Although credit cards interest rates have not been affected by the recent surge in the prime lending rate, the fact remains that credit card debt is usually the most expensive debt you can have. The average is around 20% and even the so-called ‘low interest’ cards carry a rate in excess of 10%. Expediting the demise of your credit card balance should be the number one focus for anyone looking to improve their financial situation. Here are five actions to get you started.

1. If you are carrying a balance, the first step is to put the card(s) away. Whether you put them in the food processor or just temporarily turn them off (our recommendation), you need to own up to your mistake and not add any more fuel to the fire. If it’s the case where you have no choice but to use the card (a prepayment for example) make sure to make a payment to cover that charge right away.
2. Take a minute to fully understand the consequences of a credit card balance. Search out the details of your credit card statement until your find the section that tells you exactly how many years it will take to eliminate that balance with minimum payments. While you are at it, make sure to confirm the interest charge for that month and just how little of your payment is actually going toward reducing the balance. It can be a bit shocking, but also quite motivating! The government has a simple online calculator for you to easily analyze different repayment options.
3. Plan your repayment attack. Making a few random spending sacrifices and hoping that you will have a little more left at the end of the month to pay towards your card is wishful thinking. You need to figure out ASAP the maximum amount you can throw at your credit card debt every month and chart out when you are going to be debt-free. Set up an automatic transfer from your bank account to your card every payday and make that money invisible – you can’t spend what you can’t see!
4. Investigate balance-transfer credit card options… but only if you have a plan and are confident you can pay off the balance within the prescribed period! A balance transfer card shifts your debt to a new card (for little or no fee) which offers a limited time period (usually 6 -12 months) with a very low interest rate (often 0%) to pay off the balance. This cuts your interest expense to zero and ensures that 100% of your payment goes to reducing the balance. However, you have to be very disciplined and have the income to make regular payments. The card company is literally banking on you to fail and hopes you will miss the payment deadline, because that will trigger an avalanche of penalties, fees and interest charges that will put you worse off than ever!
5. Pick up the phone and call your card company. It might be more possible and easier than you think to actually negotiate a lower interest rate on your credit card. If you have had a card for a while and have been carrying a balance and making the minimum payments, you are a valued customer! Your card issuer is very interested in keeping your business and may be willing to negotiate. You will have to get through to the right people and know what to say, but 15 or 20 minutes on the phone could save you a chunk of cash – even a few percentage points would help.

The above tips will help you get started on the road to eliminating your credit card balance. There are no shortcuts and it may require a lot of sacrifice depending on how much debt you have, but the mental burden that lifts when you see a big zero under “balance due” it will be worth it!

Market Beware: Subject Free Offers.

When it comes to purchasing a home, most offers include conditions or subjects, which are requirements or criteria to be met before the sale can be finalized and the property is transferred. Some of the most common subjects include:

• Financing approval
• Home inspection
• Fire/home insurance protection
• Strata document review if appliable

The purpose of these subjects is to protect the buyer from making a poor investment and ensure that there are no hidden surprises when it comes to financing, insurance, or the state of the property.

These conditions are written up in the purchase offer with a date of removal. This is agreed to by the seller before the sale is finalized. Assuming the subjects are lifted by the date of removal, the sale can go through. If the subjects are not lifted (perhaps financing falls through or something is revealed during the home inspection), the buyer can waive the offer and the purchase becomes void.

However recently, especially in heightened housing markets, there has been an emergence of subject-free (or condition-free) offers. These are purchase offers that are submitted without any criteria required! Essentially, what you see is what you get.

Below we have outlined the impact of subject-free offers on both buyers and sellers to help you better understand the risks and outcomes:

Pros of Subject-Free Offers

• Buyers: The main benefit of a subject-free offer for a buyer is the ability to “beat the competition” in a heated market. However, it is not without risks.
• Sellers: Typically, a subject-free offer will include a competitive price, willingness to work with the dates the seller prefers, and evidence that the buyer has already done as much research as possible. If time is sensitive for the seller because they are trying to purchase another home or want to move as soon as possible, they may also choose your offer over subject offers to expedite the process.

