Utilizing Your Disability Tax Credit and Other Tips to Avoid Debt

Disabled? Disability tax credit and other tips to avoid debt

Major life events like divorce or job loss can impact your finances and deliver stress. However, if you have become disabled and are unable to work, there is a simultaneous blow to your household as you work to recover from illness or injury and keep your finances afloat.

“It is very common for people to turn to debt to cover costs when on disability. Usually expenses are high and income is often reduced. It’s during periods like this that you need to rely even more on budgeting and spending within your means to manage your household finances without long term damage,” says Jeff Schwartz, Executive Director, Consolidated Credit Counseling Services of Canada.

Here are some tips on how you can minimize or reduce your need for debt while on disability.

Disability tax credit

Depending on the nature of your disability, you may be eligible for the disability tax credit (DTC). Typically, you need to be diagnosed with a longer term illness or disability (one that extends over 12 months or longer). The DTC is a non-refundable tax credit that is offered to help people shoulder the financial burden that comes with a disability.

“If your disability is shorter term, you may not be eligible for this tax credit, but there are other options to explore that can help increase your cash flow. Every little bit helps, so leave no stone unturned” says Schwartz.

Investigate all possible benefit coverage

It’s worthwhile to double check with your employer that you are getting all of the financial support that you are eligible for from your employer and your long and short term disability benefits. Don’t assume that you’ll automatically receive financial support. Contact your HR department and review your benefit plan. You may be pleasantly surprised to discover extra money or other support that could be helpful during this tough time. Find out about income supplements and help with medical and other expenses.

On the same note, do you have additional private insurance that you can make a claim for during short or long term disability? It’s worth investigating any policies that you might have to see if they apply.

Cut all unnecessary spending

It’s time for austerity measures in your home as you weather this financial storm. The more you can slash your household expenses the better. If some of the sacrifices seem difficult, remember that it’s not forever- just while your income is reduced. It’s even more important to find ways to cut spending if your expenses have increased for care or other costs while you’re disabled.

Develop a back to work and debt repayment plan

What is the likely time frame for your return to work? You should include this information in your budget to help you forecast how long you’ll have an income interruption. If you’re turning to debt to cover costs during this challenging time, develop a plan now to pay it off once you return to work. This will help reduce stress and keep your debt use under control.

Track your credit use as part of your budgeting and make sure you understand how interest is charged on your credit cards. Different types of transactions (ie. Cash advances vs. regular purchase) often incur different interest rates and grace periods. You don’t want to accumulate interest unnecessarily, especially if your goal is to carry this debt for as short a time period as possible.

Are you on disability and find that your debt load is growing to cover your costs? We can help. Call one of our trained credit counsellors at [PHONE_NUMBER] or visit our free online debt analysis.

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Shivani Karwal
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