The pandemic has pushed many financially stressed households to the brink. Here’s a budgeting guide to navigate the crisisSynergy Mortgage
The COVID-19 pandemic isn’t just a health crisis. It’s also a financial crisis affecting virtually every household in British Columbia in some way.
With so many workers laid off, furloughed or having work hours reduced, a lot of individuals and families are faced with the need to radically cut spending.
And many are likely struggling just to stay afloat. March data from the MNP Consumer Debt Index – providing an early snapshot of the pandemic’s impact – showed more than four in 10 British Columbians are worried about debt–the highest figure since the index started in 2017. Equally worrisome: four in 10 of respondents indicated being $200 or less from insolvency.
Those numbers aren’t entirely a shock for MNP Licensed Insolvency Trustee Lana Gilbertson.
“In B.C, our insolvency rates had increased about 10 per cent year over year,” she says, citing Office of the Superintendent of Bankruptcy Canada statistics from prior to the arrival of COVID-19 in Canada.
Yet Gilbertson notes that so far she has yet to see a rise in insolvency from the pandemic.
“The number of inquiries have actually declined because I think people are in shock and waiting to find out if they will still have a job in the coming weeks and months.”
But Gilbertson says she worries a day of reckoning for many British Columbian may arrive in the coming months.
“At some point people will have to deal with their debts.”
In the meantime, she adds individuals anxious about their debt can take constructive steps to improve their financial situation or, at least, prevent things from getting worse.
In fact, a licensed insolvency trustee can often provide free budgeting advice and assistance in working with creditors.
“Folks tend to resist the idea of going to see a trustee because there is little understanding about how we can support someone in debt,” Gilbertson says, adding services are now provided by phone and video conferencing, and now involve electronic documents and e-signatures.
“In extreme cases, where people are truly unable to pay their debt obligations, there are those legal options – bankruptcy and consumer proposals – that only a trustee can assist with.”
But trustees also are adept with non-insolvency debt management options, including budgeting. To that end, many people can take matters into their own hands to mitigate their cash crunch.
Gilbertson suggests the first step is getting a clear picture of your financial situation by poring over income and expenses.
In short, get a pencil, paper and calculator and create a budget.
If you’re able to afford all your obligations, continue on as you have—though setting aside extra money for an emergency fund covering at least three months of expenses is always prudent.
If you’re running a shortfall, however, it’s time to get out the shears and cut costs.
“There are those essential costs like food and rent that can be hard to cut, and there are all the other ones,” she says.
Looking to defer debt payments is a good place to look to cut costs at least for the foreseeable future.
“Talk to your lenders and find out what relief they’re able to provide, whether it’s a pause on payments or a reduction on interest,” Gilbertson says. “It can’t hurt to ask.”
Although most lenders are providing deferral and reductions, negotiations might prove more thorny if you’re in arrears on payments, she adds.
Spokesperson with Consumer Protection BC Amanda Parry says it’s still worth asking for payment relief from collections too, even if they are not obligated to do so.
“We have heard that some (collection) agencies are suspending payments right now and even, in some cases, reversing previous payments to provide relief to debtors.”
Additionally, utilities providers and insurers are also willing to help struggling households with respect to making regular payments, Gilbertson says.
As well, all levels of government have also rolled out programs to help individuals in dire straits, including the Canada Emergency Response Benefit (CERB). This basic income program developed to help individuals unemployed because of the pandemic can provide about $2,000 a month per applicant.
Still, many individuals will likely find this stipend insufficient to meet all costs. Deferring debt payments can only reduce expenses so much. That’s why households need to limit spending on “the wants” and stick to just the “needs” that must be paid, Gilbertson says.
“Put the credit cards away. Don’t take on any more debt if you can,” she says. “It’s important to still have some activities in your life, but be resourceful.”
Of course if you’re still struggling despite taking many steps to reduce costs, an insolvency trustee can flesh out your options “And sometimes just knowing of what those possibilities are alleviates a lot of debt stress,” Gilbertson says.
“Knowledge is power.”