Today's economy

Gail Vaz-Oxlade wants you to be debt-free

By Kevin Press, BrighterLife.ca

Comments (5)

Personal debt, measured relative to income, reached an all-time high in the third quarter of 2009 according to Statistics Canada. The agency reported that the average debt-to-income ratio among Canadian households reached 145% (including both consumer and mortgage debt). That record high came during a quarter in which household net worth grew 1.8%.

Gail Vaz-Oxlade, author of Debt-Free Forever and host of Til Debt Do Us Part, has made it her mission to help. “I got a letter from a man this week who says that between himself and his wife, they’re making about $230,000 a year,” she told me during an interview this week. “He has an upside-down mortgage though. He owes three years’ worth of income tax, $60,000 on credit cards and hasn’t paid off his student loan yet.”

A mortgage is upside-down when you owe more than the house is worth. It’s sometimes referred to as being “under water.” Regardless, it’s a potentially catastrophic situation that can cost you your home. Sadly, too many Canadians in this unenviable position are also carrying credit card and other personal debt.

“We have been lulled into a sense that things will always be better and we will always make more money,” said Vaz-Oxlade. “So we actually never have to deal with anything other than the minimum payments. Some magic wand is going to be waved above our heads and all the debt is going to evaporate one day.”

Vaz-Oxlade’s frustration is shared by credit counselors across Canada. It points to an increasingly important question raised by the downturn. Who is to blame for this emerging personal debt crisis? Is it consumers themselves, too many of whom fail to understand or take responsibility for their use of credit? Is it the financial services industry, which has made unprecedented levels of personal credit available in recent years? Does a share of blame fall on parents and teachers, who have failed to teach their children how to manage money?

If you have read or watched the charmingly plain-spoken Vaz-Oxlade, you won’t be surprised by her pointed observations.

  • On minimum credit card payments: “Most people don’t know what they’re doing. Most people think that’s all that is required of them. That’s how naïve people are.”
  • On privilege: “I work with a lot of young people who think they’re entitled. If you make $4 or $5 million a year doing endorsements, you can afford to go out and spend $1,500 on a pair of shoes. Especially if you’re an heiress. If you’re working as a shop girl, and you’re making tops $35,000 a year, where do you get off thinking you’re entitled to wear a $1,500 pair of shoes?”
  • On responsibility: “I’ve had women as old as 40 who have three handbags that total $6,000 and no RESP savings for their kids.”
  • On shopping: “It’s so easy to do it on plastic. There’s no pain. If we go shopping, we actually release endorphins. That hunting and gathering thing works for shopping malls. If we pay with cash, the thrill we feel is offset by the pain we feel of having to part with cash.”
  • On appearances: “Keeping up with the Jones’s has always been a problem. But the Jones’s are using credit to buy what they want now. So keeping up means we’re going further and further into debt, just to maintain what we think is a normal status.”
  • On teaching kids about money: “When your kids are in grade 12, someone should come and talk to them about the student loan system. How it works, what the pitfalls are, how to use it to your advantage and so forth. But you can’t teach a fifth grader to save at school. Saving does not come naturally to everyone. It’s a habit that can be learned. You need to have them in an environment where you can influence them on a daily basis, hold them accountable; give them some money so that they can have something to work with. That can only be done at home.”
  • On getting out of debt: “First, you have to figure out where your money has been going. You can make a conscious choice about what you’re going to do with your money in the future. You have to make a budget that balances. You have to create a debt-repayment plan if you have debt. And that means listing all the debt that you have, including what your minimum payments are, what your interest rates are. Figure out what percentage of your income you’re going to have to commit to debt repayment in order to get that debt gone in 36 months or less. Then you have to apply the payments in a really smart way. That means making the minimum payments on all your debts, except for your most expensive debt. Apply everything else you have to that debt until it’s paid off. And then take that money and applying it to your next most expensive debt, and so on. And you have to save. Even as you’re paying down your debt, you have to save.”
  • On saving: “The rule of thumb is to save 10%, but the 10% rule really only applies if you’re in your 30s. If you’re in your 20s, you don’t have to save that much because you have compounding on your side. If you’re in your 40s, you have to save more because you’ve already lost 20 years of growth. The 10% rule is just a guideline. I tell people to start with $100 a month. Almost every budget I build, I build in $100 a month, at least until the debt is paid off. And then I say take half the debt payment amount, and stick it in savings and apply the other half back into your budget so you can free up some money for a life.”

