Title: It couldn't hurt to learn about finances in such a financial world, especially if you're broke!

Hello World,

I was a bit busy this week/weekend and didn't get a chance to write you, Sorry!
From speaking to my friends and others I have began to realize how easy it is to spend money and use credit but the difficulty in understanding money and credit. Wouldn't it be a great world if for every credit card sales person that existed from the department stores to our schools and even our banks there was someone right there to advise us thoroughly about the implications of these services from the get go? When I say advise us thoroughly, they should be advising us on how to use our money and credit wisely and what to do if we get in that tough situation like many of us do.
While I am not a banking associate I will try to define some things that I think are important for everyone to understand. I suggest you do your own research and see what you discouver, it couldn't hurt to learn about finances in such a financial world.

Overdraft - You usually have to pay an overdraft fee. It Means that you have a negative balance when in use. A refusal to pay this balance can result in a closed account and the bank may choose to report the problem account which may in turn affect your credit capability. You may notice that if you have a savings account or another account with said bank they may take money from that account and put it into your overdraft without your acknowledgment. With many banks it is expected for you to have your overdraft paid in full after every three months or it may vary. It is okay to use overdraft for temporary purposes as long as you pay it back in a timely fashion.

Tax Free Saving Account - The Tax-Free Savings Account (TFSA) is a flexible, registered, general-purpose savings vehicle that allows Canadians to earn tax-free investment income to more easily meet lifetime savings needs. The TFSA complements existing registered savings plans like the Registered Retirement Savings Plans (RRSP) and the Registered Education Savings Plans (RESP). The TFSA is an account that provides tax benefits for saving in Canada. Contributions to a TFSA are not deductible for income tax purposes. Investment income, including capital gains and dividends, earned in a TFSA is not taxed, even when withdrawn. Non-residents of Canada aren’t eligible to open a TFSA. If you happen to leave the country after you have started a tax free savings account, you can maintain your existing TFSA, but you can’t add anything to it as long as you’re a non-resident. Unlike an Registered Retirement Savings Plan (RRSP) the contributions are not tax-deductible.

RRSP's -  is a type of Canadian account for holding savings and investment assets. Approved assets include savings accounts,guaranteed investment certificates (GICs), bonds, mortgage loans, mutual funds, income trusts, corporate shares (stocks), foreign currency and labour-sponsored funds. Taxes on earned (employment) income (to the extent contributed to the plan) are deferred until the eventual withdrawals from the plan. There is no benefit from the deferral because it is an accrued liability that grows at the same rate as the investments themselves. The tax deferred is commonly called the contribution tax credit. Income earned inside the plan on the after-tax savings (excluding the contribution tax credit) is not taxed either while within the plan or on withdrawal.  By deferring the income until retirement, the additional income created at that time may reduce those benefits. For the most part, contributions to RRSPs are deductible from taxable income, reducing income tax payable. Since Canada has a progressive tax system, taxes are reduced at the highest marginal rate. Increases in the value of the plan assets (whether capital gains, interest income or other) are not subject to income or other taxes in Canada until funds are removed from the RRSP. An account holder is able to cash out an amount from an RRSP at any age. However, any amount withdrawn qualifies as taxable income and is therefore subject to withholding tax. Before the end of the year the account holder turns 71, the RRSP must either be cashed out or transferred to a Registered Retirement Income Fund (RRIF) or an annuity. Home Buyers Plan: Canadians can borrow, tax-free, up to $25,000 from their RRSP (and another $25,000 from a spousal RRSP) towards buying their residence. Life-long Learning Plan:This loan has to be repaid within 15 years after two years of grace.his program allows individuals to borrow from an RRSP to go or return to post-secondary school.

Debt Consolidation: entails taking out one loan to pay off many others. This is often done to secure a lower interest rate, secure a fixed interest rate or for the convenience of servicing only one loan. You can obtain a loan from another financial institution to pay back the four credit cards. Now your debts are consolidated into one financial institution, where you will have to make one single payment each month. The reduction in interest rate is one of greatest advantages of this procedure. Such loans also have extended terms which reduce the amount to be paid each month. You have to make it a point to meet this payment every month to maintain your credit score.

Bankruptcy: you assign (surrender) everything you own to a trustee in bankruptcy in exchange for the elimination of your debts. 

To go into bankruptcy in Canada, a person must live or do business in Canada, and must be insolvent. To be insolvent means:

1. To owe at least $1,000. 
2. Not to be able to meet your debts as they are due to be paid.

You may be entitled to an automatic discharge from bankruptcy in 9 months, the minimum time set by the Court to be bankrupt, provided you have never been bankrupt before and you complete various duties and responsibilities. A secured debt, such as a car loan or mortgage, is not included. Since you have given an asset as collateral, your creditor does not need the bankruptcy process to recover the amount owing to them. Some unsecured debts are also not discharged in a bankruptcy, such as student loans less than 10 years after you stopped going to school and/or any alimony or child support.

The length of your bankruptcy will be nine months, unless one of the following is true:

• You fail to perform all your bankruptcy duties, such as regular payments of surplus income to the trustee.
• You have surplus income (see below).
• You have been bankrupt before.

On top of the trustee fee and your loss of assets, a bankruptcy may cost you some of your income, depending on how much you earn and the size of your household. The principle is that, if you earn more than your household needs to survive, you must pay the “surplus income” to your trustee for the creditors. The more you earn, the more expensive filing for bankruptcy will become. This affects your credit for several years, but their are ways you can work on rebuilding your credit. 

Consumer Proposal: is a contract that's negotiated with your creditors on your behalf, by a consumer proposal administrator (also called a bankrutpcy trustee). A legally binding agreement is put in place to arrange for a partial repayment of your total unsecured debt owing. You'll pay portion of what you owe, and your creditors will agree to ignore the balance owing. 

Consider these 5 main benefits to a consumer proposal

• Most wage garnishments cease immediately
• Interest stops accumulating from the date you file
• Collection companies and creditors can no longer contact you for payment; it's the law!
• You are not in jeopardy of losing your house or other assets, as in bankruptcy
• You repay only a portion of your debt owing, with a maximum repayment period not exceeding 5 years

the effect on your credit score is generally less than a bankruptcy. Consumer proposals typically produce an R7 rating, whereas personal bankruptcy will produce an R9. 

Credit Rating - Equifax 

Rating What it Means

• R0 Too new to rate; approved but not used
• R1 Pays (or paid) within 30 days of payment due date or not over one payment past due
• R2 Pays (or paid) in more than 30 days from payment due date, but not more than 60 days, or not more than two payments past due
• R3 Pays (or paid) in more than 60 days from payment due date, but not more than 90 days, or not more than three payments past due
• R4 Pays (or paid) in more than 90 days from payment due date, but not more than 120 days, or four payments past due
• R5 Account is at least 120 days overdue, but is not yet rated "9"
• R7 Making regular payments through a special arrangement to settle your debts
• R8 Repossession (voluntary or involuntary return of merchandise)
• R9 Bad debt; placed for collection; moved without giving a new address

Because I realize this is a lot of information to take in all at once, I will be sure to do another financial blog next month so we both keep learning!