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Avoiding financial troubles during and after COVID-19

Like people everywhere, Canadians have been hit hard by the COVID-19 pandemic health crisis. In terms of both health and finances, this is a very stressful time for consumers. Many people have lost their job or were forced to stop working to take care of a family member or their own health. Income uncertainty is a heavy burden and can cause a great deal of stress. To stay afloat, many quick and easy options are available. However, are these options true solutions or just very temporary fixes that are only postponing your debt problems?

Easy credit options are usually tempting and provide a quick solution to your debt problems. However, during this pandemic period, these easy options can negatively impact your level of debt once the economy recovers.

  1. Remortgaging your home

    With interest rates dropping during the crisis and all the measures taken by financial institutions to accommodate you, it can be tempting to remortgage your home, for example, to quickly free up cash. Having fast access to cash can be advantageous in the very short term. However, by remortgaging your home, you are only postponing your debt to a later date. By the same token, remortgaging your home postpones your retirement savings, affects your credit score, reduces your liquidity ratio and can have an impact on your interest rate in the years ahead. This option needs to be examined and thought over beforehand so that it can be optimized and its impacts reduced.

  2. Consolidating your debts

    Under normal circumstances, debt consolidation is a step that can be a good option for straightening out your financial situation. During COVID-19, your financial institution will probably require that you have a guarantor for this procedure, which simply involves sharing the debt risk with another person. Debt consolidation also requires lifestyle changes, which is more difficult to do when emergency health measures are in effect. With respect to your credit card debts, debt consolidation will not eliminate them and will not help you overcome this type of debt.

  3. Cash in your RRSPs

    Another quick cash option is to withdraw an amount of money from your RRSP or another of your savings plans. Withdrawing a portion or all the funds from an RRSP has a significant tax impact the following year. Not only will you have to pay taxes at the time you withdraw the sum of money, but you also won’t be able to deduct this amount when you file your income taxes the following year—a deduction that is normally a big tax advantage. Therefore, withdrawing from your RRSP affects your savings and your retirement and may create a larger tax debt for the following year. Therefore, it’s an option that should be carefully thought through beforehand, given its tax impacts.

  4. Credit cards and credit margin

    In the current situation, financial institutions and other credit providers are making offers that can seem very attractive. The low interest rates might encourage you to get one, two or a few additional credit cards to make up for your current lack of income and you rationalize that it will be easy to pay them off once the pandemic is over. However, the interest rates are not guaranteed and, when the economy picks up again, your activities and your usual spending will also resume. At that point, will it be easy to pay back this additional debt in your portfolio? If you already had certain debt problems, adding more will only make your situation worse, as one debt is rarely settled by another.

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Therefore, several options are available to have quick access to cash. However, these options are not without risk or impact for your future finances.

For any financial decision of such importance, our insolvency advisers are available to listen to you and advise you on the impact of your financial decision. Our professionals are trained to support you in your decision and to look at the best possible solutions to reduce the impact on your finances. The COVID-19 pandemic has affected many of us and we are all the more aware of the options available to you. Meeting with one of our advisers will impact your financial health now and in the future.

Consult our insolvency specialists for valuable advice on proper debt management and avoid debt problems following the COVID-19 pandemic.

Ginsberg Gingras, serving you for 40 years and always available to support you before, during and after the COVID-19 pandemic.

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