We’re experiencing a turbulent and uncertain time in Canada and around the world. The novel coronavirus (also known as COVID-19) is overwhelming healthcare systems and affecting the global economy in ways that we have yet to fully understand. As Canadian citizens wait and watch, the government has provided instructions for how to responsibly take care of yourself and your loved ones during what the World Health Organization (WHO) has labelled a ‘pandemic’.
Financially speaking, RBC released a report last week predicting that a recession will come sooner rather than later. Less consumer spending, closure of schools and sports arenas, and loss of jobs will leave many Canadians with unsurmountable expenses as their income is reduced or made non-existent. Also, the recent drop in oil prices and impacts on Canada’s oil-producing regions, like Alberta, means less income for the country as a whole, which (according to the same RBC report) will result in negative growth for the next two quarters and signal the start of an economic downturn.
All of these factors could lead to huge debt problems for the average Canadian.
Much like using preventative measures to protect yourself and others from the virus itself, finding the right debt help before you need it is a great way to stay on top of your finances and avoid hardship in the future.
What does a recession in Canada look like?
Ultimately, a recession happens because of a fearful speculation of what’s going to happen. This leads to frantic selling and buying of stocks, largely based on emotional reactions to global political and economic trends. As a result, ordinary folks are affected by unemployment and falling housing prices (both of which are key indicators of an economic downturn).
The good news is that recessions are an expected occurrence in a growth-driven global economy (historically, downturns are felt every 15-20 years) and though debt problems get big fast during these downturns (which is dangerous for those who find themselves without a safety net), the market usually begins to experience minor growth within several months and gradually recovers over time. If decreases continue into the long term, however, the market enters what is known as a depression (such as The Great Depression of the early 1930s).
To prevent such a repeat from the history books, the Canadian government announced last week that a $12 million work-sharing fund for businesses will be set up to keep the country’s economy from coming to a halt during the pandemic. While this fund will provide relief for businesses, self-employed individuals and contract workers who would not normally qualify for employment insurance are not eligible to receive emergency relief from this program either.
Such individuals may be able to benefit from the new Emergency Support Benefit program, announced by Prime Minister Trudeau earlier today. This benefit, however, may not be enough of a back-up plan (in and of itself), in the event that contract opportunities slow or debts become unmanageable – as the eligibility criteria, amount of income replacement, and maximum duration are not yet clear.
If you are seeing yourself in any of these scenarios, talking to a Licensed Insolvency Trustee about how to manage for these kinds of economic trends (which are out of your control) before they begin to affect your finances can save you stress, money, and losses down the line.
A little game plan goes a long way.
Preparing for the financial impact of coronavirus (COVID-19)
The recent coronavirus pandemic has disrupted supply chains globally, plummeting revenue for businesses large and small. It is speculated that airlines will lose billions of dollars because of travel restrictions and cancelled flights. The panic-buying of essential supplies has already started limiting access to basic goods, causing inflated prices by resellers.
Many Canadians are already feeling the pinch of shelling out more than their regular budget for necessities, especially self-employed and contract workers who lack job security or a steady income. Though short-term interest rates tend to drop and borrowing money is cheap during a recession, unless you’re independently wealthy, it can be hard for those in the working class to find and maintain employment – which makes getting those loans and paying back credit card debt more difficult.
So, while you’re spending more time at home in the midst of COVID-19, take the hour you would have spent on commuting to/from work and use it to create a plan that addresses your immediate pandemic survival needs as well as your potential recessionary debt problems (in case the virus has lasting economic effects).
How should you prioritize your financial obligations?
According to Forbes, one of the best things to do is pay down high-interest debt. By focusing on cutting these types of debts first, it becomes easier to manage other financial obligations (like mortgage payments) and avoid losing your home or car.
But, like many European countries who’ve declared lockdowns, it’s possible that similar measures may be on the horizon in Canada and your options for income generation may become limited in both the short and long term.
For example, if you have been relying on a side hustle to pay your credit card bill and you are not able to do it from home, you may struggle to make the minimum payments on those cards over the next few months (or years).
Worse, if business slows and your employer doesn’t have enough revenue coming in to sustain the expense of employees and other types of overhead when sales are down, they may be forced to close up shop or go out of business entirely – with or without 2 weeks’ notice.
Solving debt problems before an economic downturn
As the global economy braces itself for the long-term impact of coronavirus and the recession that might follow, it’s time to start thinking responsibly about real solutions to potential debt problems that could be on the not-so-distant horizon and seek professional debt help where needed.
The truth is, we don’t know how this will impact us six months or even a year from now and we can’t be certain that the government will provide relief for the average taxpayer or suspend mortgage payments either. What we do know is that, in the first year of the last economic downturn in 2008, Canada lost 400,000 jobs.
In order to prepare sufficiently for what might be a serious interruption to the world economy, families need to be aware of their options when it comes to debt consolidation, debt management, and asset protection when they are unable (or think they may become unable) to honour their commitments to their creditors when the markets shift.
While there are different options for Canadians facing job loss as businesses brace for the economic impact of the virus, don’t rely solely on the government or your employer to take care of you when they may not be able to (as much as they may want to).
With the help of a Licensed Insolvency Trustee, planning for a worse-case scenario can help prepare you powerfully for what might happen later and reduce stress now, allowing you to bring your best to the table for your friends and family during this difficult time we all must navigate together.
Asset protection with a Licensed Insolvency Trustee during periods of emergency debt management
No one knows how long the COVID-19 pandemic will keep us huddled inside of our homes. Medical experts and government officials in Canada are still trying to gauge what the economic and health impacts of coronavirus will be on our country. While everyone waits to see what the nation’s next steps will be, you can start to protect your family and finances immediately by planning ahead with the help of trusted and specialized debt professionals.
At Spergel, we take pride in helping everyday Canadians manage their debts. For decades, our team of trusted LITs has helped tens of thousands of people restart their financial destiny in times of economic instability.