Is the coronavirus causing you financial anxiety? How to avoid going into debt during the pandemic
People gather at the entrance to the New York State Department of Labor offices in Brooklyn on March 20, 2020. The Federal Reserve estimates that 47 million people could lose their jobs before the end of the COVID-crisis. 19.
Andrew Kelly | REUTERS
What should I do now? It is a rapid growth and widespread worry when it comes to managing money in the midst of a global pandemic. You have many questions, whether you’re struggling with credit card debt, considering running your 401 (k), or facing uncertainty about how to cover the costs of your small business. .
I have spoken to experts about some of your financial worries. While it is always best to speak to your own financial advisor about your particular situation – and there are many certified financial planners now offer free help – here are some suggestions you can consider doing right now.
Will credit card companies consider lowering the current annual percentage rate on current balances?
Here is a ray of light for borrowers who are struggling to pay off their credit card debt. Most credit card companies will consider reducing the interest charged on your current balance. Be frank. Contact the creditor. Let them know your current financial situation and that you need some leeway to pay off your debt.
A March 2020 survey by CompareCards.com found that 1 in 7 cardholders cited the COVID-10 outbreak as the reason they were not confident paying their full credit card bills this month.
Many credit card companies are offering varying degrees of assistance. For example, American Express has stated in some cases that if a borrower has been affected by the COVID-19 pandemic, the card issuer will reimburse interest charges, waive or reimburse late fees, and reinstate credit points. reward, if any, for the current borrower. declaration. What if the borrower is unable to pay even the minimum amount due, the account will not be marked as overdue.
“You’ll probably have to pick up the phone and ask for help, but if you do, the changes can be very big,” said Matt Schulz, senior analyst at CompareCards. “Your mileage may vary depending on your transmitter and your particular situation, and those changes don’t last forever. However, for those whose financial life has been upset by the coronavirus, these changes can make a very difficult time a little less. “
Schulz also pointed out that most credit card issuers have so-called difficulty programs that are triggered in the event of a disaster. “The coronavirus is definitely eligible,” he said. “These programs have helped people after hurricanes, forest fires, terrorist attacks and other incidents by providing short-term relief like higher credit limits, waived fees, extended payment terms and, yes, reduced APRs (or annual percentage rates). “
“There are a number of options available that can give you some time to get back on track financially, such as allowing you to skip a monthly payment or delay payments if you don’t have a job,” he said. Bankrate’s chief financial analyst said. Greg McBride. “Just make sure the interest doesn’t continue to accumulate while you aren’t making payments and that it won’t report you to the credit bureaus as overdue.”
Also, keep in mind that a benefit of the Federal Reserve drastically cutting interest rates in March is that it will trickle down to the rate charged on existing credit card balances. “The rates adjust with a lag, however, so it may take two or three cycles of readings for the lower rate to appear,” McBride said. “Also, consider shopping around for a zero percent balance transfer card or other low rate balance transfer card. It can lower your required payments, give you a 15 to 21 hour interest charge waiver. months and be a real tailwind in your efforts to pay off debt. “
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Would it be wise to take out a 401 (k) loan to pay the bills now in anticipation of a possible layoff?
Most financial advisers agree that taking out a loan from your 401 (k) retirement plan or workplace should be a last resort, even now.
“Most of your bills can wait. Lenders, homeowners and utilities can all offer deferral programs to help people cope with the crisis,” a financial adviser said. Ric Edelman, CNBC contributor and founder of Edelman Financial Engines. “If a layoff is likely, start cutting back on spending immediately. The loan option will still be there; no need to do it until it’s needed, and it should be a last resort.”
However, if you find that you are in desperate need of these funds and have no other resources, the stimulus bill passed by Congress relaxes the rules on retirement loans, allowing you to borrow up to ‘to $ 100,000 on your 401 (k). It’s double amount you can normally take.
This year, you will be able to receive a coronavirus-related distribution of up to $ 100,000 from your pension plan or IRA without the 10% early withdrawal penalty, according to the Senate version of the bill. You are still liable for income tax on any amount withdrawn, but the current bill would give you three years to pay these withdrawals.
401 (k) plan loans follow a different set of rules than withdrawals. You can borrow against your savings tax-free if you meet certain conditions. But it’s important to understand your business’s 401 (k) plan rules before deciding to borrow.
“Some employer plans require the member to repay the loan before separation. In this case, if the loan is not repaid, the outstanding balance will be considered a taxable distribution subject to the participant’s ordinary tax rate and an early withdrawal penalty for tax purposes. 401 (k) s deferred, ”said Lazetta Rainey Braxton, Chartered Financial Planner, Co-CEO of 2050 Wealth Partners and Member of the CNBC Financial Advisors Council. “If the participant is 59 1/2 years or older, he may receive a distribution which will be taxable but not subject to the early withdrawal penalty if funds are required while working.”
Braxton says that if you are not sure if you are laid off but still need the money now, be prepared for the tax consequences as the loan could be taxed and you could pay a penalty if you are laid off. foot.
Theaters across the United States are closed. Here, the streets are quiet outside the Chicago Theater in Chicago on March 21, 2020.
Mentors and advisers. To make money while your business is shutting down, experts recommend approaching your business with a new vision. Seek free advice from SCORE business advisors. This non-profit organization is the largest national network of volunteer business experts with more than 10,000 mentors available to participate in distance mentoring sessions by phone, email and video.
In addition, organizations such as the Financial Planning Association, the largest group of certified financial planners in the country; and nonprofit financial empowerment organization Discerning ladies offer free financial advice.
Braxton offers a few other tips to consider: “See if there are any companies that can be product or service extensions for what you are good at. Explore ways to bill for your service online. Negotiate payment terms with your suppliers, ”she said. . “It’s easier for suppliers to keep a customer than it is to try to get a new one.
Also look for other ways to increase your own income, which may involve temporarily working at another job in your current or different industry, said Certified Financial Advisor Stacy Francis of Francis Financial and Founder of Savvy Ladies. Amazon, Walmart, CVS and Domino’s all hire. “It might not be comfortable; it can be a compromise,” Francis said. “You don’t want to put yourself in a financial hole so deep you can’t get out of it.”
Disclosure: NBCUniversal and Comcast Ventures are investors in Tassels.