7 – Debt and Housing Costs in This High Inflation Market

Wayne 0:04
Welcome to another edition of Debt Matters podcast where we help Canadians find solutions to their debts with Licensed Insolvency Trustees from across Canada. I’m Wayne Kay.

In today’s show, we’re going to be talking about the rising costs of homeownership and rent increases, and how that can affect debt. Joining me, I’ve got Derek Chase from Derek Chase & Associates in Campbell River BC. Derek, thanks very much for being here today.

Derek Chase 0:28
Hi, Wayne. It’s great to be here. Looking forward to talking with you again today.

Wayne 0:32
Oh, when we talk about rising costs of homeownership – everybody’s talking about how much it’s costing these days. And what’s happened in that housing world? What’s going on?

Derek Chase 0:42
You know, that’s a big question. Worldwide question. But locally, we’re certainly seeing the effects of that in the amount of money people are paying for rent. It is a real social problem. It’s really hurting people that are on fixed income. And it’s causing a lot of grief because people are having to go into their credit cards and go into their line of credit just to meet the monthly living expenses. It’s a problem. We’re currently in an election right now and I hope it keeps getting talked about because it’s not easy out there.

Wayne 1:19
No, and as you mentioned, they’re dipping into – grabbing money, adding debt every month, just to live, and how do you even think about repaying it, when you’re in that situation?

Derek Chase 1:31
Very difficult. I think you’re just hoping for the best and trying to make it to the next month, and hoping that something’s going to change in the future. But, historically, looking back, we always had a benchmark that if you’re spending a third of your take home pay on your housing, that’s okay. You know that’s what it’s going to be and you can deal with the rest of your life, with the other two thirds of your take home pay.

But now we see settings where people are often well over 50% of their take home pay going to rent and cost of housing. And that’s tough. That’s not easy to make the rest of your life work, because you’ve got to take from other areas of the budget. And, unfortunately, that often pushes people into that credit card cycle or payday loan cycle.

Wayne 2:23
That’s just a terrible place to be. Because, as we’ve mentioned before, those interest rates, as soon as that starts, you can go downhill very quickly when it comes to that debt problem.

Derek Chase 2:35
For sure. That the amount of interest on a credit card or a payday loan is just huge. And unfortunately, once you start to get into that setting where you can’t pay off your credit card in full or you’re visiting the payday loan each month, then you’re on a downhill trend. We talk about it as having negative momentum with your finances.

So you would need something to stop that negative momentum. And I think the first thing a person should do is get serious about understanding what they’re paying for things. Because in addition to the rent increases, just general inflation over the last – even over the last year – has jumped the other costs of living up quite a bit.

So if you’re currently operating, and you don’t know what you’re spending on different things each month – pull out a pen and paper. Get down to business and write those things down. Because it’s literally a battle to try and keep your expenses down in this day and age.

Wayne 3:44
I love the pen and paper thing. You know, we don’t have to get complicated. We always try apps and I know there are apps out there. But when you actually physically write down everything you spend, it makes a big difference.

Now I’m very fortunate because my wife notices everything. So she’ll I’ll get home and she’ll say, Oh, you had coffee today? She notices every penny, which is a good thing.

Derek Chase 4:09
Yes, you’re lucky man Wayne. I would agree that pen and paper is all you need. You could go for an app, your bank usually has something pretty good on their online platform, Excel spreadsheet, or some other type of spreadsheets – that works very well. There’s a lot of different ways and that’s good, because we’re all wired a little different.

I personally can’t keep a hold of receipts for a month and then add them up. I just can’t do it. And I’ve tried some different ways because we like to talk about different ways of keeping track of expenses. And for me, it’s a spreadsheet – just because it adds it for me. I don’t have to do the adding. It’s easy to plug in every day because if you don’t then it’s just impossible to remember what you’ve spent for a month.

Wayne 4:55
It is surprising sometimes when you look at numbers. I love watching financial shows and debt shows. I’m always amazed at the number of people that have no idea how much money that they are actually spending.

Derek Chase 5:09
It’s true. And I think that’s for the majority of people. And surprisingly, maybe more so when a person’s income’s a little higher, because they’re just so used to having that fresh income each month that to pay it down.

But there can sometimes be a tremendous opportunity within a person’s expenses to change their finances. It’s kind of fun when people do that. And they say, Oh my gosh, I’m spending $400 a month eating lunch every day. And it’s pretty easy to change that number. So there can be some opportunity financially for your household just by doing a deep dive into your expenses and truly trying to understand that.

Wayne 5:50
It’s funny, you mentioned tracking lunches, because we were tracking the whole thing with writing it on pen and paper. And at one point in one month, we spent over $300 on lunches. We were, Wow, we had no idea that we were spending that much. Then of course, the next couple of months, we said – well, we’re not gonna spend any money on lunches.

Derek Chase 6:09
But don’t get me wrong. There’s nothing wrong with going out for lunch. It’s one of life’s pleasures, but you just really need to understand and agree as to how much you want to spend on that area. It’s no different than – are our $5 cups of coffee really necessary every day? Probably not. But having a coffee is great – it’s part of life,

Wayne 6:33
We did it as a game. We were like, okay, let’s see if we can do this. And we made it a challenge with each other and said, Yeah, we can cut this back. We had to become aware of it, first off – and then we had to make a change.

Now we’re back to going out for lunches once in a while, but not literally like we were. I think a lot of people that are in these financial situations, once they realize how much debt they have and how much they’re accruing every month – you do have to almost make it a game. To say, Okay, look, we’re going to tackle debt, because if you make it this painful, miserable that I can’t ever do anything – you just finally get to that point where you just say, ah, heck with it. Let’s go spend some money.

