Mogo Loans: Are They A Good Deal?

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Posted in Debt Help
Posted by J. Douglas Hoyes, CA, CPA, LIT, CIRP, CBV

mogo loans

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My guest today is Kerry K. Taylor.  Her website, Squawkfox,  was voted Canada’s best money blog by the Globe & Mail in 2010, and in 2014 Chatelaine said she was the "gold standard for personal finance blogging”.

I’ve followed Kerry’s work for many years, so I was very interested to read her Globe & Mail article where she described her visit to Mogo Lounge, operated by Mogo, a new “sexy, fintech” lender.

A sexy approach to lending

Kerry discovered that Mogo is a new type of lender, nicer than a payday loan lender, and more friendly than a bank. Instead of ugly yellow stores, these new loan shops have a much more attractive approach. Nice looking locations that look more like lounges than payday loan outlets, they offer free water, an online app - and best of all a three minute signup process. In addition, they give you a free credit report, with your credit score.

As we discuss on the show, Mogo markets themselves to people who feel like they are “getting screwed by the banks” (and those are the words on the packages of the free condoms they hand out).  Their marketing pitch is simple: go to the app, get your credit score for free, and in three minutes you may get pre-approved for a loan of up to $35,000 with rates starting at 5.9%.

Lower rates but not low rates

Unfortunately you may not qualify for the lowest rate, or as Kerry described it a "teaser rate". Dig a little deeper and you soon find that most clients don't qualify for the low rate available for people with good credit.  If you don't qualify for the low rate, Mogo will offer you their 'cheaper' version of a payday loan. It’s true; Mogo “only” charges $10.50 per $100 borrowed (for two weeks), which is half the maximum rate in Ontario for payday loans of $21 per $100.

It sounds great, but Kerry says there’s more to the story, including the fact that $10.50 on $100 for two weeks works out to an annual interest rate of 273%, which may be lower than a regular payday loan, but that’s still much higher than most other forms of borrowing.

Borrowers getting deeper in debt

In her review, Kerry discovered that the reality was not as happy as portrayed on the Mogo website.  Her research shows that most Mogo customers have other debt, and they go to Mogo to try to get a better rate to pay down their higher interest rate debt. 

When I interviewed Mogo, all their clients basically have credit card debt of some sort...They're looking to pay off debt with more debt.

Kerry explained how Mogo uses a concept called leveling up. It seems like a good idea. You qualify for a (high cost) entry loan. You pay that off a couple of times and then 'level' up to their line of credit. Yes you are getting access to credit at a better rate, but you are also borrowing more:

The idea is they give you the carrot and if you do well with it, they'll give you a shinier carrot the next time. So, you're working at being better at borrowing.

What about that free credit score?

Mogo advertises a free credit score, which sounds great, but Kerry says that getting you to sign up for a free credit report helps Mogo, because once you are in the system, they now have access to your data.  Why does that matter?  Because the more data Mogo can collect on you, the more tailored the marketing pitch.

What Mogo does is they have all these data crunching algorithms on the back end that look at the kind of perspective client that you're going to be as a borrower.

They use data crunching, they use online tools in order to get customers to apply for loans.

You may start by only getting a $500 loan, but over time you “graduate” to a higher term loan or line of credit, and unless you have perfect credit it’s likely that you are paying an interest rate much higher than the rate charged by the banks.

Mogo says they are helping you improve your credit score, and that may be true, but they are also helping you get more debt, which may not be in your best interests.

Practical advice

Kerry’s advice is to start by crunching the numbers.  She offers a free budgeting worksheet to help you cut expenses and manage your money.

She also recommends that, if you have debt, explore all of the different avenues for getting out of debt.  A high interest loan is not the only answer.  Start by determining why you are in debt, and make changes to reduce debt, and consider all other alternatives.  It’s important to be an informed consumer.

Resources Mentioned in Today's Show:

FULL TRANSCRIPT Show 113 with Kerry Taylor

mogo loans reviews

Doug Hoyes: Today on Debt Free in 30 we’re going to talk about a new kind of lender. On previous shows we’ve talked about banks, that lend to people with very good credit, and payday loan companies, that often lend to people with less than perfect credit. But there’s a new type of lender that has interest rates lower than a payday loan company, but higher than the banks. Who are they, and how do they work? That’s our subject for today, but first, let’s meet our guest. Who are you, and what do you do?

Kerry Taylor: I'm Kerry, people call me Squawkfox because I'm the financial writer and blogger behind Squawkfox. But my bylines tend to be Kerry K Taylor because that's what my parents named me.

