Don’t Let Life Events Derail You into Debt

An ounce of prevention is worth a pound of financial cure

life events financial impactEnding up saddled with debt isn’t just the domain of those who choose to spend beyond their means. You can set a budget, adopt a frugal attitude, use your credit responsibly and even sock a little away in savings. And then something happens that turns your life upside down.

Getting blindsided by major life events can push anyone into financial peril – even if they’ve done everything by the book budget-wise up to that point.

“Part of the key to financial health is to expect the unexpected. That means limiting credit use so that you don’t carry a growing balance and making a point of saving on a regular basis to pad the emergency fund,” says Jeff Schwartz, executive director of Consolidated Credit Counseling Services of Canada.

“You can soften the impact of unexpected life events by having a cash cushion to cover expenses for a period of time,” adds Schwartz.

How do you expect the unexpected? Take a moment to consider what would happen to you and to your finances in the event of some of these life events.

Job loss

In today’s challenging economy, losing your job is an unfortunate reality that many will have to face (even multiple times).

So, if that pink slip crosses your desk, what will you do? First, take a few days to consider your options. You may be offered a severance package and you want to make sure that you understand the implications of what you are signing.

One way of guarding against financial ruin due to loss in income is to try to live for a few months while you are gainfully employed on a reduced income. You’ll be able to identify areas in which you can improve, as well as boost your savings during that time period.

Illness

Illness or injury can have a severe impact on your finances. Not only are they unexpected, they can be long-term or even life-threatening.  Not only is your income interrupted, but you may be physically unable to work for an extended period of time.

Investigate what disability coverage you have through your health insurance, employer or life insurance policy. Is it adequate to cover your family? The time is now- when you are healthy- to make arrangements should that status change.

Divorce

No one goes into a marriage planning for it to end, but the sad reality is that close to half of marriages end in divorce, according to Statistics Canada. Families are split in half and costs can double.  One other sad side effect from divorce is that it can damage your credit rating if both names are associated with accounts that are being neglected.

From day one make sure to chronicle all of your joint credit. It will simplify the process as you go through the divorce and will limit any money-miscommunication. Be proactive in managing your own credit post-divorce by checking your credit report, making sure that joint accounts are closed and by setting up a budget with one income.

 

 

Don’t hope for the best when it comes to your debt; plan for the worst instead, and you empower yourself through a financial plan. Start by paying down your existing debt so that you can build an emergency fund. Call one of our trained credit counsellors at or check out our free online debt analysis tool to get started.

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