Debt is a normal part of life for most people. Recent data from StatsCan shows that only 30.2% Canadians live debt free. But how much debt is too much and how do you know when it’s time to reach out for help?
These are the questions Licensed Insolvency Trustee, Mark Marshall answers in this timely podcast. Other topics covered are:
- Warning signs to watch out for
- Using credit for short term pleasure creating long term payments
- Asking your financial institution for a line of credit
- What happens when you file a Consumer Proposal or Bankruptcy
- Why you should reach out to a Licensed Insolvency Trustee
- Where to find information and resources.
Licensed Insolvency Trustees will give you honest advice about all the options that are available for your unique financial situation. They are federally regulated and licensed by the Canadian government. Get the help you need from an experienced debt expert.
Read the transcript
Wayne Kay 00:04
Many Canadians are having a very difficult time. At what point do you reach out to get help with some debt relief? That’s our topic today on the Debt Matters podcast.
I’m Wayne Kay, and this show is all about helping Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada. Coming up on the show today, when should you seek debt relief?
If you use credit cards, are there warning signs that we need to be aware of if things start to go bad? What are some of the things that we can do to help us through this?
Mark Marshall is joining me from Allan Marshall & Associates in New Brunswick. Two offices, one in St. John, the other in Moncton. Mark, thanks for being here.
Mark Marshall 00:50
Wayne, thanks for having me on.
Wayne Kay 00:51
Always a pleasure. We always get into some great discussions these days. Last show we did, we were talking about how tough it is for so many Canadians. Are they kind of predictions that we’re going to see more people, maybe doing Consumer Proposals and maybe doing Bankruptcies than we’ve seen in the last while?
Mark Marshall 01:13
Well, there’s been a lot of indicators to say that things are going to be kind of moving in that direction. The price of everything, inflation, interest rates are up.
I know looking at kind of industry insider information, there is talk that there will be more insolvencies across the country. I don’t think we’re to the point where we’re seeing the same amount of insolvencies that we saw in the pre pandemic era at this point in time. But I suspect that with all of the factors that I mentioned that, yes, there’s a strong possibility that people or Canadians are going to find themselves seeking out the services of an Insolvency Trustee to kind of get their financial affairs in order.
Wayne Kay 01:59
So why is that? Why did we have more before the pandemic? I would have thought we’d actually have more during the pandemic. But was that because the government was just handing out money?
Mark Marshall 02:08
I think the government was handing out money and the collectors stopped collecting. I mean, the big drivers, Revenue Canada, the banks, the credit card companies, everybody kind of took a backseat. They kind of pulled back to allow people the options to kind of breathe or make payment arrangements or defer payments.
I think those programs provided people with enough time and relief that they could avoid the inevitable. And some people with those relief programs were able to kind of get their affairs in order on their own, others not.
But as the pandemic has kind of wound down and interest rates have started to kind of creep up and as the banks are starting to get back into the business again in collections. I think that the numbers will start to increase, but there was a dip during that period.
Wayne Kay 03:03
Okay. So we talk about a lot of Canadians maybe getting into financial trouble. Does it often start with credit cards?
Mark Marshall 03:12
Credit cards are usually a big indicator of somebody having some issues, because credit is both convenient, but can also be a struggle for people. Because if you’re using credit cards for basic, everyday purchases, the interest on those cards can be crippling, and a lot of people don’t recognize or they don’t read the fine print.
They’re just saying, look, I’m short this month, so I need to rely on something. So they’ll rely on their credit card, and then if they’re unable to pay the balance off on that credit card. Then the credit card interest would go from, let’s say, whatever standard credit card interest payment might be 12%. And without it being paid off, the fine print would say that now the interest rate is going to be 29%. And so the payments that they’re making, the amount for you to make are generally interest only or service charges only. And so it comes to the point where it becomes unmanageable.
Credit, the management of credit, you should be looking at, what’s the benefits? What’s the long term benefit of having credit? Credit should be used for things like purchasing a car. So something that you need, something that you would find some difficulty in saving up the money. That car gives you a benefit. It gets you to work. It gets you where you need to be.
Versus saying, using a credit card to pay for a vacation, which would be short term pleasure, long term payment plan that provides you with no return on that investment. So credit cards can be difficult, If you’re using them for everyday stuff. If you’re unable to pay them off every month, you’re going to find yourself in a difficult spot.
Wayne Kay 04:53
So if you do have that high credit card, should you be contacting the bank and saying, okay, what are my options? Can I move it over to a line of credit or something?
Mark Marshall 05:03
Yes, I don’t think there’s any harm in asking those questions because, again, sometimes the fine print on those credit card agreements are so small that you don’t recognize that your interest rate is going to climb to the point where it’s unmanageable.
So while your credit is in good shape and while the payments are kind of in a manageable zone, it may not hurt to call the bank and have that discussion with them to say, look, would I qualify for a line of credit that would be maybe one or two points above prime so I can pay off these loans, or would I qualify for consolidation loan to get these credit cards paid off? It would never hurt to ask those questions because what’s the worst that they’re going to say is no. And the possibility is that they may say yes.