Doug Hoyes: Kerry K Taylor is our guest today. Squawkfox.com is her website, which has been around for many, many years, always is at the top of the rankings when they're voting for best websites and best blogs and I'll put links to that in the show notes but it's pretty easy to find, squawkfox.com.

Now I've have been following your work for quite awhile and what intrigued me was over the last few months you've written and - well, you've had two things, you had video that was on Money Sense and you also had an article in the Globe & Mail a few months ago because you went and checked out a company. Tell me the story, paint the picture, what was the story you checked out?

Kerry Taylor: It's a very sexy company. I was going for a walk and I walk a lot. And I tend to go past all the payday loan stores, the big yellow ones. And they're not very appealing to the eye. But I walked past this one called Mogo and they have a lounge. And it's really sexy when you go in because they offer different kinds of loans. And they have a lounge and they give you water and they have this whole bay of iPads set up. It was a really friendly atmosphere and I thought hey, what's going on here? What is this place?

Doug Hoyes: So, this is a new form of - I don’t know if it's even a payday loan place or what it is. I guess I would call it an alternative lender, maybe it would fit into the fintech description.

Kerry Taylor: Fintech online lender, they've got an app.

Doug Hoyes: And is that what Fintech means?

Kerry Taylor: It's a good question. I don’t know, they're online you can do everything online, they use data crunching, they use online tools in order to get customers to apply for loans.

Doug Hoyes: So, and this is - they've actually got a physical location in Toronto which is where you and I are sitting down and chatting today.

Kerry Taylor: They're in - their home base is in Vancouver.

Doug Hoyes: Their home base is in Vancouver and the vast majority of people who deal with them would be dealing with them over the internet, over the phone whatever.

Kerry Taylor: For sure. Yeah.

Doug Hoyes: So, walk me through the process then. I either go into their physical location or more likely I go onto their app. And what happens from there?

Kerry Taylor: Well, it's a good question. They have a really sexy marketing campaign. So, you go to their website, it's a dark colour and they have all these educational resources that apparently help you improve your credit score. And right there on the front page you get a free credit score just by creating a three minute account.

Doug Hoyes: So, this all sounds very good, free education, resources, this is good okay.

Kerry Taylor: Very sexy, if you go into the actual lounge, they'll give you free condoms.

Doug Hoyes: Free condoms as well?

Kerry Taylor: And it says on the condom are you getting screwed by the bank? They want to stick it to the bank they want to give you the loan if the bank isn’t being your friend.

Doug Hoyes: So what kind of loans can I get from these guys?

Kerry Taylor: Well, so you go in, you create an account in three minutes, that's all it takes, they give you a free credit score and based on your score you can qualify for one of three loans. They have a term loan, they have a line of credit and then they have their payday loan credit.

Doug Hoyes: So, let's kind of break this down one by one. So, they're payday loan product, and we've talked many times on this show about payday loans. I'm not a big fan of them, you can give me your opinion shortly. So, in Ontario as we record this in 2016 the maximum a payday loan company can charge is $21 for every $100 borrowed. And there are rules that are supposed to be changing for 2017 to lower that and the number would be lower in other provinces. What does Mogo charge?

Kerry Taylor: Well, you know, they're very proud of their 50% discount they give over other payday loan lenders. So, they charge $10.50 for borrowing $100 bucks for two weeks, which is basically a huge deal when you compare it to other payday loan lenders.

Doug Hoyes: So, yeah if $21 on 100 is 546% and I'm assuming if I get the loan, keep it for two weeks, pay it off and get another one I'm getting that same, I'm paying that same $21 26 times and that would be 546%. $10.50 if I did that 26 times during the year would be 273% on an annual basis.

Kerry Taylor: That's a deal, huh?

Doug Hoyes: So, it's a deal. I guess it's a deal compared to the alternative, not so great a deal compared to every other alternative that's out there.

Kerry Taylor: Exactly.

Doug Hoyes: So, that's a payday loan, now you also said they had a line of credit product.

Kerry Taylor: Yes, I think they call it a Mogo Liquid and that's you can borrow, I think the APR on that one is 47.7%.

Doug Hoyes: Yeah and this where I'm a bit confused. So, in your article you're talking about based on your research you can borrow on this one line of credit anywhere from $5,000 to $35,000.

Kerry Taylor: I think that's their term loan yeah, that's the teaser rate of like 5.9% interest rate. So, that's the deal, that's the one everyone wants to get.

