It is no secret that the COVID-19 pandemic has had significant negative effects on the country’s economy and government budgets. But what about the small-scale repercussions? It is also essential to consider how the pandemic is affecting the average person’s finances, and not just the country as a whole.
COVID-19 has inevitably had a strong impact on household debt. If you’re dealing with this impact and you live in the GTA, consider what you can do to manage it right now and plan for the future.
How Has COVID-19 Affected Household Debt?
COVID-19 has made significant but varied impacts among different homeowners and families. Some of the most common effects the pandemic has had on home-related debts include:
Drops in Income
It is no secret that COVID-19 has led to significant employment loss, and that citizens across the GTA saw their household income drop significantly in a short amount of time.
Many people have found themselves without work since the beginning of the pandemic, while others have had their job stability upended. While some have had their work hours lowered because of strict lockdown mandates, others have had to sacrifice their jobs in order to take care of their children when school and daycare programs have closed.
Housing Problems
Naturally, losing income makes it difficult to pay for what is often the largest monthly expense: housing. With no moratoriums on rent or mortgage payments, trying to keep a roof over one’s head has become one of the biggest financial stresses at this time for people across the entire GTA.
Heavier Debt Loads
Low incomes and economic instability have pushed many people to put their regular debt management efforts on the back burner. They are focusing on everyday essentials like food and shelter, and not on the growing balance sitting on their credit cards. Debt repayments are not their top priority, as they are increasingly treated as something that can be addressed in the future.
How Can You Combat These Problems?
The good news is that, with the help of the Government’s support and some strategic money moves, citizens can make an effort to combat these problems as best they can.
COVID-19 Relief
To counteract the loss of income, the federal government has provided emergency benefits to help cover monthly essentials like food, shelter and utilities. At the beginning of the pandemic, the government offered CERB (Canada Emergency Response Benefit) to Canadians who had lost their income because of COVID-19. They have adapted this support since, offering financial aid through the EI program and the CRB (Canada Recovery Benefit) program.
If you have lost your income because of the pandemic and you need financial support, consider visiting these government websites and apply for the benefits tailored to your situation.
Defer Mortgages
If you’ve lost your income because of COVID-19 and you’re worried about making a mortgage payment, you should contact your lender as soon as possible to ask about deferring your mortgage for several months. Lenders often allow clients to defer their mortgage payments for up to six months to help them recover from financial hardship.
Deferrals let you pause your mortgage payments for several months. Your mortgage will still accrue interest during this break, and you will have to make up for the skipped payments in the future. This means it will take you longer to complete your mortgage than you originally planned. But that’s a problem that you can deal with in the future.
Rent Deals
It’s a little more complicated with renting since there’s no official rent deferral program. However, you should talk to your landlord to see if you can come up with a compromise for rent payments until you have a stable income once more.
If your landlord isn’t compassionate to your situation, you could contact the Toronto Rent Bank to see if you qualify for interest-free rental arrears or deposit loans. You could also contact the Tenant Defence Fund if you feel like your landlord is being unfair and trying to pressure you out of the unit during an unsafe time.
Contact Creditors
If you’re worried that you won’t be able to pay all of your bills on-time or in-full, you should contact your creditors right away. Let them know that you’re experiencing financial hardship. They could make things more manageable for you with lower rates or payment deferrals.
Budget Carefully
The advice is obvious, but it’s still important. Budgeting can help you track your spending and avoid spending beyond your means.
What to Expect in the Future
The pandemic isn’t going to leave the GTA any time soon, so what can you expect to happen in the not-so-distant future?
The End of Deferrals
Deferrals can’t last forever. Typically, they last for a maximum of six months before you’re expected to continue with your regular payment schedule.
What happens once the deferral period is over? Hopefully, you will have saved up enough to make payments again. If not, you could use a line of credit to help you cover payments for a short time.
You have several months’ worth of defaults before your lender may begin foreclosure. While a first default is not good, it doesn’t mean that you lose your asset the next day. If you think that payments will be completely out of your reach for the foreseeable future, you may want to consider downsizing.
Tax Season
If you received emergency financial aid from the federal government, you should know that your benefits are considered taxable income. This is one of several drawbacks to the government’s COVID-19 financial help that you might not have considered when you first applied.
You will have to pay taxes for a portion of this income to the Canada Revenue Agency this year. The amount will depend on how much you received and how long you received it. We are here to help if you are seeking tips for budgeting for taxes and dealing with the CRA at this time.
Tackling Heavy Debt Loads
Eventually, as things stabilize, you will have to consider the debts you’ve acquired over this difficult time.
Ideally, you should start with debts that have the most potential to grow (highest interest rates). Alternatively, you could prioritize the debts that come with the biggest consequences if you miss payments, like service cut-offs, asset seizures or legal action.
You could combine your debts through a debt consolidation loan through a bank or credit union. This could make covering payments a little easier and lower your interest rates. However, you risk increasing your debt load even more if you can’t manage this loan. If you’re still having trouble tackling the heavy debt loads, you could talk to our debt experts to get some professional assistance.
Insolvency
By the time that COVID-19 is no longer a serious public health problem, individuals may face insolvency as a result of its financial impacts. Insolvent means that you’re unable to pay your debts in a reasonable time or manner.
If you find yourself in this situation, then you may want to book a consultation with one of our licensed insolvency trustees. They will look over your situation to see what’s your next best step. They could suggest anything from credit counselling services to using our helpful consumer proposal services.
It’s understandable if you’re not in a great financial state right now. David Sklar & Associates can help you get through this rough time and recover when the dust has settled.
