8 tips on dealing with financial obligations in an unsteady economy

Canadians everywhere are feeling the strain on their budgets -- the dollar is weak, inflation is high and unemployment is touching families. This is especially true in the once-prosperous oil sands of Alberta. Consumers who once had jobs in the booming oil sector are now grappling with a new reality. Thousands of Albertans are losing or have already lost jobs that were supplementing hefty mortgages, expensive cars and big credit card payments.

"You go from living the dream to dealing with a nightmare," says Scott Hannah, president of the national Credit Counselling Society. "We've seen a huge increase in the number of people from Alberta contacting us for help."

These workers are used to working long hours and accruing lots of overtime, says Tom Feigs, a Calgary-based financial coach with Money Coaches Canada. Even if they don't lose their jobs, if their hours are cut, they're suffering just the same.debt-bad-economy

"Their overtime could be as much of their salary or even more," Feigs says.

If you have pressing financial obligations, you may be feeling helpless. However, Feigs and Hannah have some tips on staying afloat.

1. Accept your new reality.
When job loss occurs, your first reaction may be to jump into emergency mode. You may dip into your rainy day fund or start adhering to a bare-bones budget, but both are short-term means to keep you afloat, and this isn't a three-to-six month predicament.

"This is unique from job loss," Hannah says. You may have to shift your whole way of managing money for an extended period. He says economists estimate it could be at least two years until the oil sector improves. Even then, it's a slow-going process, so it won't immediately return to full swing.

2. Adjust your budget.
Aim to reduce expenses by 10 to 15 per cent. It's a tricky but necessary exercise for the whole family to take on.

"When people go through this process, they find out how much they've been overspending and how much has been leaking through the cracks all these years," Feigs says.

Comb through your expenses line by line. You could find out you're paying bank fees or an annual fee on a credit card you don't really use, or that you're keeping expenses your family doesn't need, such as a landline in addition to cellphones.

You may also have to suspend or at least scale back your savings goals for now.

3. Ask for a break.
If you're renting, ask your landlord if there's a possibility of reducing rent while you sort through your finances. If you're a homeowner, extend your mortgage amortization to get a break on your monthly payments.

Look into transferring debt balances onto a card or loan with a lower interest rate or ask for lower rates from each individual creditor.

"Creditors, right now, want to work with you," says Hannah. "The last thing they want is for accounts to default, and they're sensitive to what's going on in Alberta." The same goes for your landlord -- he wants a responsible tenant and may be willing to help you if you've always paid on time.

4. Get out of loans you don't need and can't maintain.
If you're paying rent for a luxurious condo or you're leasing a gas-guzzling truck, now is the time to back away if you can't keep up with payments.

"Alberta is the land of the big truck, but it comes with maintenance, these high operating costs and big payments," Hannah says.

Sell your vehicle if it's feasible, or take it off the road so you're getting rid of gas and insurance costs. If you're leasing your vehicle, do the math to see if you're better off paying penalties for breaking your contract early. You might have to pay a bit more upfront and your credit score may take a hit, but it's wiser than pouring money you don't have into car payments.

5. Don't lean on credit, retirement.
It's easy and tempting to put rent or groceries on your credit card or to use a line of credit to bail you out of credit card payments. You need to set a hard rule that bars you from paying for bills with plastic because doing so will only worsen your situation.

Don't max out a credit card hoping a new job will save the day, Feigs says. That will just lead to more trouble if your salary doesn't return to normal, because you'll be hit with interest charges, and possibly late fees or over-limit fees.

Don't dip into your retirement savings to help you during this tumultuous time, either. Feigs says you're better off using a TSFA, if possible. If you have a hefty emergency fund, you can turn to it, too. However, your main goal is to make your budget match your new income, and to not rely on any of your emergency tools long-term.

6. Consider a second job or even a career change.
Whether you're waiting on the oil industry to pick back up or you're in a field that's constantly affected by job losses, don't turn your nose up at other jobs.

Think of how to market your skills in a different way or even upgrade them in school, Hannah says.

In the meantime, work a part-time job if you need to, or get creative and find some ways to raise extra cash, such as renting out your basement or a spare room.

7. Seek professional help ASAP.
If you're overwhelmed by your cut in pay or your debt payments are quickly piling up, book an appointment with a credit counsellor or money coach right away.

These experts can help align your budget with your income, and they can work with your creditors to lower interest rates and monthly payments by consolidating your loans.

"People shouldn't feel embarrassed about their situation because there are tens of thousands of people impacted by this," Feigs says.

8. Learn from your mistakes.
Alberta has a "boom and bust" economy, Hannah says, and what's happening now has happened decades before.

You can purchase big-ticket items when the industry is good, but then you get caught up in it with your secure job and forget about savings, he says.

Now that you have had a reality check, use your experience to plan ahead in the future. Don't buy the house you can barely afford and don't pay for the car that's eating up a chunk of your budget when you regain job stability; focus on saving instead. You've weathered a rainy day so you'll know to prepare for the next one.

See related: How to budget on an unpredictable income, What's first to go when downsizing budget?
Published March 1, 2016

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