For those of you who don't know me my name is Ira Smith . I'm President of Ira Smith Trustee & Receiver Inc. This video and blog is about credit card debt in Canada.
First off both Brandon Smith and myself hope that you and your family are healthy, safe and secure during this COVID-19 pandemic and lockdown. We just want to let you know that Ira Smith Trustee & Receiver Inc. is fully operational and we're holding meetings and doing consultations and administering files and we're doing it all by telephone or video meeting .
So if you have any questions at all feel free to shoot either Brandon or myself a message or give us a call we'd love to hear from you and speak with you.
Today's Brandon's Blog is about a plan that was already enacted in the province of Quebec to reduce credit card debt in Canada for Quebeckers. It never started out to be controversial but under today's circumstances is certainly going to be very controversial and probably causes more pain for the very people they were trying to help.
So I hope you can watch until the end of the video. I know you will get value from it.
The Quebec plan to slow down credit card usage in Canada did not start out being controversial
In 2017 the Quebec government enacted its bill number 134 to modernize rules for consumer credit and what they said was starting August 1, 2019. So that gave everyone advance notice. Any new credit card accounts opened up after that date had to have a minimum monthly payment of 5% of the outstanding balance .
Until that time the minimum monthly payment was only 2.5%. Credit card accounts opened up before August 1 2019 were grandfathered at the 2.5%. But starting August 1 2020 they would be increased by half a point a year until they reached the minimum monthly payment of 5%. The reason they did that was because Quebec recognized that paying only 2.5% of your minimum monthly balance may not even cover the interest costs.
So someone with too much debt only paying the minimum monthly amount allowed would never ever be able to repay their credit card debt. So that's why they essentially doubled it to 5% so that hopefully people would be able to pay things down quicker although it still would take a very long time.
But more importantly, even think about the credit card that they were taking on. And if they had to up the minimum monthly payment in their budget hopefully they would think twice about continuing to spend on credit cards.
So that was the theory.
Average Canadian household debt 2020
At the end of 2019 the credit reporting agency TransUnion Canada reported that for the first time ever Canadians had reached the $100 billion mark in credit card charges. I won't bother going further in what TransUnion and Equifax projected would happen in 2020.
Because as you all know, because of the coronavirus pandemic and the shutting down of the Canadian economy, all the rules have been thrown out the window. Everyone is scared.
Nobody knows what's going on and what's really going to happen.
Right now there's deferrals from lenders and the Canadian government is handing out money to try to keep the economy moving. This is to keep people who have either lost their job or whose income has been reduced because they're quarantined at home to try to give them the money they need to live on.
So at the beginning of 2020, the Canadian average household debt continued to climb. Unemployment was relatively low and the Canadian economy seemed good to most people.
And then in the middle of March the COVID-19 pandemic. The self quarantining, the shutdown of the Canadian economy happened.
The Canadian government put various plans into place As of June 4, 2020 the government has processed for the Canadian Emergency Response Benefit (CERB), 8.4 million Canadians have processed applications and are receiving CERB. In dollar terms
so far the Canadian government as of June 4th has handed out $43.5 billion. That's just one program. So the amount of money that the Canadian government is going to end up handing out is in the trillions of dollars.
Unpaid credit card debt consequences Canada and how to avoid them
So right now everyone has effectively a time out. Banks, lenders, collection agencies and credit card companies. They are not harassing people for their overdue payments with any sort of intensity. They understand what's really going on. And to be honest the banks don't want to make the newspaper by harassing Canadians during this time.
But when the government programs run out and business gets back to whatever the new normal is you can be rest assured that the collection agencies, the credit card companies, the banks all lenders will start hounding everyone for their outstanding debt including credit card debt.
Once the courts reopen they will sue people. Once they get a judgment they will garnish your wages and they can freeze your bank account. You will not be able to live under those circumstances.
So the question is what can people do?
As Brandon has written many times in his Brandon's Blogs the whole family needs to be involved in looking at the household budget. You have to make sure that your household expenses are not greater than the household income.
As well if possible it is really necessary to set aside an emergency fund as part of your budget. Monthly payments into a fund that you don't touch and is only available in case of emergencies. Then you have to see how much you have left over to go to debt repayment.
Then you have to look at all your debts and come up with a strategic plan in order to reduce your debts and you may very well need the help of a professional such as a licensed insolvency trustee to help you go through all the information and understand what your options are.
Now everyone has several options. You can try negotiating with the credit card companies and your other lenders by yourself. You need to understand what sort of arrangements you could come up with. What can you afford in terms of monthly payments? Or do you have a sum of money set aside that you can use to try to negotiate a discount and make immediate payment to your creditors? This you can do on your own.
The next level up would be to go to a community credit counseling agency not one of the for profit companies but a community not for profit credit counseling agency. They can assist you with your budget with your strategies and even dealing with your creditors on your behalf and coming up with a payment plan.
Perhaps you still have good credit and you haven't lost your job. And although you're working from home you still have your income. Maybe you will be able to qualify for a consolidation loan.
The whole concept is that you take on a loan that has an annual interest rate much lower than the average annual interest rate of all the individual credit cards and other debts that you currently have. You take out that one new loan you pay off all your other debts and then you're repaying that loan with a much lower interest cost. If that's possible that's also something you can do either dealing with your creditors on your own or in consultation with a community not for profit credit counselling agency.
Finally, if none of those are appropriate or are available and you are really worried and scared go see a licensed insolvency trustee. Our firm and most other firms will provide you with a no cost initial consultation where the licensed insolvency trustee will listen to the issues facing you and will go over all the options available to you being the ones I've already spoken about and in addition consumer proposal or bankruptcy. Just so you are fully versed in all of the options available to you.
Credit card debt in Canada summary
So the plan that the Quebec government came up with and put into legislation was aimed at helping consumers. But nobody saw this coming, this economic shutdown. So my guess is that both for Quebeckers and for the rest of Canadians once we come out of this and
people have less income, no job, a new job earning less or earning the same but still have the same high debt load. There are going to be a lot of people and businesses that are going to be in financial trouble and are going to need the help of professionals .
So I hope that this video and this blog is of some help to you. If you have any questions whatsoever arising out of this Brandon's Blog or anything else at all please feel free to either shoot Brandon or myself a message or give us a phone call. We would love to speak with you.
Ira Smith Trustee & Receiver Inc. is open. We're doing our meetings by telephone and video conference. Please get in touch with us. In the meantime, both Brandon and I hope that you and your family are healthy, safe and secure.