Financial difficulties can sprout up without warning, leaving your finances is disarray. Whether it’s job loss, illness, disability or some other unexpected event, you may opt for a payment deferral to help you through it.
While these are helpful in cases of emergency, you’ll eventually need to repay the amounts deferred. But how does it work?
Deferred Payment Meaning
A deferred payment refers to payments you can skip over for a set amount of time. In many cases, this can extend up to half a year. However, the interest keeps accruing on the amount owing during this period. Additionally, though deferrals enable you to skip payments for a time, these amounts remain owing.
Many mortgages have deferral clauses to prevent issues like defaults.
But what happens when the deferral ends? How do the payments restart and do payments remain the same?
Restarting Payments After Deferral
When your deferral arrangements come to a close, it is critical to have a structured approach to paying both your regular payments and the deferred amount.
While each financial institution and arrangement has different specific terms, most loan types have similar approaches to handling the payments of deferred amounts.
Repayment Terms For Deferred Payments On Mortgages
Loans for homes have a few different approaches to managing deferrals. Ensure that you follow the terms outlined in your deferral agreement to prevent issues. Generally speaking, the deferred payments will be added to the overall mortgage amount, resulting in a higher amount paid by the time the loan is discharged. This would extend the amortization period of the loan.
Another scenario includes dividing the deferral amount across the current amortization period. This scenario would increase your regular payment amounts. If you were able to accrue sufficient funds to pay the entire amount owing, ensure that you discuss this before paying the amount to be certain that there are no associated penalties.
Repayment Terms For Deferred Payments On Loans
Generally, loans are structured similarly to a mortgage. However, depending on the structure of your loan arrangement, you can discuss alternative arrangements with your lending institution. This may include an increased frequency of payments.
Typically, the unpaid amounts and interest will be distributed across the overall loan, letting you discharge it at the same time while paying higher amounts. If you are unable to pay these amounts, discuss extending the loan term with your lender.
Repayment Terms For Deferred Payments On Credit Cards
With credit card payment deferrals, companies generally waive 50% to 100% of your interest charges for that month. Once the deferral period has ended your minimum payments will be due again and interest charges will resume as normal.
Repayment Terms For Deferred Utility Bills
The repayment terms for deferred utility bills vary by provider. For example, at ATCO Energy, the deferred amounts will be paid along with your regular monthly payments, for up to 12 months.
If you want specific details, consult the terms of your arrangement with the utility company itself.
Preparing To Restart Your Payments
While it might seem overwhelming to approach repaying your deferred amounts on top of your regular payments, there are some simple steps you can take to manage the situation.
By creating a detailed plan, you can prudently and favourably approach your debt situation.
Analyze And Adjust Your Budget
A detailed budget is more than just money in and money out. It is a comprehensive plan for how to spend the money you earn. Here are some important points to consider when creating your budget:
- Include your job, any side hustles, tips, investments, and interest accruing on your savings.
- Create a complete list of the amounts you owe to all of your loans. Ensure that you factor in the increased payment amounts for any loan deferrals coming to an end.
- Assess your monthly spending realistically.
- Detail what you spend on food, entertainment, your vehicle, medication, and any other routine expenses you incur.
Cut Back On Spending
Now that you have an accurate picture of what you earn and spend, you can take a real look at places you can cut costs. Living frugally is a proven approach to tackling built-up debt. Consider places where you can reduce your expenses.
Perhaps you spend too much on food? Is there a way to streamline your cell phone or internet plan? Maybe your entertainment budget can be reduced. Identify the places where you can spend less and set yourself a maximum spending amount for those areas.
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Prioritize High-Cost Debt Repayment
Revolving debt like credit cards tends to have a high rate of interest, particularly when viewed relative to other loans. If you have multiple credit cards, figure out which one is costing more in interest each month. Without neglecting your regular payments on other amounts, focus on paying down the more expensive debt in your name. Because the actual interest amount is relative to the amount owing, ensure that you reassess your math quarterly. Continually pay down the most expensive debt first and you will save in the long run.
Monitor Your Credit Score
Whether you’ve deferred a payment or not, it’s important to check your credit. Future creditors will look at your credit and so should you. The easiest way to check your credit score in Canada is through a free service. A good option is Loans Canada’s CompareHub.
What If You Can’t Afford To Restart Your Payments?
If you find yourself unable to start back up with your payments, there are some steps you can take.
- Reach out to your creditors: In situations where you can partially pay your regular amounts, discuss with your creditors the possibility of an individualized payment arrangement. Especially if you take action early, creditors may be able to make small adjustments to help you maintain regular payments in smaller amounts.
- Considering if your car is worth it: If your car loan is creating a struggle financially, consider surrendering it to rid yourself of the loan. If the car is yours free and clear, selling it can provide you with immediate funds to put towards debt. It will also save you on insurance and maintenance costs.
- Consumer Proposal: As a matter of last resort, if your debt doesn’t exceed $250,000, consider speaking to a Licensed Insolvency Trustee to discuss the possibility of a consumer proposal. This step, while drastic, can assist with managing large amounts of debt for which there is no other appropriate payment method.
Final Thoughts On Deferred Payments
When it comes to debt, there are always options. Once you gain a thorough understanding of how to manage your post-deferral debt, you can take the necessary steps to protect your finances. By staying organized, crafting a quality budget, and paying the amounts you owe, you can ensure a solid financial future.
