26 Mar 7 Steps You Need to to Take Now to Avoid a Financial Disaster Caused by the Coronavirus (COVID-19) Pandemic.
Key Takeaways – Avoiding a Personal Financial Crisis due to the Coronavirus (COVID-19) Outbreak
- Rework your budget immediately based on your new financial reality
- Eliminate all non-essential spending for 90 days, then assess your situation again.
- Prioritize all payments and obligations.
- Research available Federal, state and government assistance programs.
- File for unemployment, even if you think you may not qualify.
- Verify the status of your employer paid insurance coverage weekly to be sure the policy is still in force.
- Contact your creditors right away. See what programs they may have to offer to reduce payments, defer interest or defer payments altogether.
Millions of workers are without incomes due to mandated shutdowns across the country, as the government attempts to rein in the spread of the coronavirus. The situation is so dire that the president of the Federal Reserve Bank of St. Louis estimates unemployment could hit 30% by June 2020, creating a financial crisis for millions of households.
To lessen the impact on consumers, the government passed multiple bills providing financial relief totaling trillions of dollars. However, what trickles down to individual households will likely not be enough to stave off a personal financial crisis if you do not have a financial safety net already in place.
If you are among the millions of workers facing a layoff or reduced hours due to business closures, you need to take immediate action and adjust your financial plan now. Below are the seven areas that need urgent attention:
- Rethink your existing budget and modify it to account for reduced income.
- Put a minimal spending plan in place. Carefully consider monthly expenses and find ways to cut back spending for the next 90 days. Cancel all subscriptions and recurring payments. Reduce services like premium cable tv and streaming services to the bare minimum. Forgo all luxury spending and anything that is not essential or related to the necessities like food, shelter and transportation.
- Establish payment priorities based on need. Review every bill you pay and prioritize the payments according their priority.
- Identify assistance programs, which can bridge the gap between income and bills.
- File for unemployment even if you don’t think you qualify. The government is expanding qualifications for unemployment as the crisis unfolds, and some will be retroactive to the date of your initial filing.
- Verify your health care coverage. While a furlough protects health insurance coverage, a layoff does not. Eleven states re-opened enrollment to the Affordable Care Act, to address the loss of insurance for laid-off workers, allowing consumers to qualify for subsidized coverage. There are discussions in Washington that could expand the enrollment to all 50 states, but it would require additional legislation.
- Contact creditors immediately if you are unable to make on-time payments. Due to the breadth of the pandemic, creditors are prepared to work with customers impacted by the coronavirus.
Mortgage Help: On March 21, 2020, President Trump signed an order placing a moratorium on all foreclosures and eviction proceedings for 60 days. The FHFA (Federal Housing Finance Agency), which guarantees over half of all US mortgages, is actively working with lenders to provide disaster relief assistance. Some measures include a forbearance (the ability to miss payments) for up to 12 months and relaxed terms for loan modifications for consumers with more long-term financial needs.
Auto and Personal Loan Assistance: There are no specific programs to address auto and personal loans. However, most creditors are putting policies in place to assist those struggling to make payments. Bankrate compiled a list of banks offering financial assistance for consumers here.
Student Loan Relief: The Department of Education stopped collection efforts for delinquent student loans for 60 days. As part of the relief, the IRS will not withhold delinquent payments from tax refunds and will return collected garnishments to consumers.
President Trump issued an executive order waiving all interest on federal student loans for 60 days. The order can also waive payments for qualified loans. However, these waivers and payment deferments are NOT automatic, therefore, you must call and speak to your loan servicer to receive a payment deferment for up to 60-days.
Credit Card Help: While there are no set governmental policies in place, due to the high number of consumers affected, creditors are working with consumers on a case-by-case basis. Credit Card Companies have programs available to waive payments, eliminate late fees, delay reporting to the credit bureau for 60 days, or lower interest rates. However, these remedies are not automatic, so you must call each credit card issuer to identify what assistance they can offer and what programs you may qualify for. If you have multiple accounts with the same credit card company, be sure to tell the representative that and provide both account numbers so that any programs extended on one account will also be applied to the other account.
The scale of the coronavirus creates an environment where both the government and creditors are stepping up to assist. Taking a proactive approach can help you capitalize on the assistance programs introduced as well as delaying some payments until the crisis abates.
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