Over the past year, the Canadian Recovery Benefit (CRB) has been a safety net for over 2 million Canadians – especially individuals and households struggling with debt. The benefit has provided much-needed breathing room for people who were financially impacted due to the pandemic and could no longer keep up with their living expenses and debt payments. With the outcome of September’s federal election keeping things status quo, there haven’t been any changes to the current income-support benefits. This means eligible Canadians can still receive the CRB up until October 23rd, 2021.
The ending of the CRB later this month could mark the beginning of increased financial stress for the many Canadian households carrying high debt levels. According to Statistics Canada, the country’s household income to debt ratio increased in Q2 2021 as the average Canadian household now owes $1.73 for every dollar they earn compared to $1.59 in Q2 2020. While there are many reasons for a household to be struggling with a high level of debt, the biggest factors are low income or job loss. With millions of Canadians earning less income on the CRB or from employment than pre-pandemic times, it’s no surprise households are bringing on more debt to make ends meet and may need to continue doing so when the government benefits end.
If you are currently relying on the CRB and are unsure what your financial future holds, you may be looking for an immediate solution. A stressful financial situation can cause people to make quick decisions that they might later regret. Here are three myths you should be aware of when considering solutions to your debt:
Myth 1: It’s a good idea to cash out my RRSP and retirement savings to replace the CRB and pay off my debt.
It isn’t a good idea to cash out RRSPs to pay off your debt. There are better ways to pay off your debt without needing to dip into your retirement savings – which could leave you with tax debt to Canada Revenue Agency. Retirement savings in pension plans, locked-in retirement accounts, RSPs or RRSPs are protected from seizure in a bankruptcy or consumer proposal except for contributions made to your RSP or RRSP accounts in the 12-month period prior to filing. Instead of jeopardizing your financial future by using your RRSP to supplement lost income or the CRB, rework your budget to reduce your expenses and explore a Bankruptcy or Consumer Proposal to settle your debt.
Myth 2: With the CRB ending, bankruptcy is the only option to get rid of my debt.
Bankruptcy is an option, but not the only one. If you are concerned about making your debt payments once you stop receiving the CRB, a consumer proposal is an excellent alternative to filing bankruptcy. It’s a process that allows you to repay a portion of your debt based on what you can afford and what is fair and reasonable in the eyes of your creditors.
A consumer proposal also stops interest charges from accruing, so there would be no additional costs.
Myth 3: If I file for insolvency, my life will be on hold until I complete my bankruptcy or proposal.
You can enjoy – a debt-free and stress-free – life during a bankruptcy or consumer proposal. Filing a bankruptcy or a proposal is the first step towards your goal of becoming debt-free. Many people are empowered during these processes as they not only gain control over their financial situation but also an understanding of how to better manage their money and make smart financial decisions for the future. In fact, most people tell us that they feel like the weight of the world has been lifted from their shoulders, and they can now focus on living their fullest life immediately.
By picturing your future self as debt-free, you’ll be encouraged and motivated to work through your present-day challenges knowing the goal that lies ahead.
If you are worried about your financial situation once the Canada Recovery Benefit ends on October 23rd, it’s important to properly inform yourself of all your options before making any quick financial decisions. While you may be tempted to reach out to family members, friends and even too-good-to-be-true online resources it’s easy to be misinformed and believe myths such as the above.
To make sure you are making the most informed decision for your finances, reach out to a regulated professional like a Licensed Insolvency Trustee. We offer free consultations that have no obligation whatsoever. To book your free personalized debt consultation, fill out our online form or call us toll-free at 1-844-4GT-DEBT.