7 Ways to Protect Your Finances in Uncertain Times
December 28, 2020 • 6 minute read
Bracing for the financial challenges ahead
The full extent of the economic impact of COVID-19 remains to be seen, but there is no doubt that the economy is reeling in the wake of the global pandemic. Millions of people are now faced with new and unforeseen threats to the financial health they’ve worked a lifetime to achieve. History has shown us the economic tide will eventually turn again, but the immediate financial challenges can still be daunting to even the savviest savers.
Until we return to more abundant times, you may find the following seven solutions helpful as you navigate the uncertainty we now face together:
1. Unemployment insurance
If you’re among the record number of Americans who have lost their jobs in the wake of COVID-19, finding out if you qualify for unemployment insurance benefits should be one of your first steps. Eligibility requirements and payment specifics vary by state, but most full-time, regular employees in Washington will qualify for unemployment benefits.
The payout you are eligible to receive may not fully cover your lost wages, but making up for any portion of your foregone salary will be a big help in maintaining your financial status quo.
If you're planning to claim unemployment benefits, you don't want to delay. States are receiving an unprecedented number of new claims, and it has been a challenge to keep up with the sudden increase in demand. It may take significantly longer than usual for your claim to be processed, so you'll want to apply as soon as you can and be prepared to wait a while to see your first payment.
The good news is that many states have said both basic and expanded unemployment benefits will be made retroactive, so displaced workers will get the money they have coming to them, even if they have to wait a bit for that first check to arrive.
2. Economic impact payments
Independent of unemployment benefits, economic impact payments — or COVID-19 stimulus checks — are part of a more comprehensive federal relief program that provides payment to eligible individuals. The IRS is managing this process, so if you filed taxes in 2018 or 2019 you will likely receive your payment automatically.
The payment amount is based on your gross income, number of dependents and filing status. In some cases, the IRS will require you to provide some more information before it can issue your payment. If you haven't already received a direct deposit or check in the mail, then you should check your eligibility and payment status with the IRS.
To ensure that you stay fiscally afloat, you'd be wise to allocate the cash to necessary expenses like housing, food and transportation. It might be tempting to snag a new flat-screen, but unless you can be fairly certain your financial situation will remain stable in the future, your best bet is using it to prepare your finances to weather the uncertainty that still lies ahead.
3. Emergency personal loans
In light of the hardships being faced by millions, many financial institutions are offering low- or zero-interest personal loans, some of which don’t require repayment for up to 90 days. You'll want to research individual options thoroughly, but these low-interest loans could be a useful tool to temporarily supplement lost income.
The thing to keep in mind is that this isn't simply "free money.” You’ll need to pay these loans back sooner or later, so they are a temporary solution that should be used thoughtfully and only if necessary. If you do need an emergency loan, it’s well worth your time to ask your credit union or bank about available options and to research institutions advertising these low-interest solutions.
4. Loan forbearance
Another provision of the CARES Act has to do with loan forbearance. Forbearance is when payments are temporarily suspended by a loan provider. Simply put, the CARES Act provision allows those with federally backed mortgages to request a temporary loan forbearance of up to 180 days, with an option to request an extension of up to 180 days, depending on the duration of the COVID-19 national emergency and when your initial 180 day forbearance period ends.
This is great news if you find yourself unable to make your mortgage payment, but be sure you do your research. The CARES Act does not stipulate how lenders should handle the delayed mortgage payments after the 180-day period, so make sure you understand the terms of your repayment. It's worth noting that interest will also continue to accrue during the forbearance period.
Keep in mind that mortgage forbearance is not automatic. You’ll need to talk to your home loan servicer to request it. However, if you can afford to make your regular mortgage payment without undue hardship, by all means you should do it to avoid paying additional interest on your home loan.
If you’re unable to make your mortgage payment, loan forbearance could help you avoid costly late fees or even foreclosure. It can also help protect your financial health; as long as you enter into forbearance before your home loan becomes delinquent, the CARES Act requires that the loan continue being reported as current if it was current before entering forbearance.
The first step to determine whether your home loan qualifies for mortgage forbearance will be finding out if it’s federally backed. You can do this by contacting your mortgage servicer directly or via the lookup tools provided by Fannie Mae and Freddie Mac. If you're eligible, don't wait until you’ve missed a payment to start the process. Good communication with your mortgage servicer and a proactive approach is best.
Even if your mortgage isn’t federally backed, you should still talk to your home loan servicer about your options. There might be other payment relief programs available. Some servicers are even providing forbearance in alignment with the CARES Act for other types of mortgages.
