Q&A How to deal with your debt as non-essential workplaces stay closed for COVID-19

Tens of thousands of people in Waterloo region are seeing less money deposited in their bank accounts than they're used to, and have had very little time to plan or respond to the sudden change in finances. 

On top of that, the ground continues to shift as government and public health officials update their predictions of how long physical distancing measures, workplace closures and the resulting economic impacts could last. 

Canadians carry a lot of debt. For every dollar of disposable income, the average household owes $1.76, according to Statistics Canada. 

For advice on how to deal with debt during COVID-19, CBC Kitchener-Waterloo spoke with certified financial planner Tanya Staples, who is also a professor of financial planning and management in the School of Business at Conestoga College and Krista Dobson, an accredited finiancial counsellor for the non-profit Carizon Family and Community Services. 

This interview has been edited for length and clarity.

CBC Kitchener-Waterloo: Most of us have debt in some shape or form. How is the way we think of it now different than usual?

Krista Dobson:  I think maybe it's more real. If we don't have an income coming in and we weren't expecting this to happen, now we're in a crisis situation. Before we were able to float, we were able to get by, but now that we're faced with — all of a sudden — not being able to have money, what do I do? That's scary. That causes panic. 

Tanya Staples: Debt has become so easy to acquire in the last 10 years, we almost accept that debt is the norm. It's part of our lives, not something that we think we should be concerned about. 
 
So when we have a serious situation, like right now, where almost everybody is impacted one way or another, and there's an incredible amount of uncertainty around what money is coming in — if any at all — or how long is it going to take to get funding and support from the government in one of their new programs that they're making available, we need some type of control. 

The best recommendation I can make around debt is to really look at what your debt is. Is your debt good or bad: good debt is usually tied to an asset that appreciates, like a home, bad debt would be something like a credit card.

We're not asking or suggesting that Canadians become financial wizards. This is sitting down, if it's just yourself with your financial documents, or with your partner. If it is with your partner? Remove the personalization. Finances are already stressful, you don't need this to end up as an argument. It doesn't matter who spent the money up until this point, it's how can you stop spending money and how can you manage it going forward until this crisis is over.

CBC K-W: We keep hearing that these are unprecedented times. Does that mean the rules are different now?

Tanya Staples: It's a good question because part of that is still unknown. What's unknown is what the end result is going to be of the pandemic. None of us know that. But in any time of financial uncertainty you go back to the core values. The goal is either: more money or enough money coming in to meet your expenses. 

Right off the top, it's a decision about what do you need vs. what do you want, and an evaluation of what your wants actually are, is really critical. 

Very basically: we have to put food on the table. We have to pay for housing. If we have to travel, we have to have transportation. Those are the three things we absolutely have to have — and the basics of clothing. That may sound unbelievably rudimentary, but when you sit down and say: Okay what do we really need to be okay during this time? It helps you make a better decision around how you're going to spend money going forward. 

CBC K-W: For people whose situation hasn't changed much yet — but know it could soon — or those who have some savings to dip into; should cash be held onto in case it's needed later on, or used to pay off debt?

Krista Dobson: 
Look at your budget now, look at your budget forecasted, say if that income wasn't there. It's best to do before things happen, you'll have a better mindframe to look at that, as opposed to in an emergency when you won't be thinking as clearly as you normally would. Figure out: can we still manage?

So I would say we don't want to pour all of our money into that debt now.  

Tanya Staples: This is something most Canadians are asking right now, and it is individual. There is no right answer for everyone. 

The old recommendations are: you need three months of your expenses in savings if you are an employed person and you need six months in your savings if you are a self-employed person and that's to prepare for a normal emergency. Not an emergency like what we have now. We have never seen anything like this, and so none of us know.

If you are capable of paying your debts as they are right now — you're not getting calls from creditors or collections agencies — but you have no idea how long your current cash flow is going to come into the house you need as much cash, as much liquidity as you possibly could have. 

If it's a scenario where your debt is causing you to stay up at night, write the debts down on a list. Look at your savings, look at your debts and figure out how to get rid of the most expensive debt first. 

Remember: getting rid of the most expensive debt may not be paying it off. If someone has a credit card, line of credit and a mortgage, they have small savings, and their future is uncertain — and they don't have an emergency fund where they can access cash if cash stops coming in — they would keep the cash, they would roll the credit card onto the line of credit, in order to reduce the interest payments, and potentially free up cash down the line. 

CBC K-W:
What is the best option for people who are very short on cash now, or who are facing that in the near future?

Tanya Staples: So you know benefits from the provincial or federal government are going to come in. You'll still have to be incredibly diligent when the money does come in, but you're looking at some type of bridge scenario.

What you need to figure out is: How do I put food on the table between now and potentially six weeks from now? These are extreme circumstances, and this is not something we would normally recommend. But if people have potential to get more credit, a little more equity out of their home, a little more equity on the line of credit. If you have a credit card that's at $500, find out if the company could bump it up to $1000.

Sometimes these things can be negotiated if you can confirm that there is money coming in a certain period of time. Lots of creditors will work with you. You can ask:  "I can't get paid until May, can you defer my payment, or can I make a smaller amount?" Creditors are not unrealistic, and that is advice I've given to individuals in the past and it's worked out well for them.