If you are among the record number of Americans facing unemployment and debt during the coronavirus pandemic, you are not alone. With more than 30 million jobless claims now filed in the United States as a result of the spread of the virus, many people are seeking financial advice on how to stay afloat – especially paying off debt.
Fortunately, in these tough times, there are a number of budgeting tools and debt strategies to help you manage your student loan, mortgage, and credit card debt payments. Additionally, there are steps you can take to take control of your money and make sure that you are managing your money effectively.
How to pay your bills after losing your job
Recently, the CARES (Coronavirus Aid, Relief, and Economic Security Act) law was passed, which is expected to provide some relief (as well as debt payment options) for borrowers. It extends unemployment to independent contractors and gig workers, extends benefits to include an additional $ 600 per week, and includes options for forbearance for federally guaranteed mortgages.
As for how to pay off debt when money is tight, Dr.Anthony Criniti IV, author of several acclaimed finance books, including “The Necessity of Finance,” recommends the following steps:
Refinance your debt. If interest is making your payments too large, consider refinancing your debt. Interest rates – and mortgage rates – are low right now, so you should be able to lower your monthly payments. If you are interested in this route, use Credible to compare lenders and find the best rates to lower your monthly payments and possibly reduce your household debt.
However, keep in mind that in order to take out a new loan, you will still have to pay the closing costs.
Take out a Home Equity Line of Credit (HELOC). If you own your own home, Criniti says purchasing a HELOC can often give you access to the funds you need at a more affordable interest rate than a credit card.
He cautions, however, that if you don’t pay back these loans, you could be putting your home in jeopardy.
Check your cash flow. Criniti recommends accessing all available funds first, such as drawing down your emergency fund and selling surplus goods to focus on paying for essentials. The great thing about these options is that you don’t incur any new debt.
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Opening a balance transfer credit card. Finally, Criniti recommends opening a credit card with balance transfer to temporarily manage your debt. These credit cards often offer an introductory 0 percent interest rate, which means that any amount you pay during that time will go toward your principal balance. Credible can help you instantly compare balance transfer credit cards to determine which one best suits your needs.
Once it’s over, however, you could be subject to a substantial interest rate.
How To Handle Credit Card Debt While Unemployed
Credit card debt can be one of the most difficult types of debt to manage when you are unemployed. High interest rates mean it can add up quickly and quickly get out of hand. That said, there are ways to make sure it stays manageable.
“Talking to your lender is the first step,” says Criniti. “They understand what’s going on right now and they want to help. “
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For their part, many credit card issuers have created relief programs in response to the pandemic. While each issuer’s schedule differs, most offer forbearance options that may allow you to temporarily waive interest to reduce your minimum payments or to defer payments entirely for a set period of time.
Criniti advises taking the initiative and defending your interests when communicating with lenders. “Don’t be afraid to negotiate,” he explains. “Lenders prefer to receive part of what you owe rather than nothing at all. “
What if my debt accumulates during the coronavirus crisis?
If you stop paying your bills altogether when you don’t have a job, it could have serious consequences.
For one thing, missing payments will have a negative impact on your credit score. As Criniti says, “Anytime you miss a payment, it gets reported to all three credit bureaus. It could hurt you in the future when you go to open a new credit card, take out a personal loan, or buy a house.
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However, depending on the type of loan it is, the downsides of missing a payment could be even more serious. With secured debt like a home equity loan or HELOC, you could end up losing your home or other property.
Ultimately, dealing with unemployment and debt during the coronavirus pandemic isn’t easy, but it’s better to be proactive than to let your debt run out of control and wreak havoc on your bank account.