My Line of Credit Debt
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Pay it off as soon as you can. 
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Draft a budget, find ways to create excess cash flow by either saving more money or earning more income. Put excess cash flow towards highest interest debt. Repeat to next highest interest rate debt until all is eliminated.
Pfft. Don't pay it off. The trick is to keep adding more debt! Live the high life, buy a BMW, big screen TV, and play PS3 all day. Call in sick for work every second Friday so that you can practice your Modern Warfare skillz. Take a few trips to warm locations -- Hawai'i is nice at this time of year.
Once you've racked up a good $60k in credit card debts, and are hopelessly behind on the interest payments, you can declare bankruptcy. Sell your stuff. Quit work; go on social assistance. And find yourself unable to buy a house or get financing on a car loan for years to come.
Or ... joking aside, you can stay on top of your debt and Do Not Buy What You Cannot Afford.
K.
Once you've racked up a good $60k in credit card debts, and are hopelessly behind on the interest payments, you can declare bankruptcy. Sell your stuff. Quit work; go on social assistance. And find yourself unable to buy a house or get financing on a car loan for years to come.
Or ... joking aside, you can stay on top of your debt and Do Not Buy What You Cannot Afford.
K.
I borrowed the money for a GIC but a student loan is a lot more than 6,000!
What is your LOC interest rate? What is the GIC duration rate you received?
prime+2 and I don,t have a interest rate on my GIC its a progressive GIC from BMO Dividend Link GIC locked up for 5 years in a RRSP(registered)
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Even progressive rate GICs have interest rates - they are usually escalating rates i.e. different ones for each year.
That aside, you borrowed from an LoC to invest in RRSP?
And in a GIC?
Your loan interest rate sounds rather high....it's probably 4.25% now.
No offense buick1957, but it seems you may have been the latest guy to be sold by a bank salesman. I've been there so this is no dis. Get rid of that LoC as fast as you can; and don't listen to whoever got you into this ever again. If you ever see them in a bar, buy them a drink, but spit in it first.
My 2 cents atleast.
This is even worse than speculated. So you borrowed money to invest in a GIC in your RRSP in which case you can't even make a claim? So all in all this should pretty much be a wash for five years. The bank might send you a holiday greetings email though... And we won't even get into the pointlessness of a market linked GIC.
I used to like index based GICs 5 - 7 years ago, when at least the bank I used had a very simple formula for determining the GIC potentiol, basically it was the % difference between the given index at GIC purchase time and the index value at GIC maturity, capped at 7.5% per year.
We bought several 3 year GICs like this then, and did very well from them.
Those days are long gone.
Many people must have as well, because now any index based GICs that are left I look at(and there are many less being offered now too) has a formula you would need to have a math degree to understand, and it is usually on a fraction of the % growth that you get. So they make no sense at all anymore. Even my local banker comer out and said they were a waste of a product, so if the seller does not want to sell them then you know they must be bad!
We bought several 3 year GICs like this then, and did very well from them.
Those days are long gone.
Many people must have as well, because now any index based GICs that are left I look at(and there are many less being offered now too) has a formula you would need to have a math degree to understand, and it is usually on a fraction of the % growth that you get. So they make no sense at all anymore. Even my local banker comer out and said they were a waste of a product, so if the seller does not want to sell them then you know they must be bad!
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Going into debt to invest is a bad idea IMO. IMO the source of investment money needs to be from money you have saved. You'll pay a lot more than the interest rate they gave you in LOC interest. Please tell me the GIC is cashable so you can cash it out and pay back the LOC. With all due respect, this was a very bad idea.
Doesn't anyone save money before spending it anymore?
Doesn't anyone save money before spending it anymore?
what I did was a great idea I will make more than 4 or 5 per cent a year I bought a Dividend Link GIC which the principle is guaranteed but these progressive GIC once again have no interest rates you make your money at the end of 5 years on your Participation rate which is 60% but remember Dividend Fund is one of the top performers
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How do you plan to make 4 - 5% on this deal?
Your loan interest rate is 4.25% - correct (P+2) ?
A dividend ETF like XDV barely returns about 4%.
Your participation rate is not 100%
You may be confusing two separate products here - progressive rate GICs and market-linked GICs.
Progressive rate products have clearly defined interest rates (different for each year and escalating rates).
Market linked GICs have a base rate defined (very low).
Only the principal and the base rate is guaranteed (by CDIC).
The rest is all based on your participation rate and the index upon which the GIC is based.
Note that the big banks usually have some custom variant of a popular index.
Seldom are these products based on a popular ETF like XIU or XDV.
Often they'll have a custom variant called something like "TD TSX Equity Index" or "Scotia Canadian Dividend Index".
The holdings may or may not match those of XDV.
The holdings and % in that index may have been doctored to limit your upside.
Can you tell the exact GIC you purchased? This could help give more real input onto how good of a choice it was given you purchased using a LOC prime+2.
At least please take the tax refund you get since you put the LOC $ into an RRSP and use the cash to pay down the LOC instead of buying something.
The likelihood of you making $ on a GIC linked to a dividend index fund given 60% participation is very low to nil given your interest rate, as has been suggested earlier.
And what if interest rates raise (they sure can't go down anymore), then you could end up loosing $ in the deal unless you pay the LOC off FAST, even with the tax break you get from the RRSP contrib.
Recognize a mistake and learn from it; that is the most value you may get from this deal.
I'm sorry people I can,t explain it any better I'm not confused with nothing go to bmo.com and look under progressive GIC!!!!!!!!!!!!!!!!!!Can you tell the exact GIC you purchased? This could help give more real input onto how good of a choice it was given you purchased using a LOC prime+2.
At least please take the tax refund you get since you put the LOC $ into an RRSP and use the cash to pay down the LOC instead of buying something.
The likelihood of you making $ on a GIC linked to a dividend index fund given 60% participation is very low to nil given your interest rate, as has been suggested earlier.
And what if interest rates raise (they sure can't go down anymore), then you could end up loosing $ in the deal unless you pay the LOC off FAST, even with the tax break you get from the RRSP contrib.
Recognize a mistake and learn from it; that is the most value you may get from this deal.
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7,252 Posts
I took a quick look.
The maximum participation rate is 50% for a 5 year term.
It is linked to the BMO Dividend fund and its 5 year return is hovering around 4%.
I'm probably missing something since you appear so confident, but I don't see how you can make money on this deal.
If you have such a high degree of confidence in this mutual fund, why didn't you invest directly in this fund and get the full upside?
Why give up 50% upside?
Missing 50% returns seems like a big price to pay for principal guarantee.
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