Even before our economy was shut down by the Covid-19 crisis, Americans had more debt than ever before. It seems Covid is not the only pandemic challenging Americans these days. Debt is affecting not only the everyday lives of families but the economy as well. When families are drowning in debt, they have less money to spend on shopping and going out into the community to spend and enjoy as if they didn’t have to pay debt controlling their finances. With more than 40,000,000 people unemployed due to the shutdown and debt continuing to build, it has many wondering, how will the economy pick back up as things begin to open again? Will, anyone be able to go out and spend in the newly opened economy when they have no job, are still waiting for their unemployment check, or not knowing when and where they will work again?
So what can you do if you are one of those people heading into this unknown economy, not knowing when you will get to work again or receive your unemployment check? How can you budget if your salary has been reduced or you have lost your job and don’t know when you will work again? There are ways you can plan and budget based on your new normal. There are also ways to make it so that you don’t have to pay some of your bills during this time that won’t hurt your credit if you approach it correctly. Don’t just stop paying your bills plan and make calls!
➤ Apply for a forbearance on your mortgage:
In the past, forbearances were only available to homeowners if you were experiencing temporary hardship and were expected to get a new job during the forbearance period so you could make the balloon payment at the end of the 3-month forbearance period. Under the CARES act, homeowners can apply for 180-day forbearance in anticipation of financial hardship, and if you are still in a financial bind when the 180-days is up, you can apply for an additional 180-days. The Covid-19 pandemic has caused an economic strain on the economy. It has been so severe no one has been affected like this since the Great Depression. Mortgage companies will not be allowed to charge late fees or report non-payment on your credit during this period. Banks also do not expect you to get a new job in our current situation because of quarantine and the slow reopening of the economy in most states all over the country. However, there is still a balloon payment coming at the end of the forbearance if you don’t plan for it correctly.
Many banks won’t tell you this when you apply for your forbearance, but before it is up, you can apply for a loan modification. If you qualify based on your hardship, you can negotiate the repayment of your frozen payments. This will be made possible by negotiating to either split them up and pay a certain amount more each month in your regular loan payment or tacking the frozen payments onto the end of your mortgage period. Make sure you apply for the loan modification before your forbearance period is up, or you will be expected to make the balloon payment. You can call your bank or apply online for the loan modification. The goal is to plan and make this challenging situation a bit less stressful for yourself until the economy is up and running again.
➤ Make sure you have an emergency fund:
Having a budget and sticking to it has never been more critical. If you are lucky enough to have your job still and are still making your full salary, it is even more crucial to make sure you are budgeting to put money away in an emergency fund from each paycheck. If you are one of the millions of Americans who have had a reduction in your income, or who has lost your job, you can still set up a budget and save at least a small amount from each paycheck, even an unemployment check when it starts to come! An emergency fund will be vital to you and your family if you find yourself in a situation where you have no income for a certain amount of time, or you have an expense come up that you did not expect. You do not want to make a difficult situation worse by going into debt, because you did not plan for the worst-case scenario. Many people all over the U.S have unfortunately have been waiting upwards of 6-weeks to get their unemployment checks. The Covid crisis is a circumstance no one planned for, and having an emergency fund to lean on when you and your family are waiting for your income will be the key to staying out of debt in hard times.
➤ Contact your lenders for help if you can’t make payments:
Our current economic situation is like none we have seen in many of our lifetimes. If you are in a position where you can’t pay your loans, such as your car payments or credit card bills, don’t just stop paying them. Many lenders have programs set up for the current situation where they will work with you to lower your interest rate or freeze your payment for a certain amount of time. You can also apply for a forbearance or deferral of your payments, and your lenders will not be allowed to report non-payment or charge late fees during that time. Communicating with your lenders is always the best option. If you stop paying, you will destroy your credit when you don’t have to! Planning and communicating will make another stressful situation less stressful and much more manageable.
Similarly to car payments and credit card bills, student loan payments are a bill to consider differing during this time if you are in a financial bind and need to reallocate your budget. Many graduates with federal loans were notified that their loans were automatically differed when the pandemic started. However, if you are one of those whose student loans were not automatically differed because your loans are private, you should consider contacting your loan company.
➤ Contact your utility companies if you can’t make payments:
You don’t want to be in a situation where your utilities are turned off because you can’t pay them. Your best option for dealing with financial hardship is to contact your utility companies and work something out with them. More often than not, they will work out a lower payment plan with you so you can stay in good standing and not go into debt, putting your utility bills on credit. You also don’t want to hurt your credit score and get your utilities turned off by not paying your bills. So plan smart, stay out of debt, and work out the best payment plan you can within your budget.
➤ Set a new budget based on your current income:
If your income is still the same as it was before the pandemic, that is great! Be cautious to stay out of debt at a time like this. If you are already in debt, try to pay it down each month to get ahead just in case your income changes due to job loss or income reduction. In most cases, when you have a job, you try not to think about what will happen if you lose it, and pay reductions are not the focus because if you do your job correctly, you should be working on getting a raise! Unfortunately, during the Covid pandemic, millions of Americans have lost their jobs. A strong economy has fallen into a situation that is now causing everyone to think about job loss and pay reduction. Make sure you set a budget that allows you to save, pay your bills, and live off what is left. Overspending and not sticking to a budget will cause you to spend on credit, having debt will not make your financial situation better if you lose your job or encounter a pat reduction. Be smart about what you’re spending. Go through your expenses and make sure you are budgeting to stay within your monthly income!
If you have had a reduction in your income or you have lost your job, and you are now working with what you make on unemployment, look into the options we talked about above! Make sure you can set a budget based on your new income, even if it is a temporary income change, because you are trying to get a new job or are temporarily furloughed. Don’t put yourself into debt because you were not careful and smart about your spending when you needed to be!