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Managing Your Debt in Difficult Times

Written by Kelley Keehn

Thursday, May 21st, 2020

If you're feeling stressed and anxious about your money situation during COVID-19, you're not alone. A recent Credit Canada survey revealed that a whopping two-thirds of Canadians said job loss and reduced income would cause them severe financial crisis.

What do you do if you're experiencing a cash crunch, or might be facing one in the future, if you lose your job or your hours are reduced?

Keep Track of Expenses and Income

Whether you're facing financial difficulty or not, an ideal first step is to understand your cash flow situation. What expenses do you have to pay, what are the due dates, amounts and interest rates that apply, if any. What income do you have coming in?

Make a list of these items for the next few months. If you don't have enough money to meet all of your obligations, figure out what you can defer and what you can't.

If you want to be proactive and plan for the possibility of needing extra cash down the road, check to see if you can defer your property taxes, utilities or debt payments before the need arises.

What Deferrals are Available?

Canadians affected by COVID-19 can apply for payment deferral of mortgages, loans and credit cards where applicable. If you can, contact your bank well ahead of your payment due date to arrange payment deferral in time.

The Impact of a Deferral

Are you wondering how much a mortgage deferral will really impact you? Each lender has their own approach, so there's no general rule. Be sure to consult yours for more information.

First, it can free up much needed cash right now. If you're out of work and money, getting through your immediate needs will likely take priority.

Let's take an example of a $200,000 mortgage balance at a 3.00% fixed interest rate with a 6 month deferral and a remaining amortization of 15 years.[1]

The deferral would free up $8,274 of cash for you (6 payments of $1,379 each) over that period.

For a Tangerine Mortgage, during the deferral period, interest continues to accrue and is added to the Mortgage balance at the end of the deferral period. In this example, $3,018 in interest would be added to the Mortgage balance.

At Tangerine, the Mortgage payments would stay the same but the remaining amortization period for the Mortgage would be extended by 6 months. Other lenders may keep the remaining amortization period the same and instead increase the payment amount at the end of the deferral period.

Set Reminders for Yourself in These Unpredictable Times

If you're working from home or stuck there out of a job, it's likely a busy place. Your spouse and kids might all be crammed in and confined. When it comes to making any deferrals, taking on new debt or any other important issues, make sure to document everything.

Send yourself an email with details regarding important conversations and/or decisions. And be sure to set a reminder in your digital calendar, weeks in advance, when your deferral arrangement comes due.

If you still find yourself in financial difficulty at the end of your payment deferral, be sure to contact your lender to see if you can extend your original agreement.

[1] Impact of mortgage deferral numbers sourced from here.

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