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Have you ever received one of these letters from a bank?
“Congratulations on being a responsible credit user! We’d like to offer you an increase on your credit limit.
We appreciate your business and hope you enjoy this extra purchasing power!”
Now, to me that just looks like an opportunity to go further in debt disguised as a gift. It’s also empty praise considering I’ve paid thousands of dollars in interest to the banks over the years. If they actually wanted to help me out or empower me they could give me a partial refund on the interest I’ve paid or lower the interest rate on my student debt. …
I also only ever receive these notices when I’ve been rapidly decreasing my credit usage or haven’t borrowed in a while. When I paid off the last of my credit card debt and swore to never owe interest on them again? The credit limit increases and balance transfer offers practically flew into my mailbox, with lower transfer fees every time. They didn’t show up when I actually could have used a lower rate.
By ‘congratulations,’ they really mean ‘you’re excellent at paying us interest, and we’d like some more please.’ At this point in my life I’m wise to their ego-inflating marketing tactics, but this wasn’t always the case. In my first year or two of university I thought I was somehow behind when my credit score was low, despite having zero debt at the time! Those were the days.
At some point in our financial history we equated a high credit score with values like honesty, trustworthiness, and intelligence. Probably right around the time lenders started advertising credit as a sign of honesty, trustworthiness, and intelligence.
The Benefits of a High Credit Score
I’ll be the first to admit that a high credit score does have some utility.
Your credit score is often used to determine your eligibility for a loan and can affect the terms you’re offered, including your interest rate. It could also impact your rates for insurance, or in some professions even your employability – particularly in the financial sector and in government.
When I applied to rent an apartment, a credit check was a standard part of the process. In a competitive rental market with vacancy rates close to zero, any advantage over other applicants is a bonus. I attended apartment viewings where slumlords hosted tours for several people at a time, while those in the next time slot lined up outside. Prospective tenants showed up to viewings with applications already completed, and landlords had their pick of the top candidates out of the pile.
That being said, a credit score isn’t everything. At one point I had six figures in student loan and credit card debt, no job, no assets, a negative net worth, and a credit rating of ‘Excellent.’ The credit bureaus were giving me an A+ when my true financial health was a D at best.
One of the frustrating things about credit scores and credit repair companies is that they focus on a symptom rather than the underlying issues. Credit score ‘hacks’ like applying to increase your credit limit can increase your score because you’ll be using less of the credit you have available. However, if your credit was maxed and you didn’t resolve the situations that led there in the first place, you’re in danger of increasing your debt and landing right back where you started.
Credit scores can also create a cycle of predatory lending. Those with high credit scores are offered their choice of credit from reputable institutions, often at lower rates. Those with low credit scores are targeted by lenders who take advantage of the fact that they might not have other options. The higher rates and fees mean that borrowers are more likely to miss payments, lowering their credit scores again and continuing the cycle. It’s a catch-22. The people who are least able to bear higher costs of borrowing are the ones who end up with them.
Other (More Important) Financial Numbers
I’m not anti-credit score and I do think you should monitor your credit, especially to catch any fraudulent activity right away, but there are much more important numbers to keep in mind.
Your net worth is simply your assets minus your liabilities.
Assets include everything that you own – cash, vehicles, home equity.
Liabilities include everything that you owe – student loans, credit cards, mortgages.
For example, with $100,000 in equity, $200,000 owed on the mortgage, and $50,000 in student loans your net worth would be -$150,000.
$100,000 – ($200,000 + $50,000) = -$150,000
An excellent credit score didn’t mean much to me when my net worth was in the negative six figures, especially when my debt was all credit cards and student loans rather than something backed with an asset like a mortgage. A credit score increasing just means that you can take on more debt. If your net worth increases, you’re actually growing your wealth.
One of the important pieces of your financial picture is whether you have any money. (I know, right?)
