment. The assessment will outline your current financial profile, borrowing capability and will provide you with useful information that may make coming up with a proposal easier than you think.


Tax Collection and Enforcement


There are two main reasons why the taxing authority will take enforcement action against you which are:

- You owe them money and have not made repayment arrangements.
- You are past due filing returns and they have reason to believe that you will owe them money.

The taxing authority will use the following enforcement remedies:< /p>

- Wage garnishment
- Freezing a bank account,
- Attaching a lien on your home

The taxing authority will sometimes negotiate to reduce or remove an enforcement remedy with compelling evidence of the taxpayer’s financial situation and a viable repayment strategy.




Past Due Tax Returns


Failing to file your tax returns could land you in real trouble with the taxing authority. You can take simple steps to resolve your tax problem.


Late Filing in Canada

It is true that under sections 238(1) and 239(1) of the Canadian Income Tax Act, not filing a return, filing more than one year late if tax is due, or failing to declare taxable income from any source, is criminal tax evasion.

Depending on the length of time you haven’t filed the CRA could pursue criminal charges.

Many tax payers that are behind filing their returns think that they can file their returns under tax amnesty and avoid interest and penalties. This is not true.

1. If the taxpayer was aware of, or had knowledge of an audit, investigation or other enforcement action set to be conducted by the CRA or any other authority or administration, with respect to the information being disclosed to the CRA, or

2. Enforcement action relating to the disclosure was initiated by the taxing authority or any other authority or administration on the taxpayer, or on a person associated with, or related to the taxpayer (this includes, but is not restricted to, corporations, shareholders, spouses and partners), or on a third party, where the purpose and impact of the enforcement action against the third party is sufficiently related to the present disclosure, and

3. The enforcement action is likely to have uncovered the information being disclosed.


What this means is if the taxing authority has requested that you file or has notified you that you are one of your returns is under investigation and then you disclose your income by filing your returns up to date, the disclosure is not considered voluntary and the tax payer will be subject to interest and penalties.


Many taxpayers retain expensive legal counsel thinking that they can file their past due returns under tax amnesty. They ultimately end up having to file the past due returns anyways and still face interest and penalty charges.

The best thing to do if you if the taxing authority is requesting that you file past due tax returns is to file them! Even if you think you are going to owe money.

Not doing so could land you in real legal trouble or the CRA could simply file a notional assessment and decide what they think you earned and the amount of tax owing.

Prior to rushing into any financial decision we recommend that you obtain and thoroughly review you current financial situation while giving consideration to your future financial goals.


Notional Assessments in Canada

If the CRA has sent you a Notice of Assessment on a tax year(s) that you haven’t filed, this is called a notional assessment. The CRA will estimate what they believe was your income, taxes owing and will also assess interest and penalties on those amounts.

If this has happened to you, you should immediately arrange to re-file those returns with all of your income and expenses, it could result in less taxes owing. Even if it doesn’t a notional assessment is not a voluntary form of tax filing and you should re file.

If you are worried about how you are going to deal with owing/paying the CRA and the financial aspect of repaying your tax debt you should consider retaining an advocate to negotiate with the CRA. An advocate can help you to complete forms, make interim arrangements and then come up with a long term strategy to deal with the underlying tax problem (which includes getting the appropriate professionals in place to help you get your returns filed).

If it happens that you have no ability to pay the debt you could consult a Trustee in Bankruptcy about what viable proposal options may be available to you.

Prior to rushing into any financial decision we recommend that you obtain and thoroughly review you current financial situation while giving consideration to your future financial goals.


Tax Amnesty in Canada

Tax Amnesty is intended to allow taxpayers can make disclosures to correct inaccurate or incomplete information, or to disclose information not previously reported. For example, taxpayers may not have met their tax obligations if they claimed ineligible expenses, failed to remit source deductions or the GST/HST, or did not file an information return.

Relief from penalty and prosecution, as provided for under the VDP, may be considered if a taxpayer:

1. failed to fulfill their obligations under the applicable act,

2. failed to report any taxable income they received,

3. claimed ineligible expenses on a tax return,

4. failed to remit source deductions of their employees,

5. failed to report an amount of GST/HST, (which may include undisclosed liabilities or improperly claimed refunds or rebates, unpaid tax or net tax from a previous reporting period),

6. failed to file information returns, and

7. failed to report foreign sourced income that is taxable in Canada.

Voluntary Disclosures are best made by tax lawyers as they can make the disclosure on a “no name” basis and your information will be protected by lawyer/client confidentiality.




Interest and Penalty Relief


You have to be realistic. Tax payer relief is granted to individuals who have been subject to extraordinary circumstances such as:

Extreme financial hardship
e.g – you are on EI or disability and have no assets, investments or savings

Fire, flood, natural disaster
e.g – your house burnt down and all of your taxes and receipts were inside

Severe medical problem
e.g – you had a heart attack

Error on the part of the taxing authority

If your cash flow is tight, but you own a home, RRSP, other investment etc…., as an example, you would not be considered having extreme financial hardship.

1. The best thing to do if you want to pursue interest and penalty relief is make a repayment plan with the CRA based on the principal that you owe.

2. Once an arrangement is in place you will need to write a narrative explaining what happened.

3. You will then need to gather all evidence to support your request.


Applications for Interest and Penalty Relief - CRA Process

In Canada a taxpayer who wants to request relief of interest and penalties may do so by making an application for relief to the Canada Revenue Agency.

The Canada Revenue Agency may grant the taxpayer relief from interest and penalties but will not negotiate the reduction of principal.


Offers in Compromise - IRS

In the United States a tax payer can negotiate the removal of interest and penalties with the Internal Revenue Service.

The IRS will even negotiate the reduction of principal through a process called "Offer in Compromise".


If it happens that you have no ability to pay the principal CRA debt even if you were granted interest and penalty relief, you may want to save yourself the time and expense of making a relief submission and consult a trustee about proposal and bankruptcy option which will not only wipe out interest and penalties but will also reduce the principal tax debt.

Prior to rushing into any financial decision we recommend that you obtain and thoroughly review you current financial situation while giving consideration to your future financial goals