Living on the financial brink? Here’s how to avoid digging a deeper debt hole

Click to play video: 'Taking on record debt during the pandemic? A finance expert shares tips and insights'
Taking on record debt during the pandemic? A finance expert shares tips and insights
Personal finance expert Rubina Ahmed-Haq talks about the spring forecast for the housing market and recent findings which reveal Canadians are taking on record debt during the pandemic. – Feb 25, 2021

Financial worries have crescendoed after tapering off during most of the COVID-19 pandemic, according to accounting firm MNP’s Consumer Debt Index.

The report published Thursday found 53 per cent of respondents across Canada say they’re $200 or less away from the financial brink and not being able to pay bills and meet monthly debt obligations. That’s an increase of 10 percentage points since December 2020 and a five-year high.

This spike comes as emergency federal supports and loan deferral programs wind down.

“People are becoming more worried about their debts because a lot of the government support programs and financial institutions holding off on collections ended in the fall,” David Gowling, MNP licensed insolvency trustee, told Global News in an interview.

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The solution for one in four respondents is to pile on more debt to make ends meet, which is a worrisome trend. Popular choices include credit cards, lines of credit and other types of loans.

“People are essentially funding a deficit as they spend more than they’re bringing in,” Gowling said.

He said “desperation” can lead to bad decisions that can’t be undone, like suddenly selling a home or liquidating assets such as registered retirement savings plans (RRSPs). Some are driven to predatory lenders, which can quickly exacerbate financial hardship.

Click to play video: 'A year later, how Canadians have coped living on COVID-19 benefits'
A year later, how Canadians have coped living on COVID-19 benefits

“Where we’re really concerned is if they’re not willing to talk to a professional. Instead, they go to alternative lenders, which means now they’re paying interest rates of anywhere from 30 to 50 per cent,” said Gowling.

Adriana Molina, a financial educator with not-for-profit organization Credit Canada, recommends seeking free, unbiased advice from a certified financial counsellor who can guide people through a difficult time.

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“They can sift through your financial information and look at whether there’s wiggle room in your budget. Maybe you can negotiate with your creditors on your own, or they can negotiate on your behalf. Maybe your best bet is to seek the help of a licensed insolvency trustee,” she said in an interview with Global News.

“You don’t lose anything and you have all your options explained to you.”

Molina says the MNP survey highlights the plight of those who have seen their income drastically reduced since March of last year. The temporary “breathing room” granted to them has come at a cost.

“Even though payment deferrals provided a break, their debts increased over that period of time because interest continues to accrue. So their financial situation is worse. We’re seeing a cohort of people who don’t have the financial means to stay afloat if things continue like this.”

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