Doug Hoyes: So, the term loan, tell me about that. Literally it's a term loan.

Kerry Taylor: Yeah.

Doug Hoyes: So you have a year or two to pay it off, that kind of thing.

Kerry Taylor: Yeah, that's the one everyone wants, because it's got the lowest interest rate on it. But the problem is based on your credit score and the amount of income you make, what Mogo does is they have all this data crunching algorithms on the back end that look at the kind of perspective client that you're going to be as a borrower.

And based on your inputs and your credit score that they now have 100% access to and all the information on it, they're going to know the line of best fit of what to lend you and what you can pay back in a reasonable amount of time and how much maximum money they can make off you as a borrower. So, they're going to give you the loan that best suits based on the numbers, yeah.

Doug Hoyes: So, in terms of process then I don’t go in to get a payday loan.

Kerry Taylor: No, no one wants to do that.

Doug Hoyes: No, of course not. So, I go on the app and what kind of things is it asking me, how much do I want to borrow, is that one of the questions or is that - do they tell me how much I can borrow?

Kerry Taylor: They tell you how much you can borrow.

Doug Hoyes: So they ask me for my name obviously.

Kerry Taylor: Yeah, they want to know your income, they want to know what you do, they want to know if you make regular income. Then they're going to look at your amount of credit that you have and how much debt you have.

Doug Hoyes: And based on that they're going to say oh, you qualify for A, B or C and here's how much you can get.

Kerry Taylor: Exactly.

Doug Hoyes: Now you mentioned about -

Kerry Taylor: It's a three minute process, it basically takes three minutes for you to get access to money.

Doug Hoyes: Wow. And I'm quite intrigued by this whole credit report, credit score thing. So, I sign up for an account and now I can get my credit score whenever I want. That sounds pretty good.

Kerry Taylor: Well, I mean you can do that at Equifax too. It cost $25 but I feel really unhappy with telling people to get a free credit score at Mogo because they're going to have access to your data. I would prefer people to pay the $25 for the actual score or to go online and order your report for free so you can check for errors.

Doug Hoyes: Yeah you can get a free credit report from Equifax and TransUnion once a year, mail in and you get it. Now you don’t get your credit score with that.

Kerry Taylor: No, you don’t.

Doug Hoyes: We can talk about credit scores in a minute. But you're right Equifax and TransUnion both have services that you can pay for and get your credit score however you want. So, you said that they can have - they have access to your data then.

Kerry Taylor: Yeah.

Doug Hoyes: Why should I be concerned that they have access to my data? Because they way you're describing this, this is a data play on their part. They're getting a bunch of data, they're offering me free access to my credit report, with my credit score but because I've got it, now they have it.

Kerry Taylor: Data is powerful out there, everyone wants access to data. I mean a lot of the time when something is free, it's because you are the free lunch. There is no such thing. You've got to look at what the value proposition is for them.

Doug Hoyes: Okay, so let's think this through here. So, you and I are going to start a Fintech company and it's going to be on people's iPods and iPhones and whatever.

Kerry Taylor: Right, we'll have an app.

Doug Hoyes: That's right we're going to have an app and -

Kerry Taylor: It'll take three minutes to -

Doug Hoyes: Three minutes to log in and get all this stuff. And we're going to make it as cheap and inexpensive as we can. So, how are we going to be able to use people's data to make money? What's the angle here, how is this data valuable?

Kerry Taylor: Well, it's exceptionally valuable because now they know based on all the different credit reports that they're collecting and scores. They know the kind of client that they're dealing with from top to bottom. So, they're going to understand how much debt people have, how much ability they have to pay it off and, you know, and align the loan that they want to give you for the best ability for that customer to make the most money off of them quite frankly.

Doug Hoyes: So, they can target very specifically.

Kerry Taylor: Yeah they can target very specifically and know exactly how much debt to offer you, right? So, they're going to give you just long enough rope that you can create the noose to almost dangle from it.

Doug Hoyes: So, they have three different products. We crunch the numbers, which all happens very quickly if the approval process takes three minutes. And they slot me right in the product where they're going to make the most money off me.

Kerry Taylor: Probably, yeah.

Doug Hoyes: And presumably has the lowest risk.

Kerry Taylor: Or have the product that you're most likely to accept. So, they're also going to have the acceptance rates as well for that specific profile of that customer with that level of debt and need of infusion.

Doug Hoyes: Wow. And so the more customers they have the better because the more data they have.

Kerry Taylor: Exactly.