Baby boomers may finally be getting the message. “I think what’s happening is that we’re watching the boomers age. As they get older, they’re looking around at their life and saying they’d rather have the time than the money for yet another pair of shoes,” she said. “As you get older, your stuff gets less important to you. You start to value the time you have with your children or your friends far more than you did when you were sort of single-mindedly focused on career-building and the image you were portraying.”

What about younger Canadians? Less cause for optimism there, unfortunately. Vaz-Oxlade is working on a new show that will air this fall called Princess. Its focus is “Paris Hilton wannabes,” as she put it. “They have no problem spending $100 to get eyelashes stuck onto their eyes, or spending $1,500 to have hair extensions done,” she said. “Stuff that just blows my mind.”

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Maggie Peacock on

I have a big heart and it always nice to hear about people helping people. My husband and I got Gail’s Til Debt Do Us Part Life Planner. It really helped us. We tried to find it in stores, but it was only online… I think at shopfranticfilms.com

Anyway, Gail does such amazing work and I really appreciate all she’s done to help me and my family. Oh and CalendarBudget, I totally agree financial education should be part of the curriculum! Bring it on.

Alex on

I’m not really concerned with being able to manage my debt as I am not one who lives beyond my means. My big concern is being able to save. Right now, it’s all about trying to make ends meet, accomphlishing the everyday financial hurdles – like new winter tires for example, let alone having enough of a cushion to invest in retirement savings, education savings or even that long-awaited and well-deserved vacation.

Young & Saving on

As a young person I have seen many people my age living well beyond their means. It motivates me to save and reinforces my beliefs rather than discouraging me. When I hear someone with an undergraduate degree explain they’re $80,000 in debt I do not envy their stuff, I pity their future.

    Leo on

    Great post today!I’m currently using Gail’s meohtd of doing it all at once. I’m not massively taxing myself out to do this, and have $400 going towards emergency, savings and RRSP, while $1100 goes towards debt each month. I tried the pay the debt thing all at once first without contributing to an emergency fund past the base amount and I too found myself in debt again hence the change in tactics.Knowing myself I m a person who does well in a financial routine. I’m in the habit of paying the savings account, emergency account and RRSP each and every month. I’m also in the habit of diverting a large portion of my hard earned dollars to that whopping debt I have. Previously I had not built a savings routine to go with my debt routine and slipped right back down that path again.I think the biggest advantage to Gail’s do it all at once approach is that it sets the routines for you. So it may be a little slower, but it allows you to roll with life if it should happen, and still get your debt paid off in 3 years. David’s meohtd only gives you a little room to roll with life before you are tacking onto the debt whopper you’ve already got. His meohtd to me is a bit like climbing a rockface free of the safety ropes and extra people around to help you if you slip. if you fall of the rock while free-climbing, ,there isn’t anyone to catch you if you fall, and isn’t anyone around to help you if you are injured.If you climb that rockface with a couple of friends, the ropes, and some more experienced people, when you slip and lose on of the rope holds, you aren’t going to fall all the way back down the rock you just climbed. You’ll instead be a little panicked, and end up suspended in air about the place you lost the hold or the rope connection let go. That’s because you were climbing with buddies, instead of alone.So while I can see the bonus of doing one thing at a time and being able to do it faster, I’d much rather do this with the routine and buddies in place and know that I’ll come out better off at the end because I’ve been using them all the way along. So this way, the next time I want to go up a cliff free-style, I’ll be that much more prepared and have practiced my routine that many more times.Here’s how my steps look:Each paycheck $550 towards debt (37% of the paycheck)Each month Savings auto-remove on the 15th (6.7% of net pay per month)Each Month Emergency Fund auto-remove on the 30th (3.4% of net pay per month)Each Month RRSP contribution on the 30th (3.4% of net pay per month) In the two months we get an extra paycheck $1000 from each paycheck will go towards debt. The rest will sit in my account to build up the balance towards the minimum I need before service charges are waived.So while I’m completing these steps together, and the contributions i’m making to savings EF and RRSP would help me get out of debt faster, the routine won’t be there for saving and thus I’ll probably fall back down that cliff I just climbed up paying off the debt.Now this doesn’t work for everyone, but that is why I’m doing things simultaneously. Perhaps in the future, as I get closer to debtfree, I’ll move a chunk of my savings over to pay the debt off completely, and still have a chunk left for when life happens and I need the money.

CalendarBudget on

Watching people, especially family and friends live beyond their means is very frustrating and disappointing, especially when you are trying to be good and sacrifice to live within your own means. I wish sound financial education were more mainstream. It would certainly save a lot of heart-ache.

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