We’re now months into the pandemic and it’s clear that many Canadians have been heavily impacted financially by COVID-19. According to Statistics Canada, the unemployment rate has soared to 13% as a result of the pandemic. In light of these staggering numbers, you might be wondering how you can manage your debt in a way that matches the current market and puts the least amount of strain on your finances during this time of economic uncertainty. Here are four easy ways to consolidate credit during this unprecedented time. 

1. Prioritize your debt
The easiest and most effective way to consolidate credit during a crisis is by prioritizing debts with high-interest rates and consolidating them. Consolidating debt with a low-interest personal loan or line of credit can help you lower the owing balance and quickly reduce your monthly payments without incurring high-interest charges or late payment fees. Another option can be increasing or applying for new credit. Should you choose this option, it’s important to note that applying for a new credit card while you currently have a remaining balance or a maxed out card can be a red flag to creditors and should only be considered in emergencies, since it can have major negative effects on your credit score. 

2. Defer payments
A survey conducted by Ipsos recently found that 48% of Canadians’ monthly income is not enough to cover their bills and debt payments. Many are also $200 away from financial insolvency. Given that 2020 has been financially rocky for many people, adjustments like payment deferrals when available are a great way to regain control of accounts and manage debt. For example, Canada’s banks, the federal government and the Canada Mortgage and Housing Corporation are offering a six-month mortgage deferral program for those experiencing unemployment or reduced pay due to COVID-19.

Many financial institutions are also allowing payment deferrals of up to six months for large payments like credit card debt, car insurance, and student loans. Deferring payments is a great away to press the pause button without negatively affecting your credit score, especially if you currently find yourself unable to pay bills. This financial relief can provide you time to adjust to your new COVID-19 budget and recognize your expenses. Just be aware that the missed payments, including principal and accumulated interest, will eventually need to be repaid.

3. Understand your credit score
Maintaining a good credit score is essential for your financial future. Credit scores, assigned by the credit reporting agencies Equifax and TransUnion, typically range between 300 (low) and 900 (high). The higher your credit score, the more likely lenders will be willing to grant you mortgages, loans, lines of credit, etc. Better scores often result in better interest rates, as well.

Your credit score is based on a number of factors, including the length of your credit history, your payment history (including late payments), the number of inquiries made into your credit history, and your credit utilization ratio, which calculates how much of your available credit you’re actually using. Typically, it is recommended to keep your credit use less than 30% of your total available credit.

4. Dip into savings
Saving for a rainy day? For some people, it’s pouring right now. In times of crisis, re-evaluate your budget and assets to help you stay afloat. If you were able to secure an emergency fund before COVID-19, now may be a good time to top off bill payments and credit debt with the cash you have saved. If you don’t have an emergency fund, selling off an investment, stock, or dipping into your Tax-Free Savings Account is a great way to consolidate debt, since there are no tax implications upon withdrawal. 

Debt in any situation can be extremely stressful but in times like these it’s important to take the necessary steps to help you survive a financial crisis. Consolidating your credit can reduce your debt, protect your credit score, and most importantly, protect you or your family from facing serious economic setbacks.

If you’re interested in how Moya Financial can help you navigate debt or how you can apply for a personal loan or line of credit, contact us today!