Credit bureaus use the term "delinquent" to describe bills that are 90 days passed due. I've never been a fan of that term. It seems too playful, like it's describing a child who is being naughty and deserves some time in the corner. It implies that the delinquent account is held by someone who snickers at their credit card bills.
That may be the case for some of the delinquent accounts out there, but I suspect the reality is much more desperate and distressing. A delinquent account is more likely the result of heavy debt loads coupled with a sudden and prolonged loss of income. Plenty of us have debt -- maybe too much debt -- but Canadians are pretty good at making at least the monthly minimum payments and delinquency rates are typically low.
That's not the trend in Alberta.
After years of low delinquency rates, lower than the national average, TransUnion recently released numbers showing that Albertan delinquency rates are now higher than the national average. The high levels of consumer debt in Alberta were always kept in check by the ability to pay it back, but now it seems that the oil collapse has rumbled its way through the Wild Rose County and is putting the squeeze on Albertans and their bills.
Dominoes have been falling
We all feared that low oil prices and the resulting layoffs would put a tremendous squeeze on over-indebted Albertans. More and more people are seeking employment insurance benefits -- the number jumped by 9.1 per cent from August to September, by far the biggest increase in Canada. EI benefits are a help but they are a drop in the bucket when you have to service debts as large as those carried by the average Albertan.
According to TransUnion, the average Canadian owes $21,028 in non-mortgage debt, while the average Calgarian owes $27,945. To put that into perspective, the average Montrealer owes $15,333.
You may be able to rely on savings and credit cards to bridge the gap during unemployment, but not if the gap is too big (or too deep). The fact that 90-day delinquencies are on the rise in Alberta means one thing -- for many, the well has now run dry.
If you're an Albertan and you are still getting a paycheque, it's time to make immediate moves toward safe-guarding yourself. That means a total overhaul of your spending. Half of Albertans are living paycheque-to-paycheque -- a very risky lifestyle with layoffs abound. You need to cut back on discretionary spending (the age-old test of determining wants and needs is a good way to start), and start building an emergency fund that can sustain you and your family for three to six months. All the while, you need to make sure you are doing your best to eliminate high-interest credit card debt. At this time and always it's good idea to make sure you are using your money in an efficient manner. That means paying down high interest debt and sticking to a budget.
If you have been handed your layoff notice, there are a few things you can do to mitigate the financial damage and stop the dominoes from falling:
• Drill into your budget. It is more important than ever to make and follow a budget. Every dollar needs to be scrutinized -- this is not a time for reckless spending.
• Talk to your creditors. Call your creditors right away and explain what has happened. They will be more likely to negotiate your situation if you're upfront with them before your bills become delinquent.
• Downsize. Maybe you bought too many "toys" when the going was good. Get rid of those bills and free up some cash by selling that ATV or motorcycle.
• Seek help. There are professionals out there who are trained to help you fix your budget and manage your debt. If you're struggling, you should reach out to a non-profit credit counsellor.
Make hay while the sun shines
Of course, unemployment affects Canadians from coast-to-coast, as does illness, divorce, and all of the other financial calamities that can come out of nowhere. The trouble in Alberta shows that anyone can be financially vulnerable, and it should serve as a healthy warning to pay down debt and build savings while you can.
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