When Falling Behind on Payments

As the cost of living increases and debt gets more expensive, the number of people falling behind on their debt payments has begun to swell.

Some of the most common recent reasons that Canadians choose to take a loan include covering bills, borrowing to pay rent or mortgage, and consolidating their existing debt. Some individuals are also struggling to cover bills and expenses during job loss.

But while mortgages are mostly still stable, the rise in installment loans for bills, emergency expenses, and even large purchases or renovations has also started to see more consumers 90+ days late on paying their debt.

Canadians will take a loan for a variety of reasons, from paying bills, repairs or other reasons. But falling behind on loan payments can have long term affects you might not expect.

It can be easy to fall behind on payments, but late payments on credit products usually damage your credit score. Since it’s so important to manage your credit profile, being sure to make payments on time is crucial. Your payment history is one of the largest scoring factors to your profile and needs to be carefully monitored and managed.

If you have bad credit a loan can be more difficult to qualify for. Monitoring and managing your profile for when you need to borrow can help to avoid issues and avoid a bad credit score in future.

Household Debt in Canada

Canada’s household debt is now the highest of any G7 country and 7% higher than the country’s entire GDP. According to the Canada Mortgage and Housing Corporation (CMHC) it’s said that high home prices are to blame. With more people trying to buy houses than what’s available, prices are high and driving up cost. The low supply has caused bidding wars which are inflating the market. Many homes are also being purchased as investments, with foreign investors in particular using Canadian real estate as a place to park their money.

This also impacts the rental market since the owners of these homes need to pay any bills (and mortgage) on their home. Places like Vancouver and Toronto being the most expensive, real estate across Canada has increased significantly in recent years.

Where does that leave most Canadians? Trying to get their debt under control while dealing with rising rates and costs.

If you have fair to good credit you might find a personal loan for debt consolidation can help you with paying less interest on your debt. Provided you qualify for a loan with lower interest than the debt you’re looking to consolidate, sometimes borrowing to pay down debt can make sense.

Debt Repayment

Looking at debt repayment methods can help you with managing your finances to pay off your debt by becoming familiar with different ways to do so.

Making your payments on any loans or debt are obviously important, but rising costs and inflation can make this difficult when working with a tight budget.

If you are late on loan payments, a lender can report you to the credit bureaus. If you have a late payment reported your credit score can drop over 150 points. This can take a long time to build up again and even take you from a good rating to a bad credit score. Which means that if you were to try to borrow again in the near future it could be more difficult to get approved, and the interest rates available would be much higher. To recover would take a long time and many months, possibly a year or longer. Always ensure debt, credit or any loan payments are made on time to avoid other issues later.

The Cost of Borrowing

With rising interest rates the cost of borrowing has increased in recent years. While the Bank of Canada adjusts rates to try to combat inflation and influence economic spending, the housing market has definitely had an impact on rates.

As many Canadians face financial turmoil such as insolvency or filing for consumer proposals in response to Canadians’ indebtedness reaching the highest levels seen, these options could increase by 30% over the next few years. Canada’s household debt-to-income ratio

When it comes to borrowing, there are multiple factors that can influence the overall cost of borrowing. The type of loan (secured or unsecured) and what you might qualify for according to your credit score would often be the most important considerations.

What to Do When Falling Behind

The first thing you should do when you think that you are falling behind on your payments is to stop any unnecessary spending while you do an audit on where your money goes. Start with itemizing the essentials that you pay first and work your way down the list of other bills, expenses, debt and other payments.

Once you have your finances layed out in a spreadsheet, budgeting app or another tool and have your income and expenses/bills/debt organized, you can start to look into ways to deal with money troubles that might allow you to get your finances under control.

Credit & Debt

There’s no time like the present when dealing with debt to keep things under control. This also helps you with managing your credit score, which can take a long time to build up again if it were to take a hit for late payments or something else.

While more people take on debt now (aka living on credit) to cover increasing costs of living and regular monthly expenses, it’s the middle-income earns ($50,000-$100,000) that are most likely to rely on debt for covering their living costs.

In a recent study, near 5% reported falling behind on housing payments. It was also found that Albertans are the most likely to take out a loan due to a household job loss, and Manitobans plan to move in 2022 to lower their housing costs, and those from Quebec feel the least impacted by inflation.

Your credit score is about your creditworthiness, and a main factor should you need to borrow. The lower your score, the more expensive it would be to borrow, with lenders mainly offering higher interest rates for fair or bad credit loans.

How Poor Credit Can Prevent Loan Approval

How to Make Loan Payments When Money is Tight

Can I Get A Personal Loan With A 550 Credit Score?

How to Get Approved for a Online Loan with Bad Credit

How to Get Ahead While Living Paycheque to Paycheque