Sherry, our expert Financial Coach, explains to our reader, Zachary, how to handle his mom’s large credit card payment obligations.
The Question…
My mother recently moved into a long term care home. After paying the home, she’s left with about $100 a month. The issue is, she has $8,500 in credit card debt. As her Power of Attorney, I’m not sure how to navigate this, what should I do?
Zachary K.
Niagara Falls, ON
The Answer…
I am glad that you reached out for help. Taking care of your mother’s finances when she’s in a long-term care home is challenging. Paying off credit card debt is difficult for everyone. Your mother’s limited income after covering her needs is tough, let alone adding on a credit card payment. By knowing exactly where she stands financially, you’re doing a great job!
Your mother is not alone. Around 18% of Canadian seniors reported having credit card debt. The debt-to-income ratio for seniors was around 22% in 2019. Indicating that, on average, seniors owed 22% of their income in debt payments. I suspect these numbers are even higher today.
You’ve already assessed the situation and reviewed all her numbers, which is great. You’ve already done a lot of the heavy lifting. With the amount left each month, it is not enough to cover her payment or even the interest. This means you still have some work to do. By getting out in front of it, you have more options.
Options to consider
Here are some steps you can take to address her credit card debt and manage her finances.
Review any assets
If your mother has any assets, consider any options to sell them to generate some funds to pay off part of the debt. You should also contact the Canada Revenue Agency (CRA) to see if she has any uncashed cheques. If there are any cheques that were sent to her that she did not cash, you can fill out a request to have those funds sent to you.
Contact her creditors
A good place to start is to reach out to her credit card company to inform them of your mother’s situation. Explain that she is in a long-term care home and has limited income. Since your mother’s income is not enough to meet her needs and cover her credit card payments, they may be open to offering other options. An installment plan based on her ability to pay could also be an option. They may also be able to do a balance transfer to a lower-interest card to assist. Work with them to explore all of the options.
Explore government aid
Look into government programs and subsidies available for individuals in long-term care homes. Check to see if your mother qualifies for any financial aid or benefits to help cover the cost of her care. Be sure to file her taxes each year to maintain any benefits. If she does end up with a tax refund, you can use this to make a lump sum payment or keep it to help make her monthly payments.
Family help
Are you or other family members able to help pay the debt off by gifting or loaning money to your Mom? If this is an option, you can direct the $100 surplus each month to repay the family loan. Before you do this, keep reading to make sure that you have a clear understanding of all of your options. Mixing family and money can create challenges, so it’s important to have all the information before making this decision.
Consider bankruptcy
If the credit card company won’t budge and your mother already gets all the government help she can, consider talking to a bankruptcy trustee.
What happens if none of these options work?
If you’ve exhausted your options, where does that leave things? If this is the case, you have two paths.
- Pay the $100 each month towards her debt.
- Stop making payments on her credit card debt.
Both of these options have negative impacts.
Credit score drop
With both of these options, her credit score will be impacted. Even if you pay the $100 each month, her credit score will take a hit because it is not a full payment. While negotiating with the credit card company, it’s a good idea to keep paying what you can to show you are doing what you can. Her debt will continue to increase each month as interest accrues. This will increase her credit utilization as her balance gets closer to her credit limit. This will also impact her credit score.
Late payment fees
The credit card issuer may charge you late payment fees for each missed payment. These fees can add up quickly and increase the total amount owed.
On-going interest charges
Interest will continue to accrue on the unpaid balance. That includes both the principal amount and any outstanding interest charges. With credit card interest rates typically pretty high, the debt can grow substantially over time.
Collection efforts
The credit card issuer may start contacting you through letters, phone calls, or emails to request payment. If you ignore these attempts, they may escalate their collection efforts.
Debt collection agencies
If the account remains delinquent for an extended period, they may sell the debt to a collection agency. Collection agencies can be more persistent in their attempts to collect the debt. If this happens, take some time to get informed on how to deal with a debt collector and make sure you know your rights.
Legal action
In some cases, the credit card issuer or collection agency may pursue legal action to recover the debt. This could lead to a lawsuit, and if a judgment is obtained, it may result in your mother’s income being garnished, depending on her income sources.
Something important to know is that in Ontario, Canada, creditors have a limitation period of two years to take legal action. This means that they have two years to try and collect a debt through the courts. This two-year limitation period begins from the date of the last activity on the account. Account activity includes things like making a payment, acknowledging the debt in writing, or entering into a repayment agreement.
What happens if your mother passes and still has debt?
When a person passes away with debt in Canada, their debts are typically paid from their estate. If there are not enough assets in your mother’s estate to cover any remaining debt, they generally do not get passed on to surviving family members. However, there are some important exceptions to consider:
Joint debts
If a family member co-signed a loan or credit agreement with the deceased person, they may become responsible for the debt.
Estate
The deceased person’s estate is responsible for paying off their debts. This means that any assets owned by the deceased may be sold or used to settle the debts before any inheritance is distributed to beneficiaries. This includes real estate, investments, and personal property.
Life insurance and joint accounts
Life insurance policies and joint bank accounts may not be considered part of the estate. They may pass directly to the beneficiary or joint account holder.
It’s important to consult with an estate lawyer or a financial advisor in your province to understand the rules and regulations fully. They can help you navigate the specific laws in your area and guide you through the process.
Thanks for submitting your question!
Consolidated Credit’s executive director, Jeff Schwartz will review it and give his response here, along with any additional tips that our credit counsellors have to offer. If you need immediate assistance, please call us and a credit counsellor will get you the help you need.
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