Using Your Disability Tax Credit to Avoid Debt

Major life events like divorce or job loss can impact your finances and generate stress. However, if becoming disabled keeps you from working, there is a greater impact on your household. The pressure to keep finances afloat contend with your ability to heal or recover.

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

Here are some tips to minimize or reduce your debt while on disability.

Claim the 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 for 12 months or longer. The DTC is a non-refundable tax credit that helps 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,” says Schwartz. “Every little bit helps, so leave no stone unturned.”

Investigate all possible benefit coverage

It’s worthwhile to double check with your employer that you are getting all your eligible financial support from your employer’s 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 assistance with medical and other expenses.

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

Cut all unnecessary spending

It’s time for austere 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 it’s not forever: just while you experience a reduction of income. 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 your 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 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, such as cash advances and regular purchases, 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 as possible.

Are you on disability and find that your debt is increasing too quickly? We can help. Call one of our trained credit counsellors at [PHONE_NUMBER] or visit our free online debt analysis.


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