Then if they do say yes, you got to look and say, okay, what’s it going to cost me? What’s the interest rate? What’s the payment going to then?
Anytime you apply for a consolidation loan or a line of credit to pay off credit cards, the number one thing you have to do is you have to dispose of those credit cards because people will do it. They will clear those credit cards off and they’ll obtain new debt to do it.
And then what they’ll do is they’ll use those credit cards and now have a zero balance as a convenience card again. And then the next thing you know, six months or a year from now, you’ve got double the debt load.
Wayne Kay 06:24
There is nothing more freeing than not having a credit card bill. And I know we’re supposed to use our credit cards so that we can get the points, but I personally can’t stand that.
There are certain things, obviously I have to have a credit card for and it has to get billed, but there’s a freedom in not using it.
Mark Marshall 06:47
Yes, there is. Or getting that credit card statement every month and having a zero balance owing on it, that’s the best feeling.
Wayne Kay 06:57
You open it up sometimes and you have paid it, and then you open it and it says zero and you’re like, wow, it just feels good. And then it is encouraging to you to kind of continue on, on that path. It’s a weird psychology that happens with debt.
The more in debt you are, the more you’re like, I’m in debt anyway. I’ll put a couple more dollars on the credit card. But as you start to get out of the debt, then you start to say, I’m not going for that coffee. It’s really a weird psychology.
Mark Marshall 07:29
It is. Yes, it is. I don’t even know how to describe it, but it’s one of those things some people do. Like, as you were saying, as they get farther in debt, they’ll think, I’m going to leave my money in the bank account. I’m not going to spend my money. I’m just going to use this credit card for that coffee or for that purchase and for some reason in their mind’s eye, they believe that they’ve got more money in the account. Doing that until the credit card statement shows up.
Wayne Kay 07:54
Yes. So at what point do you realize there’s a problem? What are some of the signs?
Mark Marshall 08:00
Some of the big signs would be that if you’re using credit cards to cover day to day expenses or month to month expenses, such as utility bills or things that are kind of popping up, or if you’re using credit cards, supplement your monthly income because you’re short.
One other that is a bit of a telltale sign is that you don’t have a handle on your fixed expenses and you’re potentially spending more money on your fixed expenses and your variable expenses than you have coming in. So you’re using your credit card to supplement.
Another telltale sign is that, are you making a payment on that credit card? Is it just the minimum payment? Because if it is just the minimum payment, then basically the bank is making, they’re profiting off you because you’re making that minimum interest payment and it’s a service charge and they’re making the money and they lend money to make money.
So if utilities are being threatened to cut off, or if you have creditors calling you saying that you need to pay more or they’re harassing you or they’re threatening legal action, those would be all kinds of telltale signs that you’re kind of running into a little bit of financial difficulty.
Again, I’m hoping that answers your question, but it’s warning signs of financial difficulty overusing your credit cards and not having the income to support it.
Wayne Kay 09:29
So all of a sudden you get to that point. Then what do you do when you know things are bad?
You’re not sleeping, you’re stressed out. Relationships are in trouble because anybody who’s going through this, it is so hard to be in a happy, positive place. You know, things are bad. What do you do? Where do you go?
Mark Marshall 09:52
Well, you reach out to a professional, reach out to a Licensed Insovency Trustee like someone at our office. And what you do is in having that discussion with a Trustee – it’s not going to cost you anything to know your options and you explain what’s going on.
They’ll review your, as a Trustee, your income, or we’ll review your debt load. We’ll look at what options are available to you. And again, the worst case scenario is that someone may have to consider the possibility of a personal Bankruptcy or they may look at the possibility of a Consumer Proposal where they can pay back a portion of their debt without the interest being charged.
It could be as simple as putting together a proper budget. Someone may feel that they’re kind of lost or they’re spiraling down, but it’s just a proper budget to get you back on track again.
Speaking to a professional that does this on a daily basis could provide you with enough knowledge that you could kind of navigate some of the financial difficulties on your own. And again, knowing your options when it’s free of charge to do it, what’s the harm?
Wayne Kay 11:04
Okay. One thing that we did years ago, and it turned out to be one of the best things that we did, was we looked at our yearly expenses, every little bill that came up. Then we divided it by 26 to fit in each of the pay periods. And then we started setting that money into a separate account so that for the first time ever, we would actually have that money to pay the next bill that came up. And it was a game changer.
Mark Marshall 11:35
Takes some discipline, though.
Wayne Kay 11:37
Well, it was, but it’s better than being in debt and looking at that horrible credit card bill, because that’s what would happen. We didn’t have the extra money because we had young kids, and so then you’d use your credit card and then you’d have to pay the credit card.
So we were making the payment anyway, but we were doing it in reverse. And it was just to be able to do it for the first time. Yes, it was very difficult for the first three months, but we really had to figure out where there was going to be some extra cash, and had to do some extra work just to try to build this up. And then it changed.
