Should you pay off debt while your income is uncertain?

You have good intentions. You want to pay off your debt. But then management tells you that five employees from the sales department just got laid off, and you wonder if you’ll be next. Or maybe you’ve already been laid off and you’re not sure when you’ll be working again. This is an all too familiar tale right now as we enter month 114 of the pandemic (okay, maybe it hasn’t been that long, but it certainly feels that way at times!).

So, what should you do in the meantime if you’re worrying about what your income will look like in three months? Should you put as much savings as you can toward your rainy-day funds, or should you actually look into repaying your debt despite the unclear status of your future employment?

The truth is there is no right or wrong answer to this one. We are in unprecedented times right now, and no one knows when the economy will be stable again. So, it may not seem like the best time to commit to a new financial goal or debt repayment plan. However, some experts are suggesting that there can be great advantages to getting a handle on your debt, or at least looking into your options during this time. Here are a few:

1) You qualify for more options when you have any sort of an income

That’s right, this even includes Employment Insurance (EI) and Canada Recovery Benefit (CRB)! Most debt repayment programs require you to have some sort of income in order to join. After all, you need to prove that you will be able to handle the monthly payments. Even filing for bankruptcy involves paying a fee for a few months. The bright side is that the income required to qualify for most debt relief options does not have to be from full or part-time employment. It can come from pensions, EI, CRB, self-employment and other sources. Most creditors are only willing to offer benefits such as interest relief and lower monthly payments if they believe that you will be able to make consistent monthly payments in return. Applying for debt relief is a lot easier when you have some sort of income to show that you will be able to make your new monthly payments.

2) You have more time to weigh your options

Pretty much any legitimate debt relief company will offer one or more free consultations when you’re trying to decide how to handle your debt. These appointments are usually confidential and carry absolutely no obligation to commit. So why wouldn’t you start the process of exploring your options as soon as possible? Entering into a debt relief program can be an exciting decision. But it also requires some degree of sacrifice and commitment. Giving yourself enough time to research and compare your options thoroughly will help you make the best decision for your lifestyle and goals.

3) Companies are allowing more convenient ways of doing business during the pandemic

Don’t get me wrong. In no way am I celebrating a world-wide virus. However, if there is one way that COVID-19 has made it easier to seek help with your debt, it is that it has caused industry regulators to allow methods of communication and signing documents that were previously forbidden. For example, it was not too long ago that meetings with certain debt relief specialists had to be done in person. Now those same consultations can be done by phone or video chat, making it easier for you to shop around for different options.

4) You stop your debt from growing bigger

Okay, this one takes a bit of commitment. But once you’re ready to get out of debt, the most important step you can take is to stop getting into new debt. This means working on your budget and finding a way to cover your monthly expenses without dipping into credit. Then you can start focusing on debt repayment. So even if you are not able to make a huge dent in your balances right now, just tracking and reducing your spending can have a significant impact on your debt. One way to force yourself to stick to this goal is to commit to a debt solution with experienced professionals. Many debt relief companies require you to give up your unsecured credit cards. So, this will naturally stop your debt from increasing any further. However, if you are not ready for this level of commitment just yet, try revising your budget to come up with a plan for becoming less dependent on your credit in the future. Reducing or eliminating credit usage can be a big step, but it is crucial for becoming debt-free!

At DebtAnswers Canada, we know that contacting a professional for help can be scary. That is why we strive to inform you about current debt solutions so that you can feel confident reaching out for help. Whether you’re working full-time, on reduced hours or looking for your next job, our DebtAnswers tool will help you explore your available options to match your situation.