It’s time for long-term thinking on finances

With no timeline on pandemic’s economic toll, budget management is key

The initial economic shock from the COVID-19 outbreak may start to ease as provinces reopen, but experts say its important for those struggling with debt to think about the longer haul since there’s still little clarity as to how long the effects will linger.

How long the economic hangover lasts is anyone’s guess, but it won’t be short. Bank of Canada senior deputy governor Carolyn Wilkins said this week that the bank expects a contraction of as much as 30 per cent for the second quarter of the year and that the central bank hasn’t published a full forecast because so many factors are up in the air.

“Even in a good scenario, lost output will be made up only gradually as containment measures are lifted, people return to work and production ramps up,” Wilkins said.

Managing your budget and debts for the longer term is key even if you’re feeling an immediate squeeze, said Doug Hoyes, a licensed insolvency trustee and co-founder of Hoyes, Michalos & Associates Inc.

Even before the crisis, household debt in Canada was near record levels and the Bank of Canada had identified it as a key risk to the economy. The downturn in the economy due to the pandemic has only increased the stress on household budgets as job losses pile up and the country sinks into a recession.

A big part of that is being proactive with any bills or debts you haven’t paid or creditors you haven’t yet contacted, or ones that you may have scrimped by so far, but might have trouble paying going forward.

“I strongly believe you should be getting on the phone talking to your landlord, your credit card company, your car, loan, your mortgage, whatever, because all of them understand what’s going on,” Hoyes said.

He advises that before contacting creditors and others who you owe money, think about if your situation is shortterm or long term — if you think you’ll be able to handle the deferred payments when they eventually come due. You may need to think about what payments don’t make sense to make.

Overall for creditors, it’s a good idea to try and spread around what you are able to pay without stretching yourself too thin, he said. Hoyes also recommended opening up a new account at a new bank, since if you owe money to the bank where you keep your money, then they can take it straight out of your account.

And of course, it’s important to cut non-essential spending.

While the financial stress is immediate, there is some breathing room on the consequences since evictions, bankruptcy filings and courts are all largely on hold.

That means you don’t need to worry about filing creditor proposals or bankruptcy yet, but should start think about or talk to experts about options if you’re feeling squeezed.

As the economic effects of the outbreak are still unclear, it’s also important for those who may not yet have been hit financially to prepare, said Michelle Pommells, CEO of Credit Counselling Canada.

“If you’re one of the fortunate people that, you know, your employment hasn’t been directly affected by COVID-19, but you do have a debt issue, this would be the time to develop a strategy to you to deal with that.”