Mark Marshall 12:12
Yes, that makes sense. It makes sense. And again, those unexpected expenses, like the vehicle registrations, those things that kind of pop up once a year that you fail to kind of recognize in your monthly budget. But like you say, if you take a twelve month approach to it, and like you say, dividing it by 26, because generally most people are paid biweekly, then you can start to kind of map out your plan.
Wayne Kay 12:35
Yes, I just have to share that. I want to tell everybody about this because once we figured it out and got to that little point, as I said, it really was a game changer for our whole family.
And it was just a wonderful relief when you get that car insurance or whatever it was. That was once a year that you’d have to pay this. It’s like, those are the things that can often throw families off kilter for a little bit financially.
Mark Marshall 13:02
Oh, absolutely. Yes, and it’s those unexpected expenses. And if you’ve not taken the time to build up either an emergency fund or that you’ve budgeted for those expenses, then you a lot of times will have to rely on credit or credit cards or lines of credit to make those payments. And like you said earlier, is that you’re going to end up paying that anyway.
So if you can get to the point where you’re budgeting for it and paying it forward out of your monthly cash flow versus trying to find it or put it on a line of credit or a credit card, you’ll be better for it if you can do it that way.
Wayne Kay 13:36
Right. Okay, so things go sideways. You kind of have the Consumer Proposal of the worst case scenario or the Bankruptcy that you mentioned. What do those look like briefly?
Mark Marshall 13:50
Well, a Bankruptcy you’re required to report to the LIT with the Bankruptcy. You are getting rid of all of your unsecured debt. So your credit cards, your lines of credit, those types of things, you’re able to maintain payments on secured creditors, which would be like a car or like a travel trailer or a house, items that you, in theory, you need to keep or maintain your lifestyle.mBut they’re a secured debt, so you continue to make the payments on those.
And then you’re required to report to the Trustee about what you’re earning. You’re required to keep track of what you’re doing on a month to month basis and report to the Trustee about what you’re doing with your expenses. You’re required to do two counseling sessions in a Consumer Proposal. The creditors agree to the offer, whatever you propose, and that would be reviewed with the Trustee.
But you make the offer and you say, here’s what we can afford to do to pay towards the unsecured debt. You can establish what you want to do with your secured creditors again. So if you want to maintain the house payments and the car payments, which of course you’ll need, you lay those out in your proposal. You’re required to do two counseling sessions, and then if the creditors agree to your offer, then you make that monthly payment.
And then the plan with any Trustee, whether it’s in a Proposal or Bankruptcy, is to help you establish through those counseling programs good money management skills, to allow you to keep track, to establish good shopping habits, to set some goals, to establish budgets, learn how to use credit on a go forward basis. Also to know what you’re doing when it comes to credit, and then ultimately find yourself moving forward, debt free but in a position that you’re not going to find yourself in the same spot again.
And there’s lots of resources to look at. I would recommend any of your listeners that are here, even if they’re not considering a Proposal or Bankruptcy, but they just want to look for budgeting resources. If you visit our website, it’s www.wecanhelp,ca. There’s lots of information in there.
There’s lots of FAQs that people might ask about finances. There’s lots of information there. There’s lots of resources in terms of budgeting and managing.
Wayne Kay 16:04
That’s great advice. These are things. It’s there. We just need to go find it and it can make all the difference. And I wish this was all taught in school. I really do. It’s sad.
Mark Marshall 16:15
Yes, I do, too. I don’t understand why it’s not. I know you look at a lot of the, not to get off topic, but a lot of the life skills that are taught, the home-ec of the world and those things, they had kind of taken a bit of a backseat in the education system.
They’re starting to kind of wind themselves back up again. People are starting to see them. But I know finances would be something that a lot of people would gain a lot of knowledge or like a lot of benefit from the knowledge of managing day to day personal finances.
Wayne Kay 16:45
Oh, yes, it would be fantastic. Mark, any final advice you want to share with us?
Mark Marshall 16:51
Just the only thing I would say is if you’re struggling, reach out to an Insolvency Trustee, have a discussion. If there’s a struggle on your end, really don’t worry. Don’t sit back and let the stress get at you.
Ask questions, see what options are available to you. And again, whatever option you decide ultimately will be your decision as the debtor on how you approach knowledge. You can’t go wrong with it. You can’t go wrong with knowing your options.
Wayne Kay 17:20
Absolutely. Mark, always a pleasure. Thanks so much for being on the show.
Mark Marshall 17:24
Okay, Wayne, thank you.
Wayne Kay 17:25
Well, once again, my guest today was Mark Marshall. You can learn more or schedule a free consultation with Allan Marshall & Associates, Licensed Insolvency Trustee by going to the website wecanhelp.ca.
And that’s it for today’s Debt Matters podcast. Make sure you subscribe wherever you get your favorite podcast from. And of course, for more information, you can always check out debtmatters.ca. Thanks for listening.
About Mark Marshall
Mark Marshall has been working in the insolvency field for 20 years. He received his Licensed Insolvency Trustee accreditation in 2012 and has also been an active board member with Music NB.
He endeavors to give each client he meets advice on all of their available options so they can proceed with the knowledge they need to make an informed decision.