Canadians are unprepared for an economic storm, and COVID-19 proved it

BY CLEVE DeSOUZA

The COVID-19 pandemic means washing your hands, staying home, and skipping public events. Should it also mean skipping payments on some of your regular bills?

Even before COVID-19 closed businesses, forced lay-offs, and played havoc with the economy, more than half of Canadians were living from paycheck to paycheck. Families were living well beyond their means and unable to pay monthly bills. Many turned to credit cards and loans, taking on high levels of debt.

The global pandemic accelerated the problem, catching Canadians off guard even though many experts had long been predicting an economic crisis.

 Total consumer debt in Canada is at a record high of $2.3 trillion and the average household is paying $170 on debt for every $100 they make.

All of this is fueled by a debt-inflamed financial system that consequently is causing a significant amount of money to be pumped into the economy by our government.

These are debts that the government is taking on. We, and the generations to come will ultimately be burdened with it. With or without COVID-19, this debt bubble was inevitable, and sadly the government will have to pump more money into the market again, and lower interest rates even further. This will buy us a few years, and if care is not taken, Canadians will remain unprepared for the full brunt of this economic volcano when it erupts.

The government has approved an $89 billion stimulus. The Bank of Canada has lowered interest rates from 1.75% to 0.25%, and the big banks are increasing rates.  Six big banks in Canada have promised relief for Canadians financially affected by COVID-19. The Bank of Montreal, CIBC, National Bank of Canada, RBC Royal Bank, Scotiabank, and TD Bank have all agreed to defer mortgage payments for as long as six months. Other lenders are likely to follow suit.

Before you jump onboard, though, educate yourself about all the options. The banks are offering deferrals, not canceling payments. If you accept the deferment, the bank tacks the interest onto the end of your mortgage. In the end, you’ll pay interest on your interest. If you can tap into your savings account to make payments, it may be the better choice.

Some other options I suggest you consider include:

Objectively assess your financial situation.
If you’re having trouble paying bills, is it really due to COVID-19?  I have helped clients strategically organize their finances. In most cases, a good strategy reveals money people never knew they had. The need for a solid financial strategy has only increased. This outbreak puts us in uncharted territory and it is unwise to proceed without a winning strategy. Trial and failure is not acceptable.

Negotiate with your creditors.
Before calling your bank or lender, make sure you’ve objectively assessed your situation. Remember, if they offer you a deferral, it doesn’t cancel your payment. The deferred interested will be accrued, and you’ll pay interest on top of interest. Only take the deferment if it’s your only option.

Finally, practice making your case, before you call the bank. They are not there to hand out money. In fact, they will want to keep your feet to the fire as long as possible, so get the necessary help to prepare and negotiate you way to victory.

Apply for employment insurance.
If you qualify for employment insurance, apply immediately. It takes time for the government to process your request.

Apply for a government subsidy.
The Canadian government is offering subsidies of $2,000 a month for four months if you have lost income as a result of COVID-19. Small businesses and self-employed workers are eligible.

Look for a new job.
Even though it might seem like this is the worst time to be in the market for a new job, you may be surprised. With time on your hands, you may find a job you love that pays more than what you were doing before the pandemic. If you’ve always wanted to work from home, this is the perfect time to consider a move.

Here are all the various options available in the Canada COVI-19 Economic Response Plan: https://www.canada.ca/en/department-finance/economic-response-plan.html