How to minimize financial risks and prepare in a volatile market
With various uncertainties and a rapidly changing outlook looming towards a financial recession, there is no easy and sure way to prepare yourself for what is yet to come. However, there are certain steps you can take to minimize your risks in the event of a job loss or a financial meltdown. The hard times can be a nightmare if you’re already in financial despair but there is always a light at the end of the tunnel.
1. Find out if you are eligible for temporary income support
Effective August 20th, 2020, the Government of Canada announced changes to the Employment Insurance (EI) program and new income support benefits to better support Canadians during uncertain times. The Canada Emergency Response Benefit (CERB) has been extended from 24 weeks to 28 weeks. If you’ve stopped working because of COVID-19, you may be eligible for temporary income support. The CERB is a $2000 a month taxable benefit that’s available to employed and self-employed Canadians. Find out the latest information on eligibility by visiting the Government of Canada’s CERB page.
2. Negotiate deferred or partial payments
Due to the unforeseen situation with COVID-19, the government has stepped in to provide for its citizens, but this may not be enough to take care of your personal needs and continue to be on top of your financial obligations. Some banks, lenders and other financial institutions have prepared a contingency plan to help their customers through this difficult period. While they have no intentions to forgive you for the amount owed, they are able to arrange for deferred payments for up to 6 months with no penalty.
The process with each institution offering assistance can vary so it is worth reaching out to your lenders and speaking to them individually to see how they are able to extend a hand during the hardship. This should not be limited to payments for your credit cards, loans, or mortgage but can also apply to car payments, utility expenses, insurance and even rent. If you are unable to negotiate deferred payment, then consider an approach to agree on reduced or partial payment until the crisis allows you to resume work and get back on track.
There are two main positives of deferring payment or settling an agreement for partial payment. For one, you will be able to keep more cash on hand in the event of an emergency. Secondly, deferring or reducing part payment will save you on additional interest payment in the event you are forced to seek a loan to meet your current financial obligations. We have compiled a list of contact details and latest announcements from major lenders which can be accessed here.
3. Save your credit score from falling
The process of deferring payments and unfortunate loss of income will raise your Debt-to-Income (DTI) ratio. As a result, this will likely have a negative impact on your credit score. However, the good news is that your credit score will bounce back once the situation gets better.
If the lenders opt to help by deferring your payments, they will not report this to the credit bureaus, Equifax or TransUnion, as a missed payment which could have a significantly terrible impact on your credit score. As the payments are simply being deferred, your credit score may take a minimum drop resulting from a mix of steady debt levels and loss of income. However, it is important to keep in mind that your credit score will drop should a lender not agree to defer your payments and you fail to pay the agreed amount on time.
4. When all else fails
While we hope for everything to work out, there is always that thought in the back of the mind that will ask the daunting question of "what if?”. What if your lenders do not agree to defer payments? What if you are unable to make payments? What if you are unable to manage your expenses with the financial aid from the government? What if there are creditors chasing you for payment? What if you are unable to secure employment once the crisis is over?
As I mentioned earlier, if everything else fails, there is always light at the end of the tunnel. If you are in a position asking yourself any of the questions above, you should consider opting for a non-profit credit counselling service. The credit counselling agency will inquire about your current financial obligations and work with your creditors to workout a plan to repay the amounts. They negotiate a deal on your behalf with your creditors to help you get back on track to being debt free.
By working with a credit counseling service, you minimize the risk of a drop to your credit score and keep payments to an amount that you are able to afford. They may also be able to work out a deal with your creditors whereby the interest charge is lowered or excused to help you repay the loaned amount sooner. To find out more on our credit counseling service, please give us a call or visit our website.