With various uncertainties and fear of a financial recession, there is no sure way to prepare yourself for the future. However, there are certain steps you can take to minimize your risks from a job loss or a financial meltdown. The hard times can be a nightmare if you’re already in financial despair but there is always a light at the end of the tunnel.
1. Find out if you are eligible for temporary income support
Effective August 20th, 2020, the Government of Canada announced changes to the Employment Insurance (EI) program. As well as new income support benefits to better support Canadians during uncertain times. The Canada Emergency Response Benefit (CERB) has been extended from 24 weeks to 28 weeks. If you’ve stopped working because of COVID-19, you may be eligible for temporary income support. The CERB is a $2000 a month taxable benefit that’s available to employed and self-employed Canadians. Find out the latest information on eligibility by visiting the Government of Canada’s CERB page.
2. Negotiate deferred or partial payments
Due to the unforeseen situation with COVID-19, the government has stepped in to provide for its citizens. But, this may not be enough to cover personal needs and continue to be on top of your financial obligations. Some banks, lenders and other financial institutions have prepared a contingency plan to help their customers through this difficult period. While they don’t intend to forgive your debts, they can offer deferred payments for up to 6 months without penalty.
The process with each institution can vary so it is worth reaching out to your lenders. Speak with them individually to understand how they are able to help during the hardship. This may be able to extend beyond credit cards, loans or mortgages to also include car payments, utility bills, insurance and even rent. If your payments cannot be deferred, considering discussing reduced or partial payments until you can get back on track.
There are two main positives of deferring payment or settling an agreement for partial payment.
- 1. You will be able to keep more cash on hand in case of emergencies.
- 2. Deferring or reducing your payment will save on additional interest costs if you were forced to seek a loan to meet your financial obligations
We have compiled a list of contact details and latest announcements from major lenders which can be accessed here.
3. Save your credit score from falling
The process of deferring payments and unfortunate loss of income will raise your Debt-to-Income (DTI) ratio. As a result, this will likely have a negative impact on your credit score. However, the good news is that your credit score will bounce back once the situation gets better.
If the lenders opt to allow payment deferral, it will not be considered a missed payment. Therefore, will not be reported to the credit bureaus, Equifax or TransUnion and significantly impact your credit score. However, your credit may still dip as a result of steady debt and loss of income, but not as terribly.
If the lender does not agree to payment deferral, and you fail to make the payments, your credit will drop more significantly.
4. When all else fails
While we hope for everything to work out, there is always the daunting question of, “what if?”.
- …your lenders do not agree to defer payments?
- …you are unable to make payments?
- …you are unable to manage your expenses with the financial aid from the government?
- …there are creditors chasing you for payment?
- …you are unable to secure employment once the crisis is over?
As mentioned earlier, if everything else fails, there is always a light at the end of the tunnel. If you are asking yourself these questions, you should consider opting for a non-profit credit counselling service. The service will inquire about your financial obligations and work with your creditors to build a repayment plan. They negotiate on your behalf to help you get back on track and closer to being debt free.
Working with a credit counsellor can help minimize the impact to your credit score, and keep monthly payments affordable. They may also be able to negotiate reduced or excused interest rates to facilitate faster repayment. To find out more on our credit counseling service, please visit our website.