Derek Chase 7:18
Yes, for sure. And I think one of the words you use there, which I think is really good, is awareness. If you are unaware of your monthly expenses it’s almost like trying to find something in the dark – you kind of know what’s happening, but you don’t really know for sure. If you’re walking around in the dark, you might bump your knee or make a wrong decision. In contrast, once you have all that information in front of you, it’s like a clear day. It’s very easy to see what’s going on. And you can make some better quicker decisions.

Wayne 7:55
Do you have some suggestions on what you can do to reduce your housing cost?

Derek Chase 8:02
Housing cost reduction is something that people are exploring more and more. I think probably the easiest one for a person that has room is to consider taking on a roommate. And that’s a little tricky, because you want to have the right roommate. You want to feel comfortable and safe and whatnot. But certainly having someone to share that housing can make a dramatic difference – literally cutting it in half. So that’s probably the biggest one.

Certainly keeping your eye open for and letting your network know that you might be looking for different housing options is good as well. There are housing options that can come with utilities included, which is huge. Versus you have to pay utilities in addition to your cost of housing. So go shopping for that and letting your network know that you’re looking, is a good thing.

Those are probably two of the more powerful ways for housing cost reductions. We see, unfortunately, seniors on fixed income that are getting hurt badly with rental increases. They might want to also explore whether they can get on a list for seniors housing, which is often subsidized. There’s also a really good program in BC called SAFER, which we let people know of. That’s a provincial program that will potentially give you some money towards your rent. Shelter Aid For Elderly Residents or SAFER. So that’s something that some people have been unaware of. Getting an extra 200 or $250, or whatever the number turns out to be towards your rent can be the difference between running a deficit every month and being able to run a positive monthly budget.

Wayne 9:58
Absolutely. With these high rents that you’re talking about – so some people get the high rent and their debts going up. What’s their first step – what do they do to stop this or fix this?

Derek Chase 10:10
Well, once you’ve gotten the information in front of you – you can see that your monthly budget just isn’t working with the amount of debt repayment that you might have to make on your unsecured debt. It’s important to reach out to get some information on how you might stop that negative momentum on the debt.

There’s a variety of options that are available for that. What we do at our office and what any Trustee will do across the country, is take the time to get to know what’s happening in your finances. And then at our office we will take as much time as you want to just walk through each of the different options that are available for stopping that negative momentum.

Now, it could be as simple as just applying for a consolidation loan at where you are banking – at your local bank or credit union. If that’s not available, if a person doesn’t qualify for that, then there are some more powerful tools available such as a Consumer Proposal, or even a federal Bankruptcy filing.

Wayne 11:13
So a few different options. And as we mentioned, a redo mention – there’s always a first free consultation with Derek and his team at Derek Chase & Associates. And you can go to bankruptcytrusteebc.ca. to get more information or to schedule that.

We’ve been talking about how hard it is to find housing sometimes for people as well – and to find rents are going up. And there’s rentals that just aren’t like they used to be. I remember 20 years ago, renting a place. I got a whole house for $550 bucks in BC, which is crazy. And then I got an acreage for $700. And now you get one basement suite for $1,300 – $1,400. I’ve heard that a lot of this might have to do with Airbnb’s. People would rather just rent for a day or two as opposed to renting to people long term.

Derek Chase 12:06
That’s true. I think that Airbnb’s have been a cause of taking rental supply out of the general market and being able, as a property owner, to recover as much or perhaps more than they could have if it was just a straight monthly rental – is often attractive to the homeowner. So I’m not aware of the specific numbers as to what that might be. But I’m sure that there’s a good chunk of the rental housing market that is gone towards strictly Airbnb.

Wayne 12:41
Yes, I’m interested to see what’s going to happen. And when somebody brought that to my attention, I thought, wow, that would make sense why rentals are so hard to come by for so many people.

I even have some friends who have a couple of different houses – just a guy I was riding bike riding with the other day. He said, I’ve got two rentals in two different cities. And I said, Oh, well, are you looking for a family? What are you looking for? He said no, Airbnb. That would explain where the rentals are going.

Derek Chase 13:07
Definitely a factor. And you know, the answer is really more supply. I’ve often thought that the quickest way that supply could come on stream was if municipal governments allowed more basement suites or carriage homes – or more that’s already there, that doesn’t need to wait for three years to get built.

Wayne 13:28
Yeah, that’s a very, very good point. Final words of advice here. Derek. What’s your suggestions?

Derek Chase 13:34
I think if your cost of your housing is greater than 50% of your income, and you’re carrying unsecured debts – I can just only imagine that you’re really feeling a cash flow pinch there. So I would say take advantage of the free consultations that Trustees generally provide and just make sure you understand all the information and options that are available because the laws there, that’s federal law, and it’s set by Parliament. It’s available to help you when you’re in a predicament.

Wayne 14:07
Great advice. Derek, thank you very much for the info today.

Derek Chase 14:10
More than welcome Wayne, hope you have a great day.

Wayne 14:12
Well, thanks again to my guest today Derek Chase. And once again free consultation from Derek or his team at bankruptcytrusteebc.ca. If you do have any questions, please reach out to him.

And that’s it for our Debt Matters podcast for today. Make sure you subscribe wherever you get your favorite podcasts from and of course, for more information, you can always check out debtmatters.ca. Thanks very much for listening.