Debt and Disability: How to avoid a crisis

You can do everything “right”. You can set a budget and make sacrifices to stick to it. And then life happens. You get sick or injured, causing you to be off of work for an extended period of time to heal or recover. Living with a disability or supporting family members with disabilities can be financially challenging.  Special care, food, and medical equipment can become costly – resulting in mounting debt or financial stress.

As the recent 2015 RBC Disability Insurance Survey shows, this recovery period is also a time of financial stress as the injured or sick individual struggles to keep up with household finances without their steady income to support their expenses.

Some highlights from the survey include:

  • Not surprisingly, a large majority of respondents (78 percent) admit that their household finances were stretched very thin while they were off work.
  • Nearly half (48 percent) of respondents said that they were unprepared financially to deal with being off of work.
  • During their time on disability, 29 percent of respondents said that they had to take money from savings to pay for expenses; 9 percent had to cash in their RRSPs and 17 percent turned to debt.

“Major events like an illness or injury hold huge impact on both your physical and financial health. Given the unpredictable and swift nature of these events, it comes as no surprise that people are sometime forced to turn to debt to cover household expenses, “ says Jeff Schwartz executive director at the Consolidated Credit Counseling Services of Canada.

“It is extremely difficult to climb back out of the debt, even when you are back to work. Not only have your financial obligations grown to service that debt, you are dealing with interest too.”

What would you do if you got sidelined with an illness or injury? Here are some ways to be proactive in limiting the necessity of relying on debt in the event of a disability.

Role play

Take a month or two and see what life would be like on a reduced income. Could you manage? There is benefit to playing out this scenario when the stakes are not as high, because it gives you a chance to tweak where you need to, in terms of saving and spending.

Consider it a financial fire drill.

Are you eligible for the Disability Tax Credit?

Nearly half a million Canadians with disabilities are eligible for the Disability Tax Credit (DTC). This is a non-refundable tax credit administered by Canada Revenue Agency meant to support people with physical or mental restrictions. When claimed, the DTC can result in a significant tax refund. Contact a disability benefit service provider to find out if you’re eligible for the Disability Tax Credit.

Are you covered?

In addition to government support while on disability, many workplaces offer disability (both long-term and short-term) coverage. Find out exactly what your coverage would be and for how long. Now is the time (i.e. when you are healthy) to determine if you need to supplement your coverage.

Although sometimes pricey, some of your debts likely offer disability insurance directly tied to the debt (mortgage and some credit cards).

In all cases, make sure you are well advised and that you read all of the fine print in detail.

Widen the gap

Your bills will never take time off, even if you do. That’s why you’ve got to keep the debt loads down and the savings high. It’s when that gap on your balance sheet  between what you own and what you owe gets too close together that you can make yourself vulnerable when your income is interrupted.

Have life events caused you to turn to debt? Is it time to take charge of those debts so that you can rebuild and heal? We can help you. Call one of our trained credit counsellors 1-888-294-3130 or check out our free online debt analysis tool to get started.

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