Financial Literacy - Getting Out of Hot Water

 

Part of Financial Literacy Month isn’t just educating people about what to do in a perfect world – things happen to people.  Job loss, financial emergencies, separation or divorce, or lack of self-control can all contribute to ending up in a bad financial place.  In our third installment for Financial Literacy Month, we are going to address some survival tips on how to get out of financial distress.

 

Watch For Danger Signs

The best solution to a getting into financial trouble is to watch out for problems.  Watch out for these signs you are in financial difficulty:

ð  You are living paycheque to paycheque.

ð  You are not able to recall what you have spent your money on, or where your money is going.

ð  You are paying a large amount of money each month in interest fees or late fees.

ð  You are maintaining balances on credit cards, or only making minimum payments rather than paying down your debt.

ð  You have cheques or pre-authorized payments being returned insufficient funds.

ð  You are borrowing money or drawing on a credit card for basic living expenses

ð  You are being denied service or having services cut off because you are failing to make payments on time.

ð  You are fighting with a spouse or roommate over finances on a regular basis

ð  Collection agencies are calling you.

These problems are of varying degrees of seriousness, but are a series of events down a slippery slope.  Of course, dramatic changes can happen when you lose your job, have a car accident; or suffer a major medical setback.  It also happens when people live beyond their means, and rather than save $1000 to purchase a couch, put it on their credit card and maintain a balance, effectively paying thousands on thousands of dollars for something they could have had with a few months of saving and some self-discipline.  Another family might be maintaining credit card balances and effectively throwing away $200-400 every month in interest payments.

 

Reach Out and Communicate

The very best thing you can do when you start getting in trouble is to reach out and talk to your creditors.  Some companies will allow you to reschedule payments to avoid rejected payments by your bank, make reduced payments, or will even allow you to defer payment to a later date.  Putting off dealing with a problem will only make it worse later.

If you are finding it difficult to communicate in a calm manner with your creditors, write a letter or email.  However, keep a copy for yourself to keep track of what has been said and what arrangements have been made.

ð  Do some reading – there are some stellar websites out there on personal finance, living frugally, getting out of debt, or balancing life and money.  A quick google search will turn up all sorts of excellent resources.

ð  Talk to your creditors if you are having difficulty meeting payment terms.  They don’t want to hear you can’t pay them, but they are certainly interested in coming up with a plan on how to get your account current.

ð  Prioritize your creditors by the consequences and interest rates charged – clearly meeting your car payments and avoiding repossession of the vehicle is a high priority.

ð  Talk to your bank about options involving overdraft protection, reduction of bank fees, or interest charges.  Interest charges and bank fees are a huge drain on a person’s monthly expenses, if they are living close to the edge, and every dollar you spend on interest is a dollar you are throwing away to tread water.  Eliminate these expenses wherever you can.

ð  If you are paying too much in interest each month, investigate a consolidation loan.  Typically this won’t save you a lot of money in the long run, but it will reduce your monthly costs by rolling several monthly payments into one, and structuring the debt over a fixed period.  This is an excellent option if you are paying more than one high-interest debt every month.

ð  Don’t avoid collection calls – call them right back and be honest with your financial situation.  If the collection agency or credit department is being aggressive and demanding payment in full, respond with a detailed plan in writing – if you show them your income vs. expenses, and offer payment terms, they will often work with you rather than blindly demanding payment in full.

 

Get Help!

Ultimately, if you aren’t able to deal with matters, you may need to take drastic action, or seek outside help.  Better to do this sooner rather than later.

ð  Put your credit cards in a jar and don’t take them with you if you find you lack self control to prevent frivolous expenditures.

ð  Seek a not-for-profit credit counselling program that will help you with an orderly payment of debt program, which may reduce or halt your interest charges.

ð  Write a letter to collection agencies you are being contacted by – offer a reasonable payment arrangement or lump sum settlement if possible.

ð  Appoint someone you trust as your Power of Attorney to address your debts and your creditors if you are unable to do so.

ð  Speak to a bankruptcy trustee about a consumer proposal (be careful here – this will cost a significant fee).

Conclusion

Everyone can suffer financial problems, and everyone can have a minor setback.  However, if you are developing bad financial habits, try to identify them and fix them before they get out of hand.  There is no magical handbook to walk you through every problem, but there are options to people who are struggling to handle their situations. Usually, these problems are repairable by the consumer putting forth a little self-discipline, and communicating honestly with their creditors.

If you want more information about financial literacy, the Financial Consumer Agency of Canada has more resources available for Financial Literacy Month here:

http://www.fcac-acfc.gc.ca/eng/flm/index-eng.asp

As well, if you are in the Cambridge/Kitchener-Waterloo/Guelph area and would like to attend a free credit workshop where we cover these issues in depth, as a service to the community.  You can find information here:

http://www.eventbrite.ca/event/4021883562/es2/?rank=1&ebtv=C  

If you have any questions about fiscal responsibility, or would like more information, feel free to contact myself. My direct line at Kingston Data and Credit is 226-444-5695.

Blair DeMarco-Wettlaufer
Kingston Data and Credit
Cambridge, Ontario

www.kingstondc.com
bwettlaufer@kingstondc.com