Cons of Subject-Free Offers

• Buyers: As a buyer submitting a subject-free offer, you are assuming a great deal of risk in several areas including financing, inspection, and insurance:
  • Financing: While buyers may feel that they have a pre-approval and so they don’t require a subject to financing, it is important to recognize that a pre-approval is not a guarantee of financing. If you are submitting a subject-free purchase based on a pre-approval, buyer beware. The financing is subject to the lender approving the property and the sale; from the price and location to type of property or other variables the lender deems important. By submitting a subject-free offer without a financing guarantee (or an inspection, title check, etc.), there is a risk that the deal can fall through. Even when you do not include subjects on the offer, you still are required to finance your purchase. In addition, as deals are submitted typically with a deposit, there is a risk that if the subject-free offer falls through the buyer will lose their deposit. This amount can range vary in the thousands and is typically a percentage of the purchase price or down payment.
  • Inspection & Insurance: If a buyer is also opting to skip the home inspection and home insurance protection subjects to have the offer accepted, then they assume huge risk as they do not know what they are getting and whether or not the property is up to code for insurance.
  • Due Diligence: With subject-free offers, there is no opportunity for due diligence after the offer has been made. This requires the buyer to do all their research before their initial bid. Because it is firm and binding, a buyer who decides to back out will likely be met with serious legal ramifications. Submitting an offer without subjects is not due diligence and it is at the buyer’s behest.
• For Sellers: When it comes to the individual selling the property, there is less risk with subject-free offers but not zero. While the benefit is essentially there is no wait to accept the offer on the seller’s side, they do not know for sure if financing will come through.

Financing Around Subject-Free Offers

When submitting a subject-free offer, it is essentially up to the buyer to do as much due diligence as possible before submitting. They will need to identify what the lender is looking for to make sure they walk away with a mortgage. Though approval is never certain, prospective buyers placing a subject-free offer should do their very best to secure financing beforehand.

Contractual Obligations

Be mindful when it comes to purchasing offers versus purchase agreements. While your purchase offer is a written proposal to purchase, the purchase agreement is a full contract between the buyer and seller. The purchase offer acts as a letter of intent, setting the terms you propose to buy the home. If financing falls through, for example, then the contract is breached and this is where the buyer may lose the deposit.

It is also important to be aware of a breach of contract in the event that a seller chooses to take action. For example, if you submit a subject-free offer of $500,000 and cannot secure financing for that offer and the seller turns around and is only able to get a $400,000 deal with another buyer, they could potentially sue the initial buyer for the difference due to breach of contract.

Preparing a Subject-Free Offer

If you have decided to go ahead with a subject-free offer, regardless of the risks, there are some things you can do to mitigate potential issues, including:

• Get Pre-Approved: Again, this is not a guarantee of financing when you do make an offer, but it can help you determine whether you would be approved or not.
• Financing Review: Identify what the lender is looking for to make sure they walk away with a mortgage. Though approval is never certain, prospective buyers placing a subject-free offer should do their very best to secure financing beforehand.
• Do Your Due Diligence: Look into the property and determine if there have been major renovations or a history of damage. This could come in the form of a Property Disclosure Statement. While this statement cannot substitute a proper inspection, it can help identify potential issues or areas of concern. If possible, conduct an inspection before submitting your bid/offer.
• Get Legal Advice: This can help you determine your potential risk and ramifications of the offer should it be accepted, or otherwise.
• Title Review: Be sure to review the title of the property.
• Insurance: Confirm that you are able to purchase insurance for the home. Keep in mind, an inspection may be required for this but in some cases, you can substitute for a depreciation report if it is recent.
• Strata Documents (if applicable): Thoroughly review strata meeting minutes and any related documents to determine areas of concern.

While there are things that can be done to help with subject-free offers, it is still risky. Ultimately submitting an offer with subjects gives you the time and ability to gather information on the above, as well as access to the property or home for inspections.

If you are intent on submitting a subject-free offer, be sure to discuss it with your real estate agent as they can determine if a subject-free offer is necessary, or if perhaps a short closing window would suffice to seal the deal. A good realtor will keep you informed of potential interest and other bids during the process as well. Their goal should be to maximize your opportunity and minimize your risk. In addition, before making any offers, be sure to contact me to discuss your mortgage and financing so you can make the best decision.