COVID-19 has hit all of us, regardless of our financial situations. Job losses, economic recession, illness, anxiety, fear, and general uncertainty of the future have impacted everyone. How do we handle our individual concerns? Comfort food, Netflix/Crave, alcohol, lack of sleep, worry, anger or depression? Should we allow ourselves some indulgences and lie on the couch with a pint of ice cream binge watching Netflix? Yes, we are entitled to do that. Life has thrown a curve ball to everyone. However, we are in control to decide for how long we indulge.
As far as debt, we are also in control in deciding how to deal with it. Understanding your debt options begins with creating a budget. The numbers will talk to you. This is your income less fixed expenses resulting in a surplus or deficit. There is some flexibility in lowering expenses, however expenses for rent, food, utilities, telephone, transportation are tough to lower. Does your budget have room for debt repayments? Are these repayments the minimum required amounts or are you paying down the principal?
For those who have lost their jobs and where government support may be coming to an end, putting debt out of mind will not solve your debts as interest charges continue to build up. Many of those who were dealing with debt pre COVID-19 received relief. Relief such as the Canada Emergency Response Benefit (“CERB”) , lower interest rates, mortgage deferrals, minimal to no collection calls and no wage garnishments have put a blanket over, “I will deal with my debt another time, no one is bothering me.” We understand that hanging on to available credit limits has become a necessity.
Now is the time to take control and face the monster we call “debt” – credit cards, loans, lines of credit, payday loans, income taxes. You may not have been able to pay the debts before COVID-19 hit with your current income and expenses. The truth is you will not be able to pay the debts once the pandemic slowly subsides and life gets “back to a new normal”. The problem will persist. What are you feeling?
Embarrassment has a lot to do with debt problems. Your comfort zone may leave you isolated and dealing with the issue in silence. It’s also uncomfortable to be transparent with friends and family. Debt advisors agree that debt problems are nothing to be ashamed of and can happen to anyone. Even when you are careful about spending, a sudden life event such as COVID-19, a marital breakup, or a job loss, can pull you down a spiral of uncontrollable debt.
Because of the stigma and shame, many people struggling with debt choose not to be open about their financial issues. Pretending your debt does not exist will only lead to collection calls and your creditors may start legal actions against you. Even more concerning, they have the right to escalate the matter to your employer and your pay cheque. Wage garnishments are an extremely distressful consequence of ignoring debt. Many individuals are jolted into action only when this happens. Sadly, shame is one of the worst reasons for not dealing with debt problems.
Lack of Understanding
The first step is understanding your debt options. There is no commitment to understanding. In fact, knowledge is power. In our practice, many people are so relieved with choosing an option that is best for them. Confusion turns into knowledge, which leads to choosing an option, which results in a fresh start.
Fear of Credit Loss
Lost credit is a daunting concern for those ignoring debt. Even those who are prepared to act often get cold feet when it comes to being open and honest about their spending. For many individuals, credit cards offer a secure place to go for cash shortfalls and emergencies. Losing credit card privileges is a scary proposition.
Worried About Credit Scores
Without a good credit score and history, it can be more difficult to qualify for a mortgage or car loan. Yes, it is true that you will retain a decent credit history if you maintain your minimum monthly payments. However, continuing to make minimum payments is unsustainable for everybody, except the creditor. Your debt will continue to climb higher each month, making it impossible to catch up. Only paying the minimum on credit card bills is the most common reason why people get into debt problems to begin with.
If you are struggling with a poor credit score, our team will review your situation, so you understand your debt options, including a consumer proposal or in the most extreme cases, bankruptcy. However, this short-term pain is actually long-term relief in disguise. We can help you rebuild your credit.
We can help.
There will be life after COVID-19. Contacting a Licensed Insolvency Trustee is the first line of defense for people battling debt problems. Our professionals are non-judgmental and easy to talk to. We offer free telephone or video consultations. From there we will assess your situation and help you formulate a monthly budget. Perhaps a consumer proposal with fixed monthly affordable payments fits your circumstances. If bankruptcy is the best route for you, our team with work with you. With true commitment to the process, you can climb out of your debt, no matter how bad it is.
Connect with the Author
Linda Stern is a Senior Manager and Licensed Insolvency Trustee at Crowe Soberman Inc. She has over twenty-five years of experience working in Montreal, Ottawa and Toronto, primarily in consumer insolvency matters consulting with individuals overwhelmed with debt and helping them find solutions that work best for their financial and personal situations. If you are concerned about your finances during the pandemic, call her for a free telephone consultation.