Financial problems are one of the main sources of stress for Canadians today. With many people losing work due to the coronavirus pandemic, millions of Canadians are worried about losing their homes or needing to declare bankruptcy. With these fears looming, deferring payments on debts like credit cards and car loans may seem like a good idea. But what are the consequences of deferring payment for the long term? Read on to learn more about payment deferral programs and how you can work to stay on top of your financial situation.
What Are Deferral Programs?
Recently, coronavirus has caused many institutions to shut down to prevent further spreading the illness, and millions of people across the country have found themselves out of work. Because of the sudden unemployment, many are finding it hard to make payments on debts like car loans, mortgages, and credit cards. As the situation gets more serious, banks and other lenders are offering their customers assistance. This assistance may include things like waiving fees on late payments or even offering borrowers the ability to defer loan payments for a period of time.
Banks and creditors, like other institutions, however, need to make money, so these deferral programs will most likely only last a few months. After that period is over, will the people who deferred their debt be able to make the necessary payments? Of course, it’s impossible to predict the path that the virus will take and how long it may be before people can start returning to work, but for those Canadians choosing to defer debt payments, there may be unforeseen consequences.
The Realities Of Deferring Payments
For people experiencing extreme financial burden, deferring payments may be seen as a relief. Right now, staying healthy and buying necessities like food take precedence over paying off debt. However, when you look to the future, pushing off these payments may lead to bigger financial problems down the line.
While deferring payments shouldn’t affect your credit score, mistakes can be made. It’s important to have written proof of your deferral and that the lender won’t report it to the credit bureaus. If there are any mistakes in reporting, your only defense is to have written proof. If you do decide to defer payments, it’s important to keep an eye on your credit report to ensure that there are no errors.
And what happens when the deferral period is over? If you defer payments for a few months, ask your lender what will be due at the end of that period. Are you simply pushing back every payment until a later date and all of those payments will be due immediately at the end of that period? Will you also owe interest? In many cases, these deferrals mean you’ll owe a lump sum of all the payments you’ve deferred, which can be a greater burden in the long run. If your mortgage is $1600 a month, and you defer it for three months, will you owe $4800 at the end of that period, plus interest? Payment deferral doesn’t mean that those payments simply disappear. They are just being pushed back, and it’s likely that you’ll still owe that money.
As we enter the post-virus days, there are still going to be many people struggling with making ends meet. Just because the virus is not affecting as many people doesn’t mean that everything will return to normal immediately. The coronavirus has taken an unprecedented toll on Canadians’ mental health and well-being, and it will likely take more than a few months for people to get themselves situated into a better financial position.
What Options Do You Have?
Deferring your loan payments may seem like a quick fix, but if you’re worried about what it might mean for your financial situation a few months in the future, you have other options. Right now, your main focus has to be your physical and mental health, and spending time worrying about your debt could lead to serious anxiety. Instead of putting it off and letting it get worse, the best thing you can do for your financial future is to address your debt today rather than months from now.
Right now, around one million Canadians feel that filing for bankruptcy might be their best option. While bankruptcy may seem like a fresh start, you may end up losing more than you bargained for. And it can take years to recover from bankruptcy and get back on your feet. While you want to be free of your debt, you also don’t want to lose everything.
Now may be the perfect time to consider restructuring your debt. If you have multiple sources of debt, like credit cards, mortgages, car loans, and personal loans, making all these payments every month can be a growing source of anxiety. Wouldn’t it be easier to make fewer payments, improve your cash flow, and ultimately reduce your debt? Chances are, if you find yourself in financial trouble, you’re considering sacrificing savings like your child’s education fund or your own retirement fund. But you don’t have to put your future finances on the line just to take care of a crisis now. Instead of letting your debt cripple you for years to come, restructuring is a great option.
If you’re feeling financial stress and want to get out of debt fast, contact us. 4Pillars has helped 97% of their clients become debt-free – in fact, less than 1% of our clients end up filing for bankruptcy because they are able to learn about all the other options available to them. And we know that you need help as soon as possible, which is why we are offering video and phone consultations, so you can stay healthy and safe at home.
In the past few months, the world has suddenly become a very different place and everyone is feeling the impact of this crisis. If you’ve lost your main source of income due to COVID-19 and are worried about how you’ll pay back what you owe, don’t turn to deferrals or bankruptcy and delay the inevitable. Relying on deferral programs shouldn’t be a long term solution, but turning straight to bankruptcy may not be a smart choice either. Instead, it’s important to review all your options to deal with your debt.