The coronavirus pandemic has thrown a wrench into even the best of financial plans for many Canadians, but there are ways to minimize the damage until we come out on the other end of the lockdown.
Businesses are shuttered and the Canadian economy shed more than a million jobs in March. Nearly 6 million people filed for Employment Insurance or the Canada Emergency Response Benefit since COVID-19 sent the economy into hibernation. It goes without saying money is keeping a great many up at night.
Bills will start piling up, and if you’re not going to be able to pay them all right away it will be important to keep track of them. Kelley Keehn, personal finance educator and FP Canada consumer advocate, says that starts with making a list of all your bills over the next 2 months.
Next, she suggests reaching out to creditors like your landlord to see if rent can be deferred to help keep some cash on hand. The same goes for utilities, property tax, and your mortgage — which banks will now allow you to defer payments for 6 months.
“If you’re deferring your mortgage or other debts, make sure you get all of it in writing or take detailed notes of the arrangement and email yourself those details. You won’t remember months down the line,” Keehn told Yahoo Finance Canada.
If you’re deferring your mortgage, Keehn says you should apply well before the next payment is due because it takes about 5 days at most banks. She also cautions that the country’s biggest banks, except for National Bank, charge interest upon interest. If you need to defer only one payment, you can do so online at most banks without penalty.
If you’re short on cash, an expert can help you put together a plan instead of resorting to cashing in your RRSP, which has likely dwindled since COVID-19 took its toll on stock markets.
“If you do [cash out], you lose that contribution room forever,” Keehn said.
“You pay withholding tax when you take it out, you may owe more at tax time next year and you’re likely cashing in at a loss. A financial planning pro can help you figure out if there’s any other alternatives.”
Along with mortgage deferrals, banks are also offering deferrals and reduced rates on credit cards.
Car insurance rates are being reduced too. But if you don’t need to drive, coverage can be paused.
Debt panic about debt
Consumer debt and rising insolvencies were already taking a toll on households before COVID-19. Paying for food is suddenly higher up on the list of priorities than credit card payments.
Doug Hoyes, co-founder of Hoyes, Michalos & Associates says don’t panic if you’re worried about bill collectors.
“Most collection agents are working from home, so they likely won’t be calling as much. Also, the courts are closed, so they can’t sue you today, so don’t let them threaten you with a new court ordered wage garnishment; it can’t happen while the courts are closed,” Hoyes told Yahoo Finance Canada.
Hoyes also suggests talking to creditors, but warns against simply not making payments because of the damage it will do to your credit score. He suggests making partial payments on deferred mortgages to keep the debt load more manageable.
If you need to borrow to make ends meet, Hoyes says to avoid high-cost payday loans and financing loans.
“Taking on a 49% loan today may be a loan you can’t repay down the road,” he said.
“I understand the desire to get a payday loan to pay the rent, but that creates a large interest obligation, so a better approach would be to talk to your landlord and pay what you are able.”
Hoyes says people who are working but have debt should consider their options, including a consumer proposal, if the downturn continues for an extended period.
Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.