As the entire world watches the coronavirus (COVID-19) pandemic unfold and authorities mobilize strategic measures to get it under control, there is the financial impact this pandemic will undoubtedly cause. At this point, we can only speculate what the full financial fallout will be, but here’s what you can do right now to minimize the impact on your finances.
There’s that ‘r’ word again—recession
With every day that passes and new headlines emerge, the probability of a recession grows. As the number of people self-isolating rises, and social distancing becomes the norm with more and more people staying home, it’s inevitable that businesses will be impacted. In many cases, people won’t be able to work for an extended period of time; many businesses will slowly dwindle; restaurants, bars, cafes, fitness centres, retailers are shutting their doors as we speak all in an effort to help protect the public at large.
The fallout, of course, is an economic downturn, and Canadian households at some level will feel the impact, whether it’s because their income has been diminished due to not being able to work—especially those in the gig economy, including Uber drivers and food delivery drivers, staff at bars, restaurants, bakeries, and cafes, as well as those working in the entertainment industry—or businesses not being able to sustain themselves, which means less work for others.
How to Protect Yourself Financially During the COVID-19 Pandemic
At Credit Canada, we work really hard to help prevent Canadians from facing financial hardships. That’s why our Counsellors always talk about the importance of having and following a budget, tracking spending, having an emergency fund you contribute to on a regular basis, even if it’s just $20 a month—and that’s on top of regular savings for future goals.
But as we face a health crisis that has very serious financial implications, the window for taking proactive versus reactive measures is quickly closing. (Sure, having an emergency fund with 3-6 months’ salary would be really nice right now, but where does that leave the rest of us?) Now that we find ourselves in the middle of a health and financial crisis—some more or less prepared than others—we need to know what we can do right now.
1. Contact your bank and creditors
If you feel you will be unable to stay current with your payments due to COVID-19, contact your bank and creditors immediately and let them know. Many creditors and banks are setting up measures to make sure anyone impacted by this disease doesn’t fall through the cracks. For example, some creditors may decide to setup emergency recovery plans where they'll accept partial payments, interest payments and/or not report missed payments to credit bureaus during this crisis on a case-by-case basis. So it's important to contact your banks, creditors and financial institutions immediately (ideally in writing, so there's a paper trail) notifying them of your circumstances and how the virus is impacting you financially—and the sooner the better.
2. Speak to your employer
Parents will have children at home over the coming weeks. Daycares, schools and camps are closing, and with everyone self-isolating, limiting contact with potential caregivers and other children is the best protocol. So who’s taking care of the kids? In most cases, it's a parent. That means parents are either working from home, if that’s an option, or taking time off, and in some cases, unpaid time off. Given the circumstances, many employers are being quite supportive and flexible when it comes to ensuring their employees stay afloat during these uncertain times. But again, you have to speak to your employer and notify them of your financial concerns.
3. Access Employment Insurance (EI)
The Government of Canada is waiving the one-week waiting period for accessing Employment Insurance (EI) sickness benefits in order to help those who are self-isolating or are in quarantine. They are implementing this measure so anyone who cannot work due to COVID-19 can be paid for the first week of their claim. The Government of Canada has also setup a new dedicated toll-free phone number 1-833-381-2725 you can call if you are in quarantine and would like the one-week waiting period to be waived. Please note the line will likely be very busy, so you may need to be patient.
4. Consider using a line of credit
Some Canadians have a line of credit or home equity line of credit (HELOC) as an absolute emergency. Well, guess what, this might be that time. Under normal circumstances we would never recommend clients depend on credit products (i.e., credit cards, lines of credit, HELOCs, etc.) in order to make ends meet; however, if you are running out of options and are facing a serious cashflow issue, using a line of credit or HELOC from your bank is a much better option than getting a payday loan or other high-interest credit product.
If your bank has recently offered you a line of credit, it might be worth taking it, especially given the recent interest rate cuts. But make sure it's at a reasonable interest rate; otherwise you’re setting yourself up for disaster down the road. What’s a reasonable interest rate for a line of credit? Lower than 10 percent. Anything higher and it becomes very difficult to pay down the principal.
5. Skip a mortgage payment
Some financial experts have suggested skipping a mortgage payment during these difficult times if you can do so without incurring a penalty. Again, under normal circumstances, we would never recommend skipping a mortgage payment, but desperate times call for desperate measures, and in most cases it’s better than getting a payday loan or other high-interest credit product. However, you should ONLY consider this if you can skip a mortgage payment without incurring a penalty. Whether or not you can do so depends on your lender and your mortgage agreement, so it’s best to contact them directly to know for sure.
Skipping a mortgage payment, often referred to as a payment holiday, occurs when you temporarily stop paying your principal payment—the portion of your loan that actually goes towards paying your debt, not the interest—due to a personal crisis. But if you’re considering this option, you should know two things:
- Even though you’re taking a “payment holiday” your loan still accrues interest, which means when the holiday is over, your payments might actually be higher than they were previously to make up the difference.
- Taking a payment holiday could negatively impact your credit score, so make sure you know all the details before you consider this as a legitimate option.
6. Avoid panic spending
It can be really difficult not to panic during a crisis, especially if you’ve recently visited a grocery store, Walmart or Costco and witnessed first-hand all of the bare shelves, massive line ups, and toilet paper frenzy. But doing anything out of fear, including spending money, is not the best approach.
It’s important to be prepared and limit our shopping visits for the next few weeks, so buying a few essential items in bulk is reasonable, as long as you’re not pushing yourself into any financial predicaments in doing so. But stockpiling anything and everything you can get your hands on can do a lot more harm than good, especially if you think your income is going to be compromised in the coming weeks.
Even during a crisis (and some may argue especially during a crisis) you must practice sound money management and budgeting. That means shopping with a list, being strategic about what you need, staying within a certain spending limit, and comparison shopping. Whatever you do, avoid spending more than you can afford. This is definitely not the time to overextend yourself financially.
7. Get a budget
If you don’t have a budget, this is your wake up call. You can download our free Budget Planner + Expense Tracker to help you figure out exactly how much income you will need in the next month or so to financially safeguard your household and keep up with all of your financial obligations. It’s important to have a good idea of how much income you will be working with in the coming weeks so you can think ahead and budget accordingly.
8. Speak to a Credit Counsellor
Credit Counsellors are financial crisis first responders. They are the first to know what creditors are doing to help their clients who can't make payments due to COVID-19 and what resources the government is making available to those who need it most. Therefore, they can provide you with the most up-to-date information regarding creditors and government programs.
If you need debt help and you’re looking for free, unbiased, confidential advice, you should speak with a certified Credit Counsellor from a not-for-profit credit counselling agency, like Credit Canada. They will be able to look at your income, monthly expenses, and debt payments and give you all your best options for dealing with your debt amid this crisis. They will also create a custom budget for you based on your actual income, and provide tips and support to help get you and your family through this in a fiscally responsible way.
Book a phone appointment for free debt help
Credit Canada offers free over-the-phone counselling and phone appointments to anyone experiencing debt trouble and difficulties in keeping up with monthly payments and expenses. You will receive the exact same service over the phone as you would if you came into one of our offices, but without risking your health.
We believe everyone deserves to get the information they need to make smart financial decisions for themselves, crisis or no crisis. Give us a call at 1.800.267.2272 to book a free counselling session with one of our awesome Credit Counsellors. The appointment is 100% confidential, non-judgmental, and there’s no obligation. You'll get unbiased, expert debt advice and additional support, which we can all use during these uncertain times.