Every week our team meets with people across Ontario who are experiencing debt problems. We hear first hand stories about how hard it is to remain financially afloat when you are living paycheque to paycheque. Here’s what we’re hearing:
- I am unable to get a reasonably priced loan for a car;
- I can’t buy a home because I can’t save the down payment;
- I no longer work overtime so can’t meet my bill payments anymore;
- I lost my job, can’t pay my bills, and may lose our home.
I meet many people who are on “work share”, where they work two or three days a week, and draw unemployment insurance during their down time.
I meet with people carrying two and three jobs in order to stay ahead.
And in the last few years, I talked with many people who were financially devastated by the shutdown triggered by COVID-19.
For years we have been using our homes as an ATM machine. We would build up credit card debt, then re-mortgage our home to pay it off. We even saw one couple that did it five times in five years. They tried one last time, and the bank said “no”. Their incomes had fallen, and their house was fully mortgaged, so it is no longer possible for them to re-finance and repay their high interest credit card debts.
So, how can you survive an economic crisis? Here are my top five tips for surviving:
1. Reduce your debt
This is critical. If you have debt, you are not in control: debt means your creditors are in control. You must take immediate steps to reduce your debt.
If you have a big mortgage payment, car payment, or credit card payment each month, and you lose your job, you will quickly fall behind, and risk losing your house and car.
If you have no debt and lose your job, your only worry will be finding another job. You won’t have to worry about making payments and losing your home and car. With no debt, you can weather this financial crisis.
2. Learn to live without credit
This is a hard one. If you are 40 years old or younger, you have most likely used credit cards your entire adult life. You have probably never paid cash for a car, and you may just assume that it’s normal to only have a 5% down payment on a new house.
Here’s a challenge for you: talk to your parents or grandparents and ask them if, when they were young, they had a credit card. They will probably tell you that no, they paid cash for everything, including cars and houses. That meant they didn’t buy a new car every three years, and they lived in a small house, but they also didn’t have any debt payments.
Living without credit means making a budget and planning what you want to buy, and then saving money to do it. It’s a drastic change for those of us who are used to buying now and paying later, but the savings in interest payments are worth it in the long run.
3. Simplify your life
One positive outcome from the 2020 pandemic was a reduction in spending for many households. While not good for small business owners, many of us stopped visiting restaurants and made our own meals. Working from home saved money too – less gas, less clothing to buy, and again making lunch at home rather than buying lunch on the go. We even learned to make coffee by the pot rather than buying it by the cup from Starbucks.
In other words, in some ways, our lives slowed down and became much simpler.
How much of this change in lifestyle can you take advantage of long-term?
Living without credit means simplifying your life. It provides a similar spending restriction that we were forced into by the pandemic.
How can you do this?
Review every dollar you spend every month, and ask yourself: “Do I really need that?” For example:
- Do I need to pay for 3 streaming services that I never watch, or would one do?
- Would I be better off if I sold my house and rented? Your house might not be quite as nice, but you would have no worries about mortgage payments, property taxes, repairs, and maintenance, or a crashing real estate market.
- Do I need a new car every three years, or would an inexpensive used car get me to work just as well?
- Alternative: do I even need a car? How much money could I save by taking public transit, walking, riding a bike, and just renting a car or taking a taxi when needed?
If we can learn to live with less, our lives will have less stress, and we will have less debt to worry about.
4. Start working on Plan B
It’s possible that your world hasn’t changed yet, but the world around you has changed, and eventually your world will change too.
What will you do if you get downsized at work, or if your hours are reduced? Can you get another car lease when your current lease expires? What would you do if you couldn’t sell your house for more than the amount owing on the mortgage? What if the economy does collapse?
While these are not pleasant things to think about, it’s important to start thinking about them and start making a “Plan B”. You need a plan for the following:
- If you lost your job, where would you work? Always have an up to date resume ready, and always keep your ears open for other opportunities.
- Consider starting a home-based business in your off hours. If you have a hobby that could become a business, consider making that a second source of income.
- Consider getting a part-time job if hours are reduced at work. That way, if you do lose your primary job, at least you will still have some income.
5. Reduce your expenses
Every month I meet with dozens of people who have gone through a job loss, or a marriage break up, or even medical problems that have forced them to cut their living expenses to survive. Here’s my final tip:
Don’t wait until you have to: cut your expenses now. Use the extra cash to pay down debt, or to build up some savings.
Think about this: If you earn $2,000 per month and it costs you $2,000 per month to live, you have no margin for error. If you can reduce your expenses to $1,800 per month, you have some wiggle room; missing a day of work won’t destroy your monthly budget. Here are some easy strategies for cutting expenses:
- Cut back to only basic service on your cable TV (you don’t watch all of those channels anyway), or unplug completely and make the switch to Netflix or CraveTV;
- Cut the non-essentials on your home phone service;
- Make your own coffee. Okay, I know this is a hard one, since we Canadians are addicted to coffee, so try this: pull out the coffee maker you got for a wedding present, and buy a tin of ground coffee from your favourite coffee shop; then, before you go to bed at night, fill up the coffee maker. When you get up in the morning, push the button. You can now drink twice as much coffee for half the price!
- Combine your car trips; do all of your errands and once to save on gas;
- Consider big lifestyle changes, like moving closer to work so you can walk or take public transit.
Here’s the point: the world has changed, but you are still the boss of your own life. You can set your own destiny, so make a plan to reduce debt, use as little credit as possible, and plan for the future.
What do you do if you are already drowning in debt, and cutting expenses won’t help? You need professional advice, so email us or give our debt help line a call at 1-866-747-0660 and ask us whether a consumer proposal or a personal bankruptcy is necessary to deal with your debts.
There are options, but you are the boss, so only you can make the call. If you are burdened with debt, make the call today.