Doug Hoyes: So, when I log into the app and punch in my information they go oh, we've got 73 other customers almost exactly like this guy. Here's the product that he's most likely going to pick, here's the product we can make the most money off of, let's target specifically to him.

Kerry Taylor: Yeah, I would, wouldn’t you? That makes the best sense to me.

Doug Hoyes: Yeah, this company we just started, that's how we're going to do it. So, how is this different than banks? Like banks make money off of people, banks have access to data don’t they, what's the difference? Why are we vilifying these poor little guys who are starting a new business? Isn’t this just the same as what the banks do?

Kerry Taylor: Well, sure I guess yes and no. I mean banks definitely make money off of credit products. I've get to go into the bank and have a teller not tell me I've had an increase in my line of credit. I don’t have a line of credit. Or an increase in my credit card rate or they've offered me another credit product. So, I mean that's key bread and butter for them. But banks have a lot of stringencies that they go through in order to lend you money. And their rates are much lower than what Mogo offers as well. So, I mean a 47.7% APR is really steep on a line of credit, don’t you think?

Doug Hoyes: I think so, yeah because at a bank if you've got good credit then that rate might be four, five, six, seven percent.

Kerry Taylor: So, Mogo's really going after the customer that the banks no longer want to deal with, they're not their customer base.

Doug Hoyes: So the bank wants people that there's very low risk of ever losing money. Mogo, and I guess these other alternate lenders are willing to be a little more risky, which is why the interest rates are that much higher.

Kerry Taylor: Well and they're also targeting people that have a lot of debt. So, the word that they're using is to deleverage their credit card debt and consumer debt with a lower interest loan. And that's really what they're looking at. So, when I interviewed Mogo, all their clients basically have credit card debt of some sort. So, rather than find some other way to pay off the credit card debt they're taking on loans to service that debt.

Doug Hoyes: So did they actually admit to you that most of their clients have other debt?

Kerry Taylor: For sure, yeah. That's their client base.

Doug Hoyes: Wow.

Kerry Taylor: They're looking to pay off debt with more debt. It's this cycle, right?

Doug Hoyes: Yeah, they're trying to get you on the hamster wheel. But given the interest rates that you're talking about in most cases this doesn't make any sense.

Kerry Taylor: No, but it's working. I mean because when - I guess debts really embarrassing, right? Where do you go, what do you do if you can't make the minimum payments and you've got creditors breathing down your neck? Well, you go out and find a loan, right? And isn’t that what payday people are doing? Well, you tell me, you deal with payday loan ramifications all the time.

Doug Hoyes: Yeah and we know from our client base that people who have payday loans, it's exactly what you just said, they have a bunch of other debts as well. So, everyone -

Kerry Taylor: Paint me a picture, paint me a picture.

Doug Hoyes: Well, I mean every one of our clients doesn’t have a payday loan but of the ones that do, by the time they end up coming to see us to file a proposal or go bankrupt they have three and a half of them.

Kerry Taylor: So, why did they layer on all of these loans on top of the credit card debt. because we already know that credit card debt has about 19% and the payday loans are upwards 500%, right?

Doug Hoyes: Well, I think in most cases it was because they did not perceive that they had any other alternative.

Kerry Taylor: Okay.

Doug Hoyes: And to me that's the saddest part of it. So, you know, a payday, I mean the whole definition of it is well, it's a loan till your next payday. So, today is the, you know, the 30th of the month, my rent is due on the first of the month, I don’t get paid until the 6th, so how do I pay my rent? Well, I go and get a payday loan, I can pay my rent, I'll be able to pay it back on the 6th when I get paid. It all makes sense, right?

Well, no because if the rate is - even if it's only $10.50 on 100 you're paying back a lot more than you borrowed, which means you're going to have to take out another payday loan to pay off the first one and the cycle continues. So, the solution for most people is to actually break that cycle.

Kerry Taylor: How do you do that?

Doug Hoyes: Well, so my rent is due on the 1st and I'm not going to have it. I guess what I would do is I would go talk to family and friends and see if someone can help me or I would go talk to the landlord and I'd say look, you know, I can't give you the money on the 1st. It's my own fault, whatever but I can't do it till the 6th.

Now of course the landlord isn’t going to be happy but under most laws in most provinces they can't evict you for being five days late for your rent. So, in most cases, okay come up with the rent on the 6th and then make a plan so that you can be getting ahead from there. So, okay my next paycheque is going to be on the 20th, well on the 20th I'm going to set aside half the month's rent or a full month's rent for the following month and start to try to get ahead.

