Home Business Insights & Advice How rising coronavirus debt will affect your investments

How rising coronavirus debt will affect your investments

by John Saunders
8th Feb 21 11:14 am

Household debt is one of those stories that’s often overlooked when looking at future economic performance, but it’s been a low-simmering crisis for years that’s suddenly boiling over thanks to the job shock of the pandemic.

Low interest rates around the world have made borrowing cheaper, driving more consumers into bigger mortgages and other sizeable, low-interest loans. Families that have been struggling with reduced income, meanwhile, are turning to high-interest credit to fund expenses, and that’s where the real crisis could come from.

While increased household debt tends to increase market growth in the short-term, it has the opposite effect 3 to 5 years later as greater debt loads slow spending and have a wider impact on markets. In some parts of the world, the first coronavirus lockdown actually saw household debt levels go down, but with those benefits now clawed back or diminished, the second wave can still do considerable damage to personal finances before vaccinations are rolled out across the world.

How to manage debt

If you’re struggling to keep up with debt payments, you can reduce the cost of servicing it through debt consolidation. You don’t need to take out a new loan, either.

Debt consolidation with bad credit is possible with the help of certified Credit Counsellors from a non-profit credit counselling agency. In a Credit Canada debt consolidation program, you can benefit from reduced or eliminated interest rates and make just one monthly payment to all of your creditors. The lower your interest rates, the more money you have to actually make progress paying back loans.

How will markets respond to household debt?

The pandemic has had an uneven impact on the economy, with many saying the world is in the midst of a K-shaped recovery, where professional, middle to upper-class workers are largely unaffected, and lower-income workers bear the brunt of a recession.

Growing debts and stagnant or lost incomes have put the economy on a collision course. As households come to the realization that they can’t afford to keep up with payments, they’re going to start filing for bankruptcy.

There’s still a lot of uncertainty about what the job shock and its consequences will do to investment markets. Household debt will impact how long the recovery takes, but the good news for investors is that many believe markets will continue to rally, and an economic recovery is on its way, even if it will take time. Nevertheless, a downturn 3 to 5 years in the future could be a reality if households don’t begin to save more.

That’s cold comfort for households that risk losing equity in bankruptcy. Alternatives to bankruptcy, including debt consolidation programs, can help you pay off creditors without losing investments or home equity.

All in all, 2021 looks to be a strong year for investing. If you’re trying to get out of debt before you’re in a position to join the stock market rally, consider your options for speeding up the process.

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