Five Tips for Managing Your Finances During the COVID-19 Pandemic

The ongoing uncertainty and instability caused by the COVID-19 pandemic have many people concerned about how they’re going to weather the months ahead. You may be facing an unexpected job loss or reduction in hours. Your expenses have likely shifted significantly. And it can be difficult to make sense of all the different programs and services available — let alone whether you qualify.

Person talking on a cellphone looking at spreadsheets on their laptop

Following are five tips to help you reduce your financial strain, connect with and take advantage of helpful resources, make the most informed decisions possible and regain control over your finances.

Revisit your budget (or create one if you haven’t already)

The impacts of social distancing are far reaching and have likely impacted your finances in numerous ways ­— for better and worse. Whether someone in your household has lost their job or you simply have fewer expenses right now, this is the time to sit down and optimize your budget for your current situation.

We have created a helpful Budget Tracker spreadsheet to help you get started. There are also several great free apps available if you prefer to keep track of things on your phone. 

Some factors to consider:

  • Has someone in your household has lost income? Can you still afford your core expenses (i.e. rent, groceries, utilities, debt payments)? Do you qualify for any government assistance programs? [More below]
  • Have your variable monthly expenses such as heating, electricity and water increased with your being home more often? Are these still affordable?
  • Have your grocery costs increased?
  • With more frequent access to your home Wi-Fi network, can you save money by reducing your mobile data plan?
  • Can you reduce your regular budget for ‘out of home’ expenses such as transportation, restaurants and entertainment, daycare / babysitting, shopping, etc.?
  • Can you focus any cost savings toward paying down existing debts? [More below]
  • Are you able to increase your savings rate — or do you need to consider pulling money from your emergency savings account?

Focus on your most costly debts

Managing outstanding debt is never a comfortable situation to be in — but the fear and uncertainty we’re dealing with right now can make it even worse. If you have some room in your budget to pay down your credit accounts, you’ll want to maximize the return on your repayment.

To do that, focus on paying down your most expensive debts first. Often, this is the one with the highest interest rate; but it could also be the one with the highest balance.

Some tips to get you started:

  1. Make a list of all your outstanding debts — including the total amount owing, minimum monthly payment and interest rate. Order this list from most to least expensive.
  2. Using the information from your budget (above) determine how much you can afford to pay toward your debt every month.
  3. Working upwards from the bottom of your list, subtract each debt’s minimum payment from the total amount you have budgeted.
  4. Contribute the remaining amount toward your most expensive debt every month until you have paid it off.
  5. Continue this process for the second most expensive debt, and so on.

The following sample table will help you visualize the process. If this person can afford to contribute $600.00 per month toward their debts, here’s how they would allocate those funds:

Debt Outstanding Min. Payment Interest Rate Monthly Payment
Credit Card 1 $8,000 $240.00 26.99% $362.86
Line of Credit $16,000 $107.33 8.05% $107.33
Loan $4,000 $94.81 5.2% $94.81
Credit Card 2 $1,000 $35.00 19.99% $35.00
Total $600.00

Remember, this process only works if you can afford to pay more than the minimum on all your outstanding debts. If you’re struggling to meet your monthly debt obligations, reach out to a Licensed Insolvency Trustee for a Free Confidential Consultation to learn your options today.

Take advantage of payment deferrals (but read the find print)

With the financial turmoil and unprecedented job losses that have resulted from social distancing, many banks and lenders are offering payment deferrals on mortgages, loans, lines of credit and credit cards. These could be an immense help if you’ve experienced a significant income reduction. However, you’ll want to review all the terms and conditions carefully before you begin skipping or putting off payments.

Not all lenders are structuring these grace periods similarly, and many are doing so in a way that could have lasting negative impacts on your personal finances.

Best case scenario: Ideally, lenders will offer an interest free, penalty free grace period for any payment deferrals. This means that your debts will not increase over the months you’re not paying them and there will not be any negative impacts to your credit report.

Not great, but not bad: Some lenders will continue to charge interest on your outstanding debts over the deferral period — but will extend the timeframe of your loan rather than increasing the payment amount when you begin paying it again. This will avoid overburdening your budget with unaffordable payments later on.

Worst case scenario: Many lenders will agree to grant payment deferrals but continue to charge interest and late penalties or ‘convenience’ charges over the timeframe you’re not paying toward the debt(s). Rather than extending the timeframe of the debt and adding these costs to the end, they will increase your regular monthly payment to account for the added costs. This can quickly derail your budget when you resume paying your debts.

Look into federal and provincial support programs

The Government of Canada has announced numerous programs and incentives to help Canadians who have been financial impacted by the ongoing COVID-19 pandemic.

These include:

Accelerated access to Employment Insurance (EI) benefits
Canadian Emergency Response Benefit (CERB)
Extended deadline for income tax filing and payment
Increased Canada Child Benefit (CCB)
Special Goods and Services Tax (GST) payment for low- and modest-income families
Temporary payment suspension for Canada Student Loans and Canada Apprentice Loans

Many provincial governments have also announced subsides and support measures for affected residents. You can find more information by visiting your provincial government’s website.

The availability of programs and services is changing every day as the pandemic and its economic effects evolve. Continue to monitor the news and government websites to stay up to date about any measures that could potentially benefit you and your eligibility.

Don’t borrow if you can avoid it

Debt is always risky. Even more with the level of uncertainty and rapid change that has come to define the COVID-19 pandemic. Yet, many people are planning to increase their borrowing right now. And this is something we advise against wherever possible.

Here are some common scenarios where people are increasing their debt loads ­— along with some ideas for what you can do instead:

Reason provided for taking on debt Alternative option
Taking advantage of historically low interest rates to buy a new car, do home repairs / renovations or consolidate debt. Avoid any non-essential major purchases.

Low rates will likely be here for a while. Focus on saving between six and nine months of living expenses and increasing your down payment until the job market and economy stabilize.

Stocking up on food and supplies for extended social distancing. Purchase only what you can afford in your budget.

 

Essential shops and services will remain open throughout the pandemic and no major shortages have been reported. Take this opportunity to try new foods and brands if your preferred options are unavailable.

Subsidizing reduced income or increased costs. Use your emergency savings if you need / have it.

 

Cut any non-essential costs from your budget.

Take advantage of any government support programs you qualify for (e.g. EI, CERB, etc.).

Speak with a Licensed Insolvency Trustee about potential options to eliminate or reduce the strain debt is placing on your personal finances.