CLEVELAND, Ohio – Financial setbacks brought on by the coronavirus pandemic have a lot of people worrying about their money – whether it’s figuring out how to make less cash last longer, or being confronted with tough choices about which bills to actually pay or not pay.
Financial experts say there are some basic strategies that can help to both get through the next months, and/or put budgets in a better place once the pandemic is over.
“The most important thing to do is to take a timeout. You have to know what your current situation is,” said Gary Chavoustie, regional retail leader for KeyBank in Northeast Ohio. “In many cases, people have been hurt with less income coming in. That’s where the stress is going to be, and most challenged right now.”
The timeout can provide