For years, you’ve been completely independent, able to pay all your bills on time. But now, things are different. The world has been thrown into turmoil by the global COVID-19 pandemic, and many countries are experiencing deep, prolonged recessions as a result.
Perhaps your life, like many other people’s lives, has been thrown for a loop, and you find yourself in a desperate financial situation. Prior to COVID-19, Canadians already had high levels of household debt. The pandemic has actually led to a decrease in consumer spending and, therefore, consumer debt – Equifax, the credit reporting agency, noted that in the first quarter of 2020, consumer debt loads decreased for the first time in over 10 years, and personal bankruptcies also fell to a new low in April. However, lower consumer spending and bankruptcies are occurring during an economic period that’s still very volatile.
Many people have already lost their jobs and can’t make their mortgage or rent payments. There is a six-month deferral on payments, but that amount will still be due when the term is over. The Canadian Mortgage and Housing Corporation, has warned that Canada is heading toward a “debt deferral cliff” as mortgage payments are due in the months ahead. Many more Canadians will lose their jobs during the “second wave” of the pandemic, when struggling businesses close their doors. In July, Alberta’s chief economist said, “A lot of businesses have used the reserves that they had — they’ve used every savings that they had to keep their businesses afloat. But another setback might be the nail in the coffin for them.”
In this blog, we’ll look at a few steps you can take to put yourself in a better financial position while we wait for the pandemic to end.
CERB is over – what’s next?
One of the economic measures taken during the pandemic was the Canadian Emergency Response Benefit (CERB). This program, run by the federal government, provided $2,000 per month for Canadians whose employment was directly affected by the pandemic. The CERB was a lifeline for almost 9 million Canadians, including 4 million who have returned to the workplace. However, the last eligibility period that Canadians can receive the benefit for ended on September 26, and many people haven’t found work since then. Now that CERB has ended, what happens to them?
The federal government recently transitioned the CERB to employment insurance (EI), as part of a $37-billion plan that makes EI more accessible. This is helping many of the Canadians who previously relied on CERB, but it also works for many people who were otherwise ineligible for EI. One study back in August found that only 1.4 million would qualify for EI of the more than 4 million currently receiving the CERB. So, the government expanded the eligibility requirements for EI, with the intent of covering more Canadians. This may be good news, but many experts are warning that payouts could be significantly less than the $2,000 per month offered with the CERB. Different people will qualify for different amounts, depending on their situation.
Further, if you weren’t able to qualify for the transition to EI, the federal government has implemented three new temporary benefits: the Canada Recovery Benefit (CRB), the Canada Recovery Sickness Benefit and the Canada Recovery Caregiving Benefit. The CRB pays out $400 per week to recipients (for up to 26 weeks), while the other programs offer $500 per week.
Two of these new benefits are currently accessible through the Canada Revenue Agency’s My Account portal online. You can apply for the new programs until Sept. 25, 2021. You should receive your first payment within five business days if you’ve registered for direct deposit. Otherwise, your first payment should arrive by mail in about 10 to 12 business days.
One thing to be aware of is that the government has new measures, different from those with CERB, to ensure only eligible Canadians will receive these benefits. You might be asked for additional information, which could prolong the process.
How to avoid delinquencies
Maybe you didn’t qualify for CERB or don’t qualify for any of the programs mentioned above. If you find yourself still needing help, you’re not alone: millions of Canadians are at risk of delinquencies, according to recent reports from TransUnion. Although credit card delinquency rates declined in the second quarter of 2020 (thanks in part to reduced consumer spending), mortgage delinquencies increased. So did personal loan delinquencies, which jumped 14 per cent.
By the third quarter of 2020 as much as 8.3 per cent of Canadians “could face serious delinquency,” with a delinquency rate of almost seven per cent. It’s not expected to decrease until 2021, and even then, it could still be as high as six per cent. Canadians who can’t receive Employment Insurance or any of the new benefit programs face higher risks of delinquency.
There could be major consequences of delinquency: your credit score can fall by as much as 125 points after just three missed payments. So, what can you do to avoid delinquency? Luckily, there are people who can help guide you through the storm. If you’re afraid you may become delinquent on your payments, or if you’re facing insolvency, the best way out is to consult with a professional. Although it takes a lot of humility to do so, remember that it’s okay to ask for help.
How do you know it’s time to turn to an insolvency firm? Here are some signs.
You can’t meet your basic needs:
- You’re falling behind on living expenses
- You’re unable to make mortgage or rent payments
- You’re starting to use only credit to pay for basic living needs
- You borrow money to pay for living expenses
- You can’t support your dependents (spouse, children, or elderly parents)
- After making your credit card and loan payments, you don’t have enough left for other basic expenses
You can’t keep up with your bills:
- You’re living from pay cheque to pay cheque
- You’re receiving endless calls from creditors, bill collectors, and collection agencies
- You make only minimum payments on your credit cards
- You are constantly using your overdraft
- You can’t keep up with your mortgage payments
- You’ve started borrowing from your retirement fund
You’re experiencing significant consequences of debt:
- You keep trying to pay off your debts but the balances won’t go down
- You have little or no savings
- Your debts are causing you significant physical and emotional stress
- You owe more money than the value of your assets
- Your wages are being garnisheed or your assets have been seized
If several of these signs are true for you, it’s time to visit an insolvency firm. Typically, you’ll meet with a trustee to discuss your options.
If you’re in Alberta, visit one of the offices of Faber. Our team of professionals are highly experienced and can help you break free from debt and regain financial stability.