Extreme money trouble

Parents of three struggle to keep their heads above water

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Looking over Connie and Noah's budget, there's a couple of important expenses that have been omitted: groceries and gasoline.

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Opinion

Hey there, time traveller!
This article was published 10/01/2015 (3923 days ago), so information in it may no longer be current.

Looking over Connie and Noah’s budget, there’s a couple of important expenses that have been omitted: groceries and gasoline.

Yet the parents of three young children — one with special needs — have not simply forgotten to include them.

“When the bills get paid, that’s when I buy groceries, or half the bills get paid and then I buy groceries,” says Connie, who works in administration, earning about $33,000 a year.

“If I don’t have money for gas for the car, then I take the bus.”

Needless to say money is extremely tight, for a number of reasons. The couple have gone bankrupt three times. The last time — two years ago — was the result of a failed business venture.

Noah, in his early 40s, also pays child support — about $489 for another two years.

They also owe more than $13,000 on two credit cards. On one, they’ve negotiated to pay back the principal at no interest. On the other they’re paying almost 20 per cent interest.

They’re also paying back a business loan to Noah’s current employer worth about $6,000. Noah still works weekends occasionally, earning about $314 a month. Otherwise, he stays home to take care of two of their children.

“Daycare is too expensive, so it works out best if I stay home — at least for another year or so,” he says.

The couple have considered alternatives to bankruptcy — such as a consumer proposal — but they fear losing their home, worth $237,600 with no equity available.

While they have become quite good at trimming costs, they want advice.

“I think any advice at this point in the game would be good,” she says. “Sometimes the hardest thing to hear is what needs to be done, not necessarily what we are doing.”

Financial counsellor Sally Massey-Wiebe with Community Financial Counselling Services says Noah and Connie’s situation is seemingly untenable — at least over the long-term.

“No matter what angle this situation is reviewed from, as it currently stands there is simply not enough income for their stated household costs — let alone debt service — if they have only $126 (a month) left over to cover basics like groceries,” says the debt expert with the Winnipeg-based non-profit.

As an aside, what they spend on groceries is far below federal government recommendations for nutritional health for a family of five.

“This family would need at least $700-plus per month for groceries,” she says. “Their stated circumstances would generally have us ensuring the clients are aware of community resources such as food banks just to meet their basic needs.”

In most instances, Massey-Wiebe would recommend clients consider selling the home and renting, instead, at a lower cost to help balance the budget. Yet Noah and Connie may have difficulty finding a rental that accommodates their needs at less than they’re paying on the mortgage: $1,496 a month. In fact, if they did sell, after fees and penalties they may owe more money.

So for the time being, Noah and Connie must find more ways to increase income and cut costs even more than they have until Noah returns to work full-time.

One option to explore is Noah taking on more part-time work.

“Even if it is just another minimum-wage job, two evenings a week at four hours each evening would pretty much double his current monthly income.”

As well, he should ask if his employer could reduce the monthly payment on what he owes from the current payment of $160 a month.

Noah and Connie should also review their tax situation to see if they can increase their net income. Although they’ve been taking advantage of the Child Tax Benefit to the Disability Tax Credit, they may have overlooked some credits and other savings.

For one, they should ensure they’ve applied for the Manitoba Primary Caregiver Tax Credit. This is worth about $1,275 in annual tax savings, and it’s retroactive for missed years.

Another consideration is the amount Connie is taxed at source.

“Based on the stated annual income, and her stated net monthly paycheque of $1,842, my calculations suggest she is having more tax withheld than is necessary given the claims she can make on her tax returns for a partially dependent spouse, the Disability Tax Credit and caregiver amounts for an infirm child under age 18, in addition to her basic amount.”

Changing the tax at source could yield more than $120 extra per paycheque, Massey-Wiebe says.

But there’s more; they can soon expect an increase from the Universal Child Care Benefit. This has been raised from $100 to $160 a month per child under age six, and now children between six and 17 receive $60 a month. That’s potentially $180 more a month.

The problem is that while these increases took effect at the start of the year, the enhanced benefits will not be paid out until July.

“So while this will not give them funds immediately, the lump sum pending and the extra monthly amounts going forward from July is something they need to be aware of so they can plan to make the best use of these dollars once received.”

All told, these changes could substantially boost income by a few hundred dollars a month, but they may also be able to cut more costs to increase cash flow for other expenses such as groceries and gasoline.

One area to examine is their cellphone bill, about $180 a month.

“Are there contracts that can be reduced or cancelled without huge costs to minimize unnecessary spending?”

They should consider doing the same with the cable bill, which is $150 a month. Switching to Netflix or another on-demand service, for instance, could reduce monthly costs by about $140.

It is also worth exploring selling one or both vehicles.

“Especially given that she states she takes the bus when there is no money for gas, perhaps public transit would be more reasonable at present?”

Lastly, they should try to renegotiate terms on the credit card with 20 per cent interest charges.

“This could be possible if they negotiated the arrangement themselves as they did with her card, or could be addressed via a negotiated debt-management program with a not-for-profit financial counselling organization.”

And while they’ve expressed reluctance to enter a consumer proposal or bankruptcy agreement again because they fear losing their home, if there’s any silver lining, it’s that creditors have no reason to take their home.

“If they choose to consider bankruptcy, they would not lose their house as there is no equity in it with which to pay the unsecured creditors.”

Of course, those measures would be a last resort, Massey-Wiebe says. Connie and Noah can still work their way out of their situation, but it will be very challenging. At least they know they just have to hold on for a couple more years.

That may seem like an eternity when there’s not enough money to go around, but with every extra dollar they earn and trim from costs, they move a little closer to their goal.

 

joelschles@gmail.com

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