In another piece of forbearance good news, federally backed student loans have been placed into automatic forbearance until Jan. 31, 2022, with no payments due during this time.
5. Loan refinancing
Forbearance may work for some loans, but what about personal loans, credit card debt, auto loans, or those student and mortgage loans that don’t qualify for forbearance? For all these and more, refinancing could be a good solution.
Depending on the interest rate of your existing loans and lines of credit, it may or may not make sense to refinance. For example, if you refinance to a lower interest rate, you can potentially spend less on interest in the long run. But you also have to consider any refinancing fees and the additional interest you’ll pay if you extend the term your debt is financed for. With these factored in, any long-term savings could be a wash, but if your goal is to simply lower your monthly payments while dealing with a loss of income, it could be the right move.
You'll want to contact your preferred financial institutions or research low-interest lenders to determine if you'll be able to refinance existing loans at a lower interest rate than you currently have or if refinancing can help you lower your monthly payments. This can help you ease some of the financial strain in the near term.
6. Skip-payment offers
Many credit card issuers, local utility providers and lenders offer customers the option to skip a monthly payment. This can make a big difference to those struggling to make ends meet, giving them an opportunity to catch up without incurring a financial penalty. However, these offers don’t mean that you can simply skip paying your credit card bill this month.
First, you’ll need to contact your provider to see if this is a benefit it offers and what steps you’ll need to take to use it. Find out whether you’ll incur any fees, and be sure to ask how the skipped payment will be paid back. Keep in mind that interest will typically continue to accrue on credit card or loan debts.
If your provider doesn’t offer any options for skipping a payment, it’s still a good idea to reach out directly to explain how you’ve been impacted by COVID-19. Many lenders are offering special assistance programs to help those affected. If at all possible, you should try to stay current with your regular bills since you’ll still have to pay them eventually.
The best approach is to pay what you can and to be careful not to let bills pile up to an untenable amount that will all come due all at once. That being said, skipping a payment is an easy, low-cost solution for those facing sudden financial strain. If you need to buy some time to come up with the money for your regular payments or to temporarily lessen your monthly obligations so you don't fall behind, this is an option well worth exploring before you start accruing late fees.
7. Comparison shopping
What better time to do some comparison shopping than during an extended period of shelter-in-place? Many people have not done a rate comparison for many years on things like home and auto insurance, internet and cable plans, and cell phone service. Ideally, everyone should shop around periodically to make sure they're getting the best deal, but it can be a challenge to make time for something like that.
In the wake of the coronavirus pandemic and shelter-in-place orders enacted throughout much of the country, many auto insurance companies have already lowered premiums. With people driving less, accident rates are down sharply, and insurers are passing some of the savings on to their customers.
If you're facing financial hardship, like millions of others right now, comparison shopping is one incredibly low-risk way to lower your monthly costs and ease some of the burden quickly. Every dollar you save on bills and premiums is one more dollar you’ll have to buy groceries, put gas in the car and keep the lights on in your home.
It might take a fair amount of legwork on your part to do the research, but getting quotes from multiple car and home insurance providers and looking for better deals from either your current phone, internet, or cable providers and their competitors can help lower your monthly expenses immediately. Just be sure you’re comparing apples to apples and checking service or coverage levels to ensure you’re really getting a better deal.
Talking to your creditors
This is by no means an exhaustive list of all options to keep you financially healthy through lean times, but it is a great jumping-off point. If there’s a theme to be found in all of these solutions it’s the importance of proactive communication and smart planning.
The moment you realize you may face economic hardship due to COVID-19, you should contact your creditors, service providers and financial institutions to explore the options they offer. It may be a difficult conversation to have, but it could also preserve your financial health and give you the time you need to recover.
A number of major credit card issuers, banks and credit unions already have options in place to help their clients with reduced payments, skipped payments, lowered balances and more. But until you ask for these programs, you won’t have access to them. Don't wait until you can't pay your monthly bills to take action. It’s best to keep your creditors informed of your situation as much as possible.
Above all, don't panic. It’s easy to feel overwhelmed amid all of the turmoil, but try to remember that the economy has suffered major losses before. We have every reason to believe economic recovery is coming — even if we don't yet know exactly when that will be. The best thing you can do in the meantime is to take calm, proactive steps to protect those things in life that you've worked so hard to build. Keep in mind that you’re not alone and that there are options to help you come out the other side of this financially whole.
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