Beth works in real estate, and deferred both her credit card and mortgage payments for six months last year, after the COVID-19 pandemic hit. “I did both because my income is so unpredictable,” she says. “I ended up keeping up with credit card payments no problem, but the mortgage deferral helped tremendously.” (We’ve changed her name to protect her privacy.)
But deferrals aren’t free money: The interest she would normally have been paying as part of each mortgage payment was added to her principal, meaning she now owes more in total than she did before the deferral. “I’m about 10,000 dollars more [in debt] than I would have been, but that’s OK. The help was there when I needed it.”
While the overall economic outlook for Canada appears positive, not everyone is benefitting. So what can you do if you can’t yet afford to start making those debt repayments again?
It may not be as rough a transition as you think. Because deferred payments are rolled into your credit card, loan or mortgage balance, repayment is less of a shock to your cash flow than having to pay back the deferrals in a lump sum, says Shannon Lee Simmons, a Certified Financial Planner and owner of The New School of Finance. On the not-great side, however, “It’s upsetting that you’re paying interest on the interest.”
Stacy Yanchuk Oleksy of the Credit Counselling Society says while there aren’t concrete numbers as yet about personal bankruptcies resulting from COVID-19 financial instability, many Canadians are on the edge of a bankruptcy cliff. (This seems to be supported by reports in late 2020 of personal insolvency filings over 12 months increasing by 8.9%.)
For people who are looking at their debt and panicking about what to do, Oleksy says the first thing to do is breathe. “What I would also recommend is separating emotion from fact. You know, money and emotions are very tied together and self-worth is tied to money. So people will feel embarrassed or they’ll feel stupid, or worse, they feel ashamed, and that prevents them from seeking help.”
Get a handle on how much you owe, where, and when it’s due
Once you’ve got a handle on this, the next step is write down the facts about your deferral payments. Oleksy suggests answering these questions:
- Who do they owe/where did they get their payment deferrals?
- How much did they defer?
- What are the details in the contract?
- Is the interest tacked on at the end of the deferral period or was it added in from the beginning?
- Are the payments interest-only right now, or am I required to repay interest and a portion of the principal?
Look at all of your repayment options
Now you’re in a position to answer the most important question: “Can I actually pay this back and still have a manageable budget—or can I really not afford this?”