Kerry Taylor: Right. And it's looking at the alternatives, right? One thing that really shocked me when I went into the Mogo lounge is they don’t talk about the alternatives to getting a Mogo loan. There's no alternative, it's like the cheapest loan, payday loan, it's the best deal going. And that's how they sell it because it's only $10.50, right?

Doug Hoyes: So even all this financial advice they're giving, it's not real advice then, they're not actually giving you what all these different alternatives are?

Kerry Taylor: Well, they're telling you how to improve your credit score and that's to pay off the loan, right? So, they're teaching you how to use credit and pay back debt in order to game this credit score.

Doug Hoyes: But isn’t that teaching you how to be a drug addict? Like isn’t that sort of the same concept then?

Kerry Taylor: Yeah.

Doug Hoyes: Like how do you get a good credit score? Well, it's by having lots of credit.

Kerry Taylor: And paying it back or most of it, the minimum of it.

Doug Hoyes: Well, yeah I mean utilization is one element that factors into your credit score. So, you don’t want to be utilizing more than let's say 20% of your outstanding limit. So, let's say I got a $10,000 credit card, I carry a balance of $2,000 every month. Fantastic I've got perfect utilization.

Kerry Taylor: You're awesome. Except that you have $2,000 worth of debt that you're carrying around, dumb, dumb.

Doug Hoyes: You're right, it's crazy, it just doesn’t work.

Kerry Taylor: I mean I go in there, I watch the people sign up for these loans. And I just I get so frustrated because this one woman didn’t know the difference between her gross income, her net income, I mean there's a lot of breakdowns happening here. People don’t know how much they make. What are some of the other problems? Why do people go to these loans? Because the math does not make sense to me, it's not the free condom they're going in for, those only cost $1. You can do that math on those too.

Doug Hoyes: It's not the math that's driving it, it's the emotion. So, we have found that the largest payday loan debts are with seniors, which intuitively makes absolutely no sense. If the whole point of a payday loan is to get me to the next payday, by the time you're a senior you're probably getting a pension so it's not a traditional payday anyways, but they - the age 60 years and older crowd, if they have payday loans when they go bankrupt owe more on those payday loans than any other age group.

Kerry Taylor: Well, what's going on?

Doug Hoyes: I think it's partly a fixed income issue. So, I was used to living on this much and then I retired and now my income is lower but I'm still spending as much as I was spending before. So, I start to get short every month, how do I make up the difference? Well, a payday loan. I think the other aspect of it is embarrassment. If I'm 60 or 65 years old, I've been the adult my whole life and my kids who perhaps are adults now come to me and ask for some help, hey, you know, I'm going through a situation, can you help me out? I don’t want to say to my adult children no, I can't help you because I've always been the parent, once a parent always a parent.

Kerry Taylor: Well, I'm a parent and I say no to my 4 year old all the time.

Doug Hoyes: But will you be saying no to your 4 year old when she's 40?

Kerry Taylor: I don’t know.

Doug Hoyes: Who knows, right, because you've never been in that situation.

Kerry Taylor: My clairvoyance is lacking, sorry.

Doug Hoyes: It's hard, you do not have a crystal ball to tell. But I think that's part of it, that I don’t want to have to admit to my children.

Kerry Taylor: You're telling me pretty well.

Doug Hoyes: I'm telling you 40 years from now.

Kerry Taylor: So, 60 plus they have, I've read through some of your data points, you say around $2,800 worth of payday loans that people with about $60,000 worth of debt tend to carry.

Doug Hoyes: Yeah our typical client has around $60,000 of unsecured debt, so we're not talking mortgages or car loans. And the over 60 people, at the time they go bankrupt, if they had a payday loan, would owe almost $3,700. So, compared to the 50 to 59, there more like $2,800, the same with the 40 to 49s. Most other age groups are in that sort of $2,800 level, which is still a massive number. I mean $2,800 if you're paying $21 on 100 every two weeks.

Kerry Taylor: I feel like it's loan sharking.

Doug Hoyes: It is but they're good enough that they keep it just below the limit. I mean the usury laws in Canada say you can't charge more than 60% a year. But there are special exemptions for the payday lenders.

Kerry Taylor: Why do they get special exemptions?

Doug Hoyes: Good lobbyists, I don’t know. Partly it's because most of them are regulated provincially not federally. And the other part of it is the way the rules are written, well the loan's getting paid back so the annual interest rate doesn’t - isn’t as applicable. But ultimately it comes down to I think, I mean to answer your question it's an emotional response to the problem and that's what you saw when you went to visit Mogo. They are trying to make debt fun.

