Many people are facing reductions in hours or pay, or even job loss during the COVID-19 global pandemic. This can be disastrous for personal finances, especially for low-income groups.
If you feel like this crisis caught you off-guard, you’re not alone. Nearly half of all Canadians are only $200 away from not being able to pay their bills. If you didn’t have an emergency fund to get you through the unexpected, you aren’t the only one. In fact, you’re just like everyone else.
You may have to take some unconventional financial measures to get through this, and that’s ok. Many of the tips below go against regular financial advice, but they work.
And that’s what you need right now.
Emergency financial measures you can take to survive
If you are in crisis, now is not the time to worry about accumulating debt or saving money.
Think of interest accrued during the pandemic as a survival fee. Because that’s what it is.
It’s ok charge groceries to a credit card and incur debt. It’s okay to pay interest on balances owing if it gets you through this. I cannot stress that enough.
The personal finance community can sometimes get pedantic with “all debt is bad and if you ever buy something on credit you are a terrible person”. Now is not the time for that rhetoric.
It’s possible you will have to take extraordinary and extreme measures to manage your finances during a crisis which might include: going into debt, skipping bills, and raiding your savings. Your credit score might suffer. Your retirement plan might become a big question mark. But we’ll worry about the damage when you have a chance to rebuild.
Right now, you just need to get through this.
1. If you can qualify, get a no-fee low-interest credit card
If you’re Canadian, the MBNA True Line Mastercard has 12.99% interest (and 0% interest on balance transfers if you want to free up a different card). Tangerine Money-Back Card is also a good choice. Ignore rewards or points. You don’t need any of that right now.
Use the card for essential purchases, like paying your bills or buying groceries, in the event you lose your job or your hours are reduced. It is much much much easier to make a $35 minimum payment on a credit card than to come up with $1,000 to spend on essentials for 3 months. Get a credit card and use it to buy the essentials.
2. Focus on reducing major bills, namely rent/mortgage or car payments.
Call your landlord or mortgage lender and ask to skip a month, or pay a reduced amount if you are going to be in financial distress. They know what’s at stake, they need to work with you. It is easier for a landlord to deal with you telling them you can only pay $1,000 of your $1,500 rent. If you can afford a partial payment, tell them!
If you genuinely cannot make a rent payment during the pandemic (or you need money for something more important, like food), just take the hit to your credit by skipping the bill.
3. Determine which bills are a “must-pay” and which you can skip for a month or two.
Allocating your bills in a hierarchy is a good exercise to determine how to best allocate the limited funds you do have when facing a crash crunch.
You need heat and electricity. But your cellphone company will not turn off your phone until you haven’t paid for 3+ months. What’s more, your cellphone company likely won’t even report an unpaid bill to the credit reporting agency until you are 90 days overdue. This means you can skip paying your phone bill for up to 3 months with no consequence to your credit score.
4. If you have more than one credit card, circle payments by using one to pay the minimum balance of the other
You can float the debt you accrue during the pandemic by simply circling credit card payments. Use a credit card to make the minimum payment on another credit card or do a balance transfer, and repeat.
This will not result in any debt being paid down, but it will ensure all your minimum balances are paid. This will protect your credit score, as well as your access to credit which you will need.
5. If you have overdraft on your bank account, you will not be able to send eTransfers but cheques will still go through
If you regularly pay major bills like your rent with eTransfers, but you’ve run out of money in your account, you will not be able to continue to send them. However, if you have overdraft protection, you will still be allowed to make debit transactions and write cheques.
Ask your landlord if they will accept a cheque instead. Your account will still be debited and you will be charged interest in overdraft (usually 19.99%, like a credit card) but at least the transaction will go through.
6. You can take cash advances on your credit card if necessary, at an interest rate of 22% to 29%
If you absolutely need cash for certain expenses where debit or credit is not accepted, don’t forget you can take a cash advance from a credit card. This is as easy as withdrawing cash from an ATM with your credit card.