If your credit score is high but you have $0.99 in your chequing and savings accounts combined, any emergency would have to go onto a credit card. That would be fine if you had a steady income and could pay it off before incurring interest, but what if there’s a problem with your payroll and you don’t get paid on time? Just ask the hundreds of thousands of federal employees affected by the recent Phoenix pay system debacle, including some who faced weeks or months without pay.
The only thing a high credit score could help you do in that situation is borrow more money, potentially at lower rates. If you had a healthy emergency fund, you’d be able to tackle the unexpected without paying any interest and you’d be sleeping a little easier at night too.
A tricky feature of credit scores is that yours could be high even if you’re living paycheck to paycheck with your incoming funds barely covering the bills and minimum payments. Been there too!
Credit can distort our image of what we think we can afford. Instead of considering the long term consequences of a purchase, we think in terms of whether we can make the monthly minimum payments. Sure, we might be happier at first but paying the minimum on a credit card could mean it takes you years or even decades to clear the balance. By then you might not even own the things you bought with it!
Increasing your cash flow means making space between your income and your monthly bills and payments, usually by cancelling things you don’t need or paying off debt. When you have more flexibility with your incoming cash, you lower the risk of needing to rely on credit to float irregular expenses.
Although net worth, account balances, and cash flow give a more nuanced view of financial health, these numbers aren’t everything either.
You Can’t Math Your Way To Self Worth
Numbers can’t tell you if you’re happy or fulfilled. Your self worth is not your credit score or net worth or bank balance.
Money isn’t just about the math, and it never has been. Money is about security and freedom, and knowing that you’ll be able to tackle things that come up in your life without added stress.
Focus on improving your financial health and your mental health, and think of a credit score as it truly is – a financial tool with limited utility. It gives no indication of how wealthy you are, how smart you are with money, or how trustworthy of a person you are. It just doesn’t.
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One of the opinion pieces that fascinates me every year is the minimum amount it costs millennials to live in my city – Vancouver, Canada.
Here’s the breakdown:
- Housing: $1,929.67
- Phone and Internet: $105
- Transportation: $133
- Groceries: $211.97
- Entertainment: $321
- Fitness: $75
- Insurance: $20
Total: $2,795.64/month, or $33,547.68 annually
For most of these numbers I nodded along, but housing stuck out to me – until I read the fine print:
Basically, if you want to live roommate-free near downtown Vancouver in your 20s and 30s, this is the minimum amount of money you’re going to have to spend to cover your cost of living and still have somewhat of a life.
The Minimum Cost of Living
How can we talk about “the minimum” cost of living in a city and in the same moment reference living roommate-free? Even though singles account for 28% of Canadian households, surpassing all other types for the first time in our history, they’re certainly not living a minimum lifestyle.
I’ve never lived alone. Not once. For the first 18 years I lived with my parents, then a few years in a dorm at university, then in apartments shared with either roommates or boyfriends.
Sure, it would have been nice to have a place to myself. The space! The quiet! The lack of clutter! No walking on eggshells or passive aggressive notes about washing the dishes. I wouldn’t have had to worry about mismatched standards of cleanliness or opposite schedules. (Shout out to a former roommate who invited an entire hockey team over for a party on a Wednesday night before one of my exams. The best.)
I would also be living paycheque to paycheque and struggling to make my minimum student loan payments.
Obviously there are valid reasons why someone might want or need to live alone, but setting it out as a minimum standard of living promotes a mindset that most of us can’t afford to have – especially if we want to prepare for our future rather than living month to month.
Housing is one of the fundamental problems of our generation. In Vancouver in particular, investors leave properties unoccupied while the homeless population continues to grow – up 30% over the past three years. Costs are soaring and Vancouver has been ranked as the third least-affordable housing market in the world – with only Sydney and Hong Kong above us. Yes, even more unaffordable than LA or San Francisco or NYC. Our rental vacancy rates are less than 1%. Income, adjusted to inflation, has risen only 5.2% since 2010 while housing prices are up 78%. Efforts to cool the housing market, like new taxes on property speculators and foreign buyers, haven’t had a chance to make an impact yet.
