When CERB ends and you don’t have assets
A quarter of the Canadian population applied for CERB. You read that right. There were 8.46 total unique applicants as of July 26, 2020 and the population of Canada is 37.7 million people. Considering that not everyone is of working age, that’s a lot of people who applied for the benefit.
I wrote a piece for MoneySense on how to handle your finances after CERB ends. There is going to be a new benefit program similar to CERB but while I was researching and interviewing people for the article, I wondered about people who don’t have assets. So let’s talk a little more about pandemic financial habits.
A lot of financial advice is made on the assumption that people have assets whether it’s a home, a car, savings, and registered or non-registered accounts like an RRSP or TFSA. But what about people who don’t have assets? Half of Canadian workers live paycheque to paycheque, so what can they do if they don’t have a home to refinance or they don’t have a TFSA?
I emailed certified financial planner Shannon Lee Simmons who wrote back, “It’s about smartly doing a controlled debt burn. If you must go into debt, do it with a plan. Financial harm reduction.”
What is a controlled debt burn
This is a way of using debt smartly. No one likes going into debt but sometimes you don’t have a choice. One example is to get a line of credit and use that until you can get back on your feet. A line of credit is a better option because the interest rate is much lower than a credit card or payday loan so you can pay off the debt faster. Remember to pay on time so you don’t default and hurt your credit score.
If you absolutely have to get a payday loan, the Ontario government has put a limit on the amount of interest that can be charged. You can read more about that here.
Plan your pandemic financial habits including debt
Figure out how short you’ll be per month and only take that amount from your line of credit. This might be a lump sum. You’ll be in debt but you’ll know by how much and won’t be surprised by the number.
Borrowing money from friends and family
Get it in writing. I cannot emphasize that enough. Get everything in writing. That includes the amount, any interest on the principal and payment arrangements between you and your family member. Money arguments can ruin family relationships so putting everything down on paper including options if you default on the loan. Keep communicating with your family member about financial circumstances as they pertain to the loan. (This is also something you may want to establish boundaries. They lent you the money but you don’t have to tell them every single thing about your finances.)
This is a shorter piece but I hope it gives an idea or two on what to do if you don’t have assets. Whatever you do, read the fine print and ask for help if you need it.