Kerry Taylor: Oh it's a huge party over there. They have events, they have chefs come in, they have beauty seminars. It's like a place where you want to hang out and just talk about shopping I guess or debt. I don’t see a lot of concern over the amount of debt that people are carrying. I just see ways I guess to game it.

Doug Hoyes: So, I'm trying to figure out the difference between them and the banks then. So, it's sexy and it's fun.

Kerry Taylor: Oh yeah and it's attainable and easy. Because they're just an app that it just takes minutes, you don’t have to go in and make an appointment with a banker, you don’t have to bring all your paperwork with you. You sit down on a friendly iPad, someone's nice, they give you a glass of water, a couple of condoms and they chat you up.

Doug Hoyes: Bing, bang, boom.

Kerry Taylor: And they make you feel good, like you don’t feel like someone that needs something. They're there to help. They have courses online, they've got resources, the people online are attractive, the site is fun. You know, it's a real draw. And they're really targeting all the millennials I guess. Like their courses are called adulting 101 and they're targeting this cohort that, you know, is looking to pay off perhaps school debt or they've shopped too much, they've got credit card debt. They're trying to move out of mom and dad's home. Those are the people they're targeting. But I don’t know if those are the people signing up for this stuff. Like it really seems to me, when I was in there, it was really more people in their 40s.

Doug Hoyes: The - well, and I guess that's the way many products work, right? If you watch a beer ad on TV they're all 25 year olds but there are people older than 25 I assume who drink beer. Explain to me the concept of leveling up?

Kerry Taylor: Leveling up? That's, you know, this is apparently a gamer concept. A friend of mine who builds games for a living explained this to me. So, basically you get their entry level loan which is I guess their payday loan, you get pay, you pay it off for instance and you consistently borrow and pay it off. When you've done well and you've done that a couple of times, they will level you up to their line of credit. So, now you're getting access to longer term money at hopefully a better rate. So, the idea is they give you the carrot and if you do well with it, they'll give you a shinier carrot the next time. So, you're working at being better at borrowing.

Doug Hoyes: So I borrowed the $500 and paid it back. So, the next time I go to the app it might say hey, you now qualify for the $2,000 term loan or something like that.

Kerry Taylor: For sure with the 47.7%, which is a deal considering the 273%.

Doug Hoyes: And so they're selling that by saying and this will make your credit score go up? Is that part of it?

Kerry Taylor: I think that's part of it and the other part of it is you're getting access to more money at a better rate.

Doug Hoyes: And so they just keep you going.

Kerry Taylor: Yeah they keep you going.

Doug Hoyes: And I want to make it clear that the reason we're talking about Mogo is because you actually went in there and you interviewed them.

Kerry Taylor: Oh I interviewed them, yeah. No, for sure.

Doug Hoyes: But there are lots of other companies out there that are in the same boat and, you know, my opinion as well they're probably all basically the same.

Kerry Taylor: It's this whole new I guess competitive stream to the banks that's opening up. Everyone is like okay down with the banks, there's five of them, they're greedy, you know, we can be the underlings, the little guys that are there for the consumer. We can service the people that aren’t being brought in with the banks. We're friendly, we're different, we're fun. We have tools online so that's the kind of customer they're looking for, an alternative to the bank really. Some of them want to be banks.

Doug Hoyes: And the refer to you as members., which I guess -

Kerry Taylor: You're part of a group.

Doug Hoyes: Well, Costco does the same thing, right? You're not a customer, you're a member, you've got a membership card. I mean there's got to be some psychology there.

Kerry Taylor: I love Costco. $2 for an ice cream and it's the biggest ice cream ever.

Doug Hoyes: We will not trash Costco then at all. So, okay let's talk about practical advice then. What are some takeaways that we can give people so whether you're a millennial or not.

Kerry Taylor: Well, you tell me because when you go into these firms, companies sorry, they don’t give you any alternatives other than being better at managing your debt loads to get a better rate. They're not giving you ways to actually deal with the issue that's getting you the loan in the first place. Would that not be consumer debt?

Doug Hoyes: Yes it would be. I mean I'm a big fan of treating the problem not the symptom and so, if I'm going to a payday loan place.

Kerry Taylor: That's a symptom.

Doug Hoyes: Well, yeah the symptom is my rent is due in three days and I don’t have the money. The actual problem is deeper than that, your income isn’t high enough, you're spending too much money, you've gone through some other crisis, there's some kind of issue. So, I think number one you want to drill down to what the real problem is. I think number two you want to actually crunch some numbers.