I’m hopeful that the tide of the affordability crisis will turn, but until then articles like this are normalizing a lifestyle that is financially out of reach for most of us. When I first moved to Vancouver, my income was above average and I still couldn’t afford to live alone. After years of paying down my student loan balances and increasing my income, I could make it work but just barely.. and that’s with dropping my student loan payments back to the minimum.
Unless you’re frequenting coffee shops six times a day, no amount of skipping frappuccinos will save you more money than having a roommate will. Housing is often our largest expense (aside from taxes, of course – and in my case student loan payments). Sometimes you need to do things that you don’t necessarily like now in order to give your future self an edge.
Not living alone will save me more than $50,000 over my five year student loan repayment timeline, leaving me debt free six years sooner than I would be otherwise.
Try calculating what you’d save by living with a roommate and how much sooner it would let you reach your goals. Imagine all of the things that money could do for you instead – buy back your freedom from lenders, give you peace of mind that your retirement will be funded, save for travel or children or buying your own home (maybe, at some point). It can be tempting to justify standard expenses like rent, especially when they’re normalized in the media and especially when they deal with as emotional a topic as housing, but you’re doing yourself a disservice if you don’t explore all of your options.
Same goes for the location of your place and the size and number of bedrooms you choose. Is living downtown essential or could you commute? Do you really need a guest room or an office, or would it be more cost-effective to pay for a hotel room or co-working space when you really need it?
If you do choose to prioritize living alone or in a certain location or having more space, that’s okay too! We all spend our money differently, and I don’t think anyone should be shamed for that. The important piece is to consider the actual minimum and then decide if it aligns with your priorities.
We can’t afford all of the things that we might want. Sometimes we’ll choose to live downtown but take public transportation instead of owning a vehicle. Sometimes we’ll choose to live with roommates so that we can increase our retirement savings. Sometimes we’ll live alone and spend less on travel or entertainment.
All of these choices are valid – just make sure they’re yours.
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Some recommend avoiding all luxuries while paying off non-mortgage debt – no travel, no meals out, no purchases other than necessities. I’m not one of those people. A few of my friends and family members have passed away at young ages, and I know that I can’t take the average 82 year lifespan of a Canadian woman for granted. If today was my last day on this planet, I wouldn’t want to feel like I’d saved my best years for the non-existent future.
There can be this attitude that if you have non-mortgage debt you’re failing financially and you absolutely must pay it off completely before allowing yourself any non-essential spending. I feel that there’s always a balance – you can be committed to paying off your debt in a reasonable amount of time and spend money on things that you value.
Our last vacation, excluding work travel, was to the Dominican Republic in 2015 to celebrate my graduation – on my bloated line of credit, of course! It was an amazing time, but I couldn’t truly enjoy it as much as I wanted to. I had $130,000 in student loan debt and wouldn’t receive a job offer for another two months. I was in paradise, but my chest still felt tight.
Last year, my spouse and I decided that we wanted to take some time away. We’d both been putting a lot in at work, and I’d just spent the year paying off $30,000 of debt. We knew we wanted to do things a little differently than our last trip together, so we had a discussion about an ideal getaway within our means for 2018.
Choose A Local Destination
We live in Vancouver, and we’ve been talking about a visit to Tofino on Vancouver Island since before we moved here several years ago. It seemed like the perfect time to head over for a few days of waves and chill. Visiting somewhere close to you is a great way to reduce transportation costs while exploring your own country.
Identify Your Priorities & Spend Accordingly
This trip was all about relaxation, so we decided to leave the excursions like surfing or boat tours for another time. Since we wanted to spend most of our time in our room and on the beaches, we made our accommodation and meals a top priority. Below is my portion of the cost of the trip – my spouse and I keep separate finances – and a few thoughts along the way.
We had several options to get to Tofino – air, public transportation, or rental car. Flights were $350 round trip per person, so that was out! We could have rented a car for a portion of the trip, but we like the hands-off approach so we decided to rely on public transportation.
