Me and My Money

Going down a one way financial street – the wrong way...

Posted November 25, 2011
Originally Published July 9, 2009

Q: My husband and I have done everything wrong. We’ve been talking about a family for three years and a house with a backyard but we continued to spend on cars (two SUV’s not yet paid for), membership to a racquet club ($12,000 still owing) and a lease on a boat (five years left in the contract.) Now I’m pregnant. We are both so overwhelmed we don’t even know where to begin. Patrice M.

A: There’s no point in beating yourself up about past financial excesses. Done and spent – move on. Your new life demands changes on all fronts.

Your encumbrances are not going to be easy to shed, especially the boat lease. The boat owner may be willing to work with you on the lease, if not advertise and post it on the bulletin board at the club. Hopefully you’ll find someone to take it over.

Depending on how much is owing it might not be worthwhile to sell the SUVs, but even if you lose money you may come out ahead eventually with reduced interest costs and cheaper gas. Another strategy is to sell one and not replace it.

The club membership is likely another contract which could require negotiation and time. Try selling it or finding someone to take it over. Again, losses will be likely but the goal is to get rid of financial baggage so you can concentrate on being new parents while working toward your home owning goal.

That takes care of the past. Now to the future. Your income will be cut substantially during maternity leave so hunker down in your nest with hubby and start living now as if you were on that reduced income.

Save the difference between your current income and maternity income in a baby account. When your bundle of joy appears, put the money toward a down payment on that white picket fence or deposit some of it in an RESP for your child’s future education.

Now you have a plan. Get at it!

Q: My sister, 47, has had some bad luck with men and money but now she is getting back on her feet. Her new job is a two-hour commute each way on three different buses and it is wearing her out. A car would cut it down to 45 minutes. I would like to help by co-signing a loan. She has promised she will not miss a payment and I believe her. But is there any way to protect myself just in case? Lise D.

A: By co-signing a loan you are stepping into the arena of ugly debt … i.e. family debt which, by definition, usually offers no protection. I don’t recommend it but I understand your desire to help. Co-signing will have an impact on own credit rating so make sure your score is well above the borderline of 650 points especially if you might need credit in the future. And ask the dealer to put the application through first without your name on it just in case your sister alone is acceptable.

If you co-sign, your best protection is to have your name on title of the car so if she defaults you can take possession. Set up a separate account for the car payments in both your names and an automatic transfer from the account where her paycheque is deposited. Do the transfer the day after the deposit so the money is not sitting there to tempt her until the car loan is due. And do not attach the car account to her debit card. Also, make sure withdrawals require both signatures.

If all goes well for a year have her apply to take over the loan. If it goes through, then remove your name from the title of the car and you will have done your sisterly good deed with minimum exposure.

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