- Face the problems head on and review your finances thoroughly
- Talk to your lenders and see if they can help
- Look for ways to temporarily cut your expenses and deal with debt
- Bankruptcy and consumer proposal should always be your last defense
When your money just doesn’t seem to go far enough, it’s not only easy to get behind on your payments but being in financial distress can be overwhelming. According to a 2018 survey, 4 in 10 Canadians rank money as their greatest stress, affecting their sleep, health and quality of life. The first thing to do is take a deep breath and tell yourself there are options. The worst thing to do is avoid the problem. So, let’s take a look at what can be done.
Deal with debts
It’s important to look at all the debts you have – and deal with how you might pay them while protecting your credit score. Consumer proposals and bankruptcies do great harm to your credit rating. A proposal usually takes about 5 years to pay off and the record stays on your credit report for another 3 years after that. Bankruptcy lasts for up to 21 months and stays on your report for 6-7 years, depending on where you live.
Some debts have wiggle room. For instance, student loans are more flexible than other debt – you might be able to adjust your loan payments by either lowering the amount you pay or the length of time you pay, or defer paying if you’re currently out of a job.
Credit cards, loans, lines of lines of credit
Ideally you pay off your credit cards every month, but when you’re in financial distress, you need to do what you have to do to get through without penalties and protect your credit score. Try to pay at least the minimum balances on all debt until you’re back on your feet. If you have a good credit score, try transferring your debt to ones with lower interest rates. Now is a good time too to review your loan agreements. If you have an easyfinancial loan, call your local branch. They are there to help and can make arrangements with you so that you can avoid a consumer proposal or bankruptcy.
You might have a loan protection plan (LPP), which protects you and covers payments in case of injury or sickness and could cover some or all of your loan payments during involuntary job loss. Another option is debt consolidation – that’s where you get a new loan to pay out smaller loans, giving you a single and lower monthly payment at a lower rate.
Talk to your lenders
Many people, when looking at the mountain of bills they have every month and wondering how they’ll get their heads above water, think their only recourse is a consumer proposal or bankruptcy. Always try to deal with your lenders before things get out of hand. Try asking for lower rates, restructured payments and other options to get you through a rough patch. You might be surprised at what help they might be able to offer and how willing they might be. You don’t know until you ask!
Prioritize your bills
Another thing to do when facing a stack of bills is to carefully look at your debts and expenses and see which are most important and which can be adjusted. Look at what the absolute minimum is that you need for basic survival and go from there.
Mortgage or rent
What if you can’t pay for where you live? There are serious consequences for not paying your mortgage or rent, such as losing your home and damaging your credit score. But if you really can’t pay for a month, reach out to your lender. Some mortgage companies, for instance, have skip-a-payment options. You might still have to pay interest, or there might be penalties, but it’s an option if you need a reprieve fast. Another option is to rent out a room, or get a roommate to help with expenses.
Heat and hydro
Especially in winter, such things as heat and electricity are crucial. But did you know landlords and energy companies in Ontario can’t cut off your hydro between Nov. 15 and April 30 (Other provinces have similar rules)? You will have a hefty bill after the winter is over, but you could get a reprieve while you get back on track. Also, provinces such as Ontario have credits for low-income people (the Ontario Electricity Support Program offers credits of $35 to $75 a month. Seniors can also be eligible for energy and property tax credits.
Phone, TV and internet
For most of us, having access to internet and having a cellphone or landline is part of everyday living. But, if you are looking to cut expenses, you might be able to switch to a less expensive plan or consider going without for a couple of months.
Almost half of Canadian households with an annual income of $30,000 or less don’t have access to high-speed internet – even though it’s now considered a “basic service” Believe it or not, the federal government wants to help. A new initiative lets Canadian families access high-speed internet service packages for $10 per month.
Explore all other options before considering bankruptcy
Whether you’ve had a rough patch bringing in income or bills are piling up and now you don’t know how you can pay them all, you might think bankruptcy or consumer proposal is the answer, but they should always be your last line of defense.
Disadvantages of Bankruptcy
- Lowers your credit score – Bankruptcy stays on your credit record for 6-7 years after completion
- Need to surrender any non-exempt assets
Disadvantages of Consumer Proposal
- Lowers your credit score – Consumer proposal stays on your credit record for 3 years after completion
- Secured debts are not covered
When facing financial distress you have options. Talk to your lenders, prioritize your bills, and face the problem head on. Once you’ve gotten control of your financial distress, take the experience to learn how to manage your money for a healthier financial future. Review our articles, tools and calculators at goeasy Academy.