We took the city bus from our apartment to the Horseshoe Bay ferry terminal which took about an hour. We could have taken a bus to the ferry terminal from Pacific Central Station, but it would have cost about $10 extra per person each way. Our city bus portion of the trip was included in the monthly passes we already have for commuting. $0
Arriving at the terminal, we hopped on the ferry to Departure Bay in Nanaimo while enjoying the ocean views. The ride was about an hour and forty minutes, with a high school boys lacrosse team taking up residence among us in the seats with the best views. I am so thankful to be an adult. $16.95
To cross the island from Nanaimo to Tofino, we walked outside the ferry terminal and boarded the Tofino Bus all island express which provides daily bus service from Vancouver to all major Vancouver Island points. Book online in advance for a few dollars off! The bus was nearly empty and the trip took about four hours. $45.60
By the time we reached Tofino, $62.55 lighter and just under seven hours later, we were ready to eat and head to the beach! We took the same route home, so double the amounts above for our visit.
Total: $125.10 per person
We stayed in the Lookout Suite at Chesterman Beach Bed & Breakfast, right on Chesterman Beach, so we could hear the ocean crashing first thing in the morning and while we fell asleep at night. The private patio outside of our room led to a path down to the shoreline. The proximity to the water cost a premium – $195/night, which we were happy to pay for the three nights we stayed there.
We visited during storm watching season which is generally Tofino’s off season for tourism. During spring and fall our room would have been $275/night and over the summer and holidays it jumps up to $355/night! If you’re flexible with your dates and don’t mind the cooler weather, try to book during off-peak travel times.
Our dining table sat next to the large window overlooking the beach, and we had our own gas fireplace and a kitchenette with a dishwasher, microwave, and toaster oven. One of the best parts – a sinking tub with a heated towel rack. Yes.
Coming back to the suite after walks on the beach to turn on the fireplace and pour a glass of wine was the definition of relaxation. I think we were asleep by 8PM every night, thanks to the fresh ocean air, lack of light pollution, and overall coziness.
Total: $307.13 per person
Meals & Alcohol
I packed some snacks from the grocery store so we wouldn’t be tempted by anything overpriced on the ferry. Definitely pack your own snacks! For the cost of one combo meal, we had sustenance for the whole seven hour trip. $16.79
A brief walk from the bus stop near our B&B was the original Tacofino truck. We quickly fell in love with their vegetarian burritos – shredded cheese, rice, beans, salsa, cabbage, chipotle mayo, sour cream. So simple, yet so delicious. If you’re ever in Vancouver, Victoria, or Tofino, definitely check them out. This total is just for the first time we went – my spouse paid for our second trip on our last night there. $27.60
On our way to check in at the B&B, we stopped at a small grocery store called Beaches Grocery and picked up some iced tea to accompany our tacos and some fancy locally made bread and cheese for the next morning. We could have paid $20/person for a full breakfast at our B&B but that definitely wasn’t in our budget. $18.40
The next day, fully refreshed from a night of burritos, iced tea, and gorgeous views of the ocean, we set off to explore and buy supplies. We walked an hour into town and had planned to stop at Schooner for some lunchtime fish & chips. Sadly, our casual approach meant that we didn’t check their schedule which was dinner only and arrived hours before they opened. If you’re visiting somewhere on the off season, do some research online first to see what’s open.
We decided to grab quick paninis from a coffee shop down the street instead, and come back for dinner. Did I mention that this coffee shop was cash only and we hadn’t brought any with us? The two banks in town weren’t ones that we used and we didn’t want to pay service fees or hassle to get them refunded, so we did what any resourceful travellers would do – we purchased alcohol instead and requested cash back!
Three bottles of wine and some beer later.. it might have been a better idea to pay the service fees, but we made sure it was put to good use. $58.09
Armed with cash, we finally got our paninis! Nothing memorable, but enough to keep us going. $16.00
With several hours left before dinner, we meandered around town which took approximately six minutes. Then we set off for Tonquin Park, which is a short walk from the main street and a leisurely hike to the beach. The trail was well maintained and had stunning lookout views. We lingered on the sand for a while, watching the waves come in and exploring the shoreline – starfish sightings! There are some nice properties on the cliffs by the beach and we daydreamed about purchasing a little slice of heaven of our own someday.