Kerry Taylor: What could be the real problem that you see coming in, consumer debt, overspending?

Doug Hoyes: Yeah, it could be as simple as overspending. When we look at the people who end up going bankrupt or doing a proposal with us, there's a significant amount of job loss or job reduction, I'm not getting as many hours so I'm now working part-time instead of fulltime, medical issues are a big thing. We all think in Canada well medical care is free, it doesn’t cost anything. Well, that's true if you need to have your heart operated on you're not going to have to pay for it. But if you're off work for six months you're not getting paid. If you have to buy medication you're not getting paid. So, if you lose your job because of that it's an issue. And then another big one would be relationship break ups.

Kerry Taylor: So, divorce.

Doug Hoyes: Divorce is a huge one. And again, it makes perfect sense financially that if there are two people paying one rent and now there's two people paying two rents.

Kerry Taylor: And there's kids.

Doug Hoyes: And there's kids and your income doesn’t go up when you get divorced but your expenses do so these become pressure points. So, you have to kind of look ahead to see what's coming so that you can anticipate it.

Kerry Taylor: And these are really normal things to happen, people lose their job all the time, people get sick all the time and relationships don’t always last forever. So, really anyone can be in this boat and feel that they've bought a ticket for that cruise because, you know, they could be divorced in a year or get sick.

Doug Hoyes: Absolutely.

Kerry Taylor: Or whatever.

Doug Hoyes: And when I look at my clients they are literally, you know, 20 years old all the way through to 80 years old, there is no specific thing. But starting to crunch the numbers is a great starting point so at least you understand what you're looking at. On your site you've got some budgeting resources there, right?

Kerry Taylor: Yeah, really simple stuff to get people started and seeing maybe where some of the leaks in their finances are.

Doug Hoyes: And so, what stuff do you have on there? You've got worksheets, tell me what's there? If I've never actually kept track of money what does your site have?

Kerry Taylor: So, I have basically a budgeting spreadsheet, sounds really simple and boring and you know what? It's really simple and it's eye opening because once you start tracking your spending and you see what you're spending your money on, it's much easier to I guess stop the leak because you see it, you can acknowledge it. It's there. The math is in your face.

So, there's all different areas in your life that you can document. There's obviously your rent, your mortgage, your big expenses, your repeatable expenses like all your different bills. I highlight certain things that you might forget about, you know, your life insurance policy, all these gotchas that seem to surprise people every year but it's like heck, you've got to pay your property tax.

Doug Hoyes: Well, everything you don’t pay every month is easy to forget because they're not ongoing types of things.

Kerry Taylor: Yeah so repeatable expenses, yearly expenses, I mean these are all the things I want to get people to think about, even your bank fees, banking fees, some people pay $40 a month and they don’t even realize it. That's another area where people can document and figure out where the money's going. But yeah so crunching the number is big, what else?

Doug Hoyes: Well, then at least you've got a starting point. And I think the other point would be to realize that there are many other alternatives. So, we talked about my rent is due, I mean hydro's another big one where people say my hydro is due and I don’t have the money so I go and get a loan.

Kerry Taylor: Have you seen the hydro bills lately, oh my gosh.

Doug Hoyes: They're crazy.

Kerry Taylor: They're off the chart.

Doug Hoyes: So, I think if we can figure out a way not to use hydro at least in this province we'd be better off. But again being four days late with your hydro bill, they're not going to shut your hydro off.

Kerry Taylor: Right.

Doug Hoyes: Now if you're six months late, sure, but if you actually get on the phone with hydro and say look here's my situation and I can send you this much on these days and here's what I'm going to do. There are alternatives to rushing out and getting the highest cost loan.

Kerry Taylor: So money management is I guess, you know, a skill set that people need especially if they're sick or all these different variables that pop up. But everyone needs to have good money management skill sets now. I mean where do you - say, you're in debt all the time, it's obviously something you need to work on.

Doug Hoyes: Right. And if the underlying problem is that there are money management issues, great get those solved with your budget worksheets, whatever but even at that you still have all this debt. And so, like I said the average person I'm dealing with has $60,000 worth of unsecured debt.

Kerry Taylor: And what are the payments on that? That would flatten you right there.

