Beth works in real estate and has put her credit card and mortgage payments on hold for six months following the COVID-19 pandemic last year. “I did both because my income is so unpredictable, ”she says. “In the end, keeping up with credit card payments wasn’t a problem, but deferring the mortgage helped tremendously.” (We changed her name to protect your privacy.)
But deferrals aren’t free money: the interest she would normally have paid as part of any mortgage payment has been added to her principal, meaning she owes more overall now than she did before the deferral. “I’m about $ 10,000 more [in debt] than I would have been, but that’s OK. Help was there when I needed it. “
While the macroeconomic outlook for Canada looks positive, Not everyone benefits from it. So what can you do if you can’t afford to make these debt payments again?
It may not be as rough a transition as you think it is. Because deferred payments carry over to your credit card, loan, or mortgage balance, paying back is less of a shock to your cash flow than paying the deferral in bulk, says Shannon Lee Simmons, certified financial planner and owner of The New School of Finance. On the not big side, however, “It’s annoying that you pay interest on the interest.”
Stacy Yanchuk Oleksy of the Credit Counseling Society says that while there are still no concrete numbers on personal bankruptcies due to the financial instability of COVID-19, many Canadians are on the verge of bankruptcy. (This appears to be supported by reports from late 2020 personal bankruptcy filings up 8.9% over 12 months.)
For people looking at their debts and panicking about what to do, Oleksy says the first thing to do is breathe. “I would also recommend separating emotions from facts. You know, money and emotions are very closely related, and self-worth is related to money. People will be ashamed or feel stupid, or worse, they will be ashamed and that prevents them from seeking help. “
Get an overview of how much you owe, where and when it is due
Once you’ve got this under control, the next step is to write down the facts about your deferral payments. Oleksy suggests answering the following questions:
- Who do you owe / where did you get your suspension of payments from?
- How much have you put off?
- What are the details in the contract?
- Will the interest be addressed at the end of the deferral period or was it added from the beginning?
- Are the payments currently only interest-bearing or do I have to repay interest and part of the principal?
Check out all of your repayment options
Now you can answer the most important question: “Can I actually pay it back and still have a manageable budget – or can I really not afford it?”