How to Pay Off Debt During Unemployment

Becoming suddenly unemployed can make it impossible to pay off debt, especially for individuals or families who don’t have an emergency savings fund in place.

While managing such misfortunes is difficult at the best of times, doing so during a global pandemic only exacerbates the challenge. On top of the rising living costs, disruptions to food distribution, stagnant wages, and job insecurity, analysts are predicting that unemployment could spike to higher than 11 percent in the coming months.

That means roughly 1 in 10 of the people you know could become unemployed very soon.

If you owe money, bankruptcy or a consumer proposal may be a solution. Speak to a Spergel Licensed Insolvency Trustee to explore your options.

While the government’s CERB program is easing some fears (offering $500 per week to all that qualify), it isn’t enough income for many recipients to manage all of their financial responsibilities and there is no way to know if everyone will have jobs to go back to when the program and pandemic ends.

As such, households across the country that owe money and need jobs are now forced to reorganize their financial priorities and come up with both short and long-term strategies to manage costs beyond what the benefit will cover.

The easiest solutions tend to involve depleting savings or increasing the use of credit cards for ongoing expenses like groceries and utility bills. However, this type of credit tends to have the highest interest rates (meaning, debts can pile up quickly – especially if you are finding yourself using one credit card to make a minimum payment on another). The alternative is not much better either, as spending your savings leaves you with no cushion to fall back on (when it’s gone, it’s gone).

So, how can unemployed Canadians deal with rising debt when there is no way to tell how or when the economy will bounce back?

8 Ways to Make Money and Pay Off Debt

It is difficult to make money and repay debts when so many Canadians are unemployed and need jobs.One way to free up or pay off debt is to create a specific ‘debt payment funnel.’ Meaning, you choose a specific action to take in order to make money and then put ALL of the money you make from that action toward paying your debts (provided your basic needs are already covered, of course).

When you have a strong purpose for money and a dedicated pathway for getting it, it becomes easier to make financial decisions: “This much money came from ___ and ___ is my debt payment funnel, so that’s how much I’m paying down my debts this month”.

Here are some potential funnels (or pathways) you can explore…

Reduce Costs

As soon as your financial situation changes, your budget, spending habits, and priorities should always adjust to match. By identifying your true basic day-to-day needs (actual needs, not wants) and cutting out unnecessary spending, you can direct any money saved towards making your minimum payments or topping up your emergency fund. Check out our tips for budgeting on irregular income.

Explore All of Your Assistance Options

Depending on your situation, you may qualify for a variety of programs offered by your local, provincial, and federal government that existed long before the pandemic hit.

For example, for students, the National Student Loans Service Centre offers a repayment assistance program that reduces (or eliminates) payments for a period of 6 months – which may be worth looking into after their COVID-19 relief initiative expires in September. There are other financial programs to assist parents, seniors, and entrepreneurs with expenses that are relevant to these groups too.

And, of course, if you haven’t already applied for EI or CERB, check to see if you qualify.

If the funding you receive from assistance programs allows you to cover all of the basic needs in your budget, you can take whatever extra money you have left over and make a lump sum payment on your debts or hold back enough money for a few months’ worth of minimum payments (so long as you trust yourself not to spend it!).

Check Your Insurance Plan

Are you already covered? Protection plans like credit card balance insurance, mortgage payment insurance, and loan insurance can help you cover loan payments until you find a job. There is, usually, a waiting period of 30 to 90 days before you can make a claim, so as long as you purchased your protection plan at least 1-3 months before you lost your job, you should be covered.

Talk to a Tax Accountant

If you normally do your own taxes, consider getting a second opinion from a professional. They may know of additional write-offs you can claim to reduce your tax debt – or even generate an unexpected refund for you!

Downsize

Do you own more vehicles than you need? Can you get by without a vehicle? It is an adjustment, of course, but selling or downsizing your vehicle(s) can be a big money saver in the long term and a relatively quick way to free up cash to pay down debts in the short term.

Rent Out a Room

Do you have more rooms in your home than you need? Consider renting out one of your rooms as a way to make money once the lockdowns are lifted.

If you don’t love the idea of a permanent tenant sharing your home, consider offering a room for short or long-term rentals with Airbnb.

There are always people in need of a roof over their heads – and not just for living! It is becoming increasingly popular for homeowners to rent out a room in their house as an office (in the spirit of co-working spaces), where your tenant is only in your home during designated work hours. You can even rent out your garage for storage! Just make sure you have adequate insurance coverage and a solid rental contract to protect from liabilities.

Then, funnel all of your rental income into paying off your debts until they’re gone!

Barter, Trade, or Have a Yard Sale

Even during lockdowns, you can sell things to your community – you just do it online through seller communities like Craigslist, Amazon, or social trading groups like Bunz.

Yes, even trading the old things you don’t use any more can free up cash to pay down debt, because if you trade things you don’t need for things that you do need, you don’t have to buy those things anymore and you can put the money you saved into paying off your debts.

Pick Up a Side Gig

Everyone has talent! So, which of your skills can you leverage in one-off gigs or odd jobs until you secure a full-time position again? There are plenty of freelance networks out there like Fivrr, Freelancer, and Upwork. You could even try your hand at being a virtual assistant – all from the comfort and safety of your home.

Then, funnel the funds you make from your side gig to pay off debt – as planned!

Conquer Your Credit Cards with a Consumer Proposal

Instead of barely making the minimum payments on your credit cards every month or calling a realtor and planting a ‘for sale’ sign on your lawn, you could also reach out to your creditors and negotiate an alternative payment plan that consolidates all of your debts into one manageable monthly payment through a consumer proposal.

Proposals are a great alternative to bankruptcy because they allow you to keep your assets while paying back a reduced amount to creditors, in some cases up to 80 percent less than if you were to continue making minimum monthly payments without a proposal.

A Licensed Insolvency Trustee (LIT) is the only government-licensed professional authorized to administer consumer proposals.

Bankruptcy is a Fresh Start When You Owe Money

Even after you have maxed out your credit cards, picked up a side-gig, and sold off non-essential assets, it may not be enough to satisfy all of the creditors you owe money during a period of unemployment.

Sometimes you just need a fresh start.

And you’re not alone.

Recent media reports suggest that many Canadians were struggling to pay their debts before the coronavirus crisis began and that the average amount of household debt in this country is higher now than it was before the last recession in 2008.

This means that, as more people need jobs, more people will also be exploring bankruptcy as a possibility for surviving a potentially long period of unemployment.

By working with a licensed insolvency trustee, you can take a proactive and protected approach to managing debt, avoid harassing collection agency calls, and prevent creditors from garnishing you wages when you do get a new job and start to make money again.

Facing Unemployment and Mounting Debt? Talk to a Licensed Insolvency Trustee

When you owe money during unemployment, it is easier to manage those debts if you know all of your options. Whether it’s better budgeting, small business restructuring, negotiating a consumer proposal, or filing for bankruptcy, Spergel trustees are here for you and have been helping Canadians resolve debt challenges for decades.

Speak with a Spergel Licensed Insolvency Trustee from the comfort and safety of your home to learn what kinds of debt help may be available for you:

Or contact us to find the trustee nearest you.

Our commitment to you during lock-downs: Our LITs have been and will continue working remotely and provide all consultation and counseling sessions virtually for the safety of our staff and clients, while also ensuring our standards of client confidentiality and care continue to be maintained.