Cash advances are typically charged at a higher interest rate than credit card purchases, so expect to pay anywhere from 22% to 29% interest. You will also have to pay an ATM fee for the withdrawal.
I realize this is an extremely unattractive financial action for many people, however, it may be necessary. You know better than anyone else what expenses justify paying a slightly higher interest rate and a $3 ATM withdrawal fee in order to have cash on hand.
7. If you have not yet filed your income taxes and you are expecting an income tax refund, do it now.
Your income taxes will be processed in approximately 2 weeks after filing and the amount automatically deposited to your bank account.
Even if your refund is a few hundred dollars, get it now. If you will owe money, do not file. The Economic Response Plan from Canada’s federal government has extended the income tax filing deadline until June. However, some of the additional support payments they are offering through the plan require your current tax information.
8. If you have children in daycare who are now home because childcare centres are closed, ask your daycare for a partial refund for the second half of March. Ask not to pay for April.
For young families, daycare fees can be a huge financial burden. Many households are paying childcare costs that are greater than housing costs!
If your childcare centres have been closed in your province, ask what happens to your payments. You should not have to pay for childcare services you are not using. Ask for a partial refund since the shutdown, and for payments not to resume until the daycares are open again. If they are going to charge you anyway, you can set up a stop payment through your bank.
However, be cautious of this one if non-payment will make you lose your spot at the childcare centre. Many daycares have waitlists that are up to 3 years long, and you don’t want to find yourself without childcare after the pandemic is over. Weigh the risk of paying for a spot you’re not currently using if it means you will still have the spot when this is over. Also, weigh the risk of having to pay 2-3 months of expensive childcare fees for no services.
9. If you have investments in the stock market, resist the urge to panic sell unless you absolutely need to.
The stock market will continue to be volatile, but it will also likely continue to go down. You need to decide if you can weather the storm, or need to eat your loss to survive.
Selling securities at a loss can be painful, but sometimes you need to do it. If you are withdrawing from registered accounts, such as the Registered Retirement Savings Plan (RRSP), make sure to understand the income tax implications of doing so. This doesn’t mean it’s not worth it. You may still need to tap into retirement funds to survive this, just be aware that it can be extremely costly depending on the amount you withdraw and your income.
10. Resist the temptation to spend a lot of money stockpiling food & toiletries.
The anxiety that surrounds experiencing scarcity can lead you to make less rational decisions with your spending. Empty grocery store shelves might prompt you to stockpile things you can’t afford or don’t need. Stop.
Even in Italy, drugstores and groceries have remained open. Don’t run the risk of over-buying items you won’t use for the duration of the pandemic, or might even expire. You can’t afford to waste money this way. Buy 1 to 2 week’s worth of essentials at a time. That is enough.
11. Find the supports in your city, like the Food Bank and other centres that can offer physical goods or income support.
If you will be in need of food, toiletries, or other essentials in the near future, find out now where and how to get them. If you’re a student, this may still be open on your campus even though classes have stopped.
Throw all your pride out the window. You need to eat.
12. Ask friends and family for help if you need it. Ask for food if you have to. Ask for money. Ask for what you need.
Now is not the time to be tough or self-sufficient. You can do that later. If you have run out of essentials like food or money, ask someone for help.
Everyone is facing challenges for you, so it’s likely friends and family will be less attuned to your own distress. Don’t expect people to recognize that you’re struggling. If you are in crisis, let them know.
13. Don’t beat yourself up if this has ruined your debt repayment plan, your credit score, your savings accounts, or your investments. This is not your fault.
You did not do anything wrong. This is not on you. This is unprecedented and out of everyone’s control.
It’s easy to feel like a failure when you’re ringing up debt, obliterating your savings, and watching your net worth crash. But this is not happening because you were careless or irresponsible. This is happening because there’s a global pandemic and the world is on lockdown.
14. Rest assured that this will end and you will survive it.
Eventually, you will get to work and earn money again. You will make up for lost time. You will be ok again, but you have to get through it first. It’s ok if your money suffers in the meantime. It’s just money. You need to live.