Do you lose sleep worrying about money? Are you hiding debts from your partner or constantly fighting about them? Do you dread the sound of the phone ringing in case it’s a collections agency? Do you not know where the money goes every month? Does debt feel like a hole that just keeps getting deeper, and you don’t know how to get out?
The economic downturn has left a lot of good people struggling in our province. If you’re one of them, you are not alone. Some find themselves at a crossroads, facing an uncertain future. Others are staring down a more immediate crisis--you can see things getting out of control and don’t know how to stop it.
Whether you’re at a financial crossroads, a point of crisis, or anywhere in between, your Union wants you to know there are services and solutions out there to help deal with debt and get back on solid financial footing.
Albertans carry the highest average consumer debt in the country. A December 2015 report from credit monitor Equifax Canada listed the average household debt, not including mortgages, at about $27,500. Freida Richer is a Licensed Insolvency Trustee, Vice President and Principal with Grant Thornton Ltd.
“What I’ve been seeing under this economic downturn are individuals who are overextended on credit, and because of the impact of job loss and reduced household income, people have lost their ability to service that debt,” says Richer.
“We’ve talked to many individuals in the Fort McMurray area who, pre-wildfire, found that they were already on a slippery slope when it came to their finances, and then all of a sudden with that devastating event, found themselves without work, or found themselves having to dip into more credit to subsidize their living expenses.”
If you’re facing a mounting debt, you’re not alone. Firms like Richer’s, and reputable credit counselling agencies, exist to help you deal with debt, as well as make decisions and lifestyle adjustments to tackle the root causes of debt.
First Steps: Get a Handle on Your Budget
“The foundation of any sound financial plan is a strong budget,” says Domenic Mastromonaco, a Financial Counsellor based in the Calgary office of the Credit Counselling Society.
“Know what your expenses are. If you don’t know what your expenses are in a given category, track them and see exactly what you’re spending. A precise, exact budget will give you an idea of what is coming in and what is going out each month.”
Add up your monthly income: paycheques, EI, spouse’s work--anything that regularly brings in a set amount of money. Then gather up all your fixed expenses: mortgage or rent, vehicle payments, insurance--these are the bills that come every month at a roughly regular amount. Then it’s time to look at your variable expenses.
Some are flexible expenses: they’re essential, but your decisions and lifestyle can affect how much they cost. This includes groceries, utilities, and fuelling up your vehicle. Then you have discretionary expenses: entertainment, clothes and hobbies. These are all you! They can be hard to track, so try to keep every receipt: morning coffee, snack runs, a stop at the old watering hole.
Look at your bank and credit card statements and figure out what each transaction was. Some people just HATE dealing with numbers. But the budget really is where your options and decisions about tackling your debt will come from, so it’s important.
You can download budgeting and expense-tracking tools from, for example, the Credit Counselling Society’s website (nomoredebts.org). If you would like help from a real-live person, a legitimate credit counselling agency will provide budgeting advice and assistance free of charge.
Looking at your budget, you’ll end up with one of three results: Surplus: This is a good place to be; you’re on the right track. You have enough to cover your living expenses, plus surplus funds to put towards debt and savings. If the surplus isn’t quite enough to cover debt aggressively--to completely pay it off within about six months--it would be a good idea to look at some lifestyle decisions to help reduce expenses or increase income. Breaking even: This is not great. You’re pulling in just enough to meet expenses, not enough to aggressively pay down debt. That hole’s only going to get deeper, so now’s the time to take action. Deficit: Trouble. Your income is not enough to cover living expenses, let alone debt repayment. Seek help immediately!
Secured and Unsecured Debt
With all your bills and statements on the table, you should know where your debt is coming from. Secured debt is debt against an asset or property you own, like your mortgage or vehicle financing. Unsecured debt is not secured against any owned asset. It includes credit cards, personal lines of credit, unsecured loan balances, income tax owing, and student loans.
Stop the Bleeding
Jeff Schwartz, Executive Director of Consolidated Credit Counselling Services of Canada, offers some commonsense advice that still bears stating: “Don’t add any more debt onto the current amount of debt you’re carrying.”
Hard as it may be, you should stop using credit cards altogether. Switch to your debit card, or better yet, go cash-only. When you swipe a card through a machine, you don’t really feel like you’ve spent anything. With cash, every bill that leaves your wallet serves as a physical reminder that, yes, this is real money going out.
This can be a difficult task, especially if your income has been drastically reduced. A look at your monthly expenses should reveal some areas where you can cut back. “It’s hard to come out of a hole if you keep digging it deeper and deeper,” says Schwartz.
Seek Out Income
You’re out of work. EI hasn’t kicked in yet. How are you supposed to get by day-to-day without leaning on credit? As it happens, you do have a new full-time job: finding a job. Even if work in your trade or field is hard to come by, don’t thumb your nose at steady employment, whatever form that takes. Schwartz notes, “Too often I hear of people saying, ‘Well, it’s not the perfect job and I’m not going to earn anywhere near the amount I earned in my previous job.’ Well, if that job is no longer there for you, maybe the new reality is that you’re earning 50 percent of what you did. Well, 50 percent of something is better than 100 percent of nothing.”
Of course you didn’t put all those years into earning your Journeyman ticket so you could work at a warehouse or lumber yard, but stable income will help reduce stress, and opens up options. For example, you’re more likely to be approved for a consolidation loan from a bank if you can show you have the ability to pay it back.
Another source of income might be selling off assets you’re not using or that put a strain on the budget, like a vehicle that costs a lot to insure or keep fuelled up. Again, take a look at those monthly expenses and find things to trim to help reduce the outbound cash flow, too.
Talk to a reputable credit counsellor or trustee sooner rather than later. Like, right now. Ignoring the problem isn’t going to make it go away. And the sooner you get a handle on it, the better you’ll feel. Legitimate professionals are there to help you deal with the numbers, with the processes and procedures, and even with the emotions involved. They’re not going to judge you or finger-wag. You’re not the first person to face these difficulties, and no matter how bad you think your situation is, it’s likely not the worst they’ve seen. They’ll listen to your story, and provide information and options.
Credit Counselling Society
Grant Thornton Ltd.
310-8888 (all locations)
*This is an excerpt from the Winter 2016/2017 Newsletter. To read the full article, click here.