Doug Hoyes: Yeah, if it's credit cards that you've got then you can't afford to pay it back, if you've got a conventional job or you're making two or three thousand bucks a month. So, in that case obviously the big problem becomes the debt itself and that's where you've got to look at options like, you know, consolidating or refinancing if that's possible. If you've got a house that's gone way up in value and you've got lots of equity, great. Refinance the mortgage, pay off the high interest rate debt with a lower interest rate mortgage and live to fight another day. In some cases credit counselling makes sense, if you're debts are relatively modest then they may be able to work out a plan.

Kerry Taylor: A debt repayment plan?

Doug Hoyes: Yeah, a debt management plan. If the debts are $60,000 then something more like a consumer proposal or a bankruptcy becomes necessary.

Kerry Taylor: And a consumer proposal is?

Doug Hoyes: It's payments over time. So, the typical proposal we would do for someone with $60,00 in debt, they may end up paying back let's say $20,000 and it depends on a bunch of different factors, your income, your assets, which creditors are involved. So, you might end up paying $400 a month for 50 months, $350 a month for 60 months, something like that. But that wipes out the debt, there's no further interest so you're much better off paying back $20,000 rather than trying to pay back $60,000 over five years, which is going to cost you $120,000 with all the interest. It's just impossible. And a lot of people say but oh if I do that, my credit score's going to be lousy.

Kerry Taylor: Okay but the thing is what do we all need these credit scores for? You know, like it seems like we're all trying to game this thing. I only care about my credit score when what? When I need a house? I rented an apartment in Toronto, I needed a good credit score for that.

Doug Hoyes: Even to sign up maybe for hydro or a cell phone or something but if you've got $60,000 of debt in my example.

Kerry Taylor: Then that's a bigger problem than a low credit score I would think.

Doug Hoyes: Right. So, let's focus on the important things and by dealing with all that debt you ultimately will have a better credit score because you wiped out all the debt.

Kerry Taylor: Right, that makes sense.

Doug Hoyes: Whereas if you have all this debt and you just keep getting farther and farther behind well you're credit score is going to erode anyway.

Kerry Taylor: It's going to be shot anyway because you keep going back for more payday loans.

Doug Hoyes: Absolutely, which is not good.

Kerry Taylor: Not good at all.

Doug Hoyes: Well, so that's quite interesting. I'm glad you were here today as someone who actually went in and sort of poked around.

Kerry Taylor: Oh I sat there for a good long time, it was - I got free water the whole time.

Doug Hoyes: It was a fun day for you. So, are there any other thoughts that pop into your mind here as we close on payday loans or debt in general? What are the other big takeaways that you saw from your time there?

Kerry Taylor: I think it was just really eye opening who was getting the loans, it wasn’t as it seemed. It wasn’t people, the millennials that they were targeting at all. It was just average people again that had a bad string of luck, didn’t have exceptional money management skills, people that had - that were really embarrassed about having to ask for help elsewhere and didn’t know where else to turn.

And I think opening up people's eyes that there's different avenues to solving debt problems and there's usually a great solution for wherever you are, how much debt you have, how many assets you have and learning to ask those questions and not be afraid to be a better informed consumer on your debt to get out of debt. And I think that's the takeaway for me. It's like don’t go with these loans, look at the problem underneath that's causing you to borrow more and I think that's it.

Doug Hoyes: Yeah treat the cause not the symptom because certainly there are other options. Well, that's great, I really appreciate that. So, what we're going to do in the show notes, which will over at hoyes.com is I'll put a link to squawkfox.com. We'll put up a link to the Money Sense video that you did and the Globe & Mail article that you did.

Kerry Taylor: It's a fun read, people enjoyed reading it. I did it with a sense of humour.

Doug Hoyes: Yeah and the video itself is only a couple of minutes long. But it certainly gives the big picture on it, which is great.

Kerry Taylor: And I throw money around and wave condoms.

Doug Hoyes: Oh yeah there's all sorts of littering going on too, you definitely want to see that, money and condoms all over the place. Carrie, thanks very much for being here.

Kerry Taylor: Thank you so much.

Doug Hoyes: That was my conversation with Kerry Taylor. You can find her on squawkfox.com, that’s squawkfox dot com, which was was voted Canada’s best money blog by the Globe & Mail in 2010, and in 2014 Chatelaine said she was the ‘gold standard for personal finance blogging”.

Full show notes, including links to Kerry’s website, her videos, and her free personal budgeting spreadsheet can be found at hoyes.com, that’s hoyes.com.

About J. Douglas Hoyes

Doug is our co-founder and is a Licensed Insolvency Trustee, Consumer Proposal Administrator, certified Insolvency Counsellor and Chartered Professional Accountant.

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