We wanted to walk straight back to the B&B after dinner, so we stopped by the grocery store on the way to pick up some supplies for the rest of our trip. Frozen pizza, croissants, chocolate, an entire black forest cake. You know, just the essentials. We probably should have shopped after dinner. $52.32
By the time we returned from our walk and grocery trip, Schooner had opened! We shared an order of fish & chips with fresh local red snapper and the halibut bawden bay which has been their signature dish for over 30 years – for good reason! I’m just going to post the description and let your imagination cover the rest: hand picked crab, baby shrimp, creamy Brie cheese and scallions are tucked inside winter halibut – oven baked and finished with an apple-brandy green peppercorn cream sauce. Yum! My mouth is still watering. I didn’t pay for this one but it was $100+ with a few beers, taxes, and tip.
The next day, we made croissant sandwiches and frozen pizza in the toaster oven in our room and spent the rest of the day walking the nearby beaches – Chesterman, Cox Bay, and Wickaninnish. Also, lots of cake! At night when the cloud cover wasn’t complete, we walked out to the beach again and stared at the stars for what seemed like hours – you don’t get that in the city.
We didn’t venture back into town again – I think most of the locals were annoyed that we infringed on their off-season quiet with our big city vibes. The “f*ck off and go home tourists” graffiti was a little bit of a giveaway. The only friendly interactions we had were with our host, our bus driver, and a few of the people we passed on the trails and beaches. If you’re visiting, try to blend in. Wear ruddy neutral colours like browns and greens that look worn – my black snowboarding jacket and my spouse’s bright yellow windbreaker were a dead giveaway. Together, we looked like a hornet’s nest of tourism ready to destroy everything that was good in the world. Then again, maybe most of the locals were just annoyed to be at work rather than enjoying the outdoors?
After three short nights, it was time to make the trip home – with leftover croissants and snacks for the ride. On the bus home, my chest started getting tight again. The ocean air was gone from my lungs and I was already anticipating the overstimulation of the city. It was a sign for me to spend more time in nature and take deeper breaths.
Again, this is just my portion of the expenses so our total was closer to $1,200 for a couple over four days and three nights. Our goal for this trip wasn’t to have the lowest budget – if it was, we could have just stayed home. We wanted to enjoy our first trip together in almost three years, maximizing our priorities while spending less where we could. We don’t know when our next trip will be, so we wanted to live large for a few days!
For context, my average spending on debt repayment in 2017 was $2,859.26/month. To allocate 20% of that this month for a trip was an easy decision for me to make, and I know we’ll remember our days in Tofino as some of the best we’ve had together.
If you’re wondering about travel hacking – I don’t do it. I’m not sure that I’d meet the minimum spends on enough of the cards we have in Canada to really make an impact on travel costs. It might be an option if you live in the US though, so look into it. Just make sure that you’re not spending more than you’d save in travel rewards – that kind of defeats the purpose.
Should you travel while indebted? I have, and I think it’s important to keep a few things in mind:
- the length of your debt payoff timeline – if it’s short or near its end, can you wait a few more months and enjoy a guilt-free vacation paid for in cash?
- the type of debt you have – if it’s high interest consumer debt, will you regret paying the extra interest?
- the attitude you have toward debt – some people despise debt and want it out of their lives as quickly as possible, no exceptions, and I support you on that!
It all comes down to personal choice. Make the best decision for you, and try not to feel guilty for enjoying yourself once in a while!
As a final note, the lack of pictures in this post was due to our technology pause for the trip. We used our phones for navigation and to take a few photos, but for most of the time we put them away and enjoyed our surroundings and each other! If you want to see more of Tofino, there are many photos from talented photographers online – or you can plan your own visit!
I’d love to hear about your own travel stories on your way to becoming debt free, whether you decided to go or wait. Share your thoughts in the comments.