Two weeks ago we talked about what to do: Getting the family involved, stopping any savings and investments, and your financial priorities of prescriptions, food, shelter, utilities, basic clothing and transportation.
However, the reality of $4,000 in bills on $2,000 of income brings up three big “should you” questions:
Should you pay minimum payments on your credit cards? If you can – absolutely. If you have the available credit, I would also take a cash advance then use that money to make the minimum payment. It’s not a solution, but it’s a way to tread water and protect your credit rating. If you can’t – plan B may be to ask the card issuer for a deferral, but that depends on how much the minimum payment is, whether you’re prepared to go through the qualifying again on the phone, and your priorities.
Should you get some money out of your investments or Tax Free Savings Account? Yes – if that’s what it takes to make minimum payments for some of your debts. It’s better to borrow from your future self than a deferral that just stalls things off and compounds interest.
Should you cash some RRSPs? That’s different than other investments, because there are big tax implications next April since it’s considered taxable income for 2020. If you have absolutely no choice – the answer is clear. If you can avoid it for at least another month or so – that would be even better…
There is a really important chapter in the Money Tools book called “Today’s problems become tomorrow’s nightmare.” Before you cash any of these, you really really need to read that chapter.
When you need to relieve the today pressure with tomorrow money, there’s a steep price to pay down the road. Cashing any investments relieves the financial pressure today but leaves you in trouble down the road. Not investing right now is totally logical, but cashing out requires you to remember that the $5,000 today isn’t growing anymore for retirement. That $5,000 today, if left alone, turns into $40,000 that you do not have in 21 to 25 years when you may really need it.
Secondly, the government programs of the $500 a week or your EI are fully taxable. So the today help is great, but you will need to pay tax on that come next April. No, you probably can’t set aside the 20 to 25% you’ll need for tax today. But you also can’t claim that it’s a surprise you’ll have to have the money to pay your taxes.
Lastly, something a little more hopeful if you have a mailbox. I found a great picture that might prevent you from getting more bills that you don’t really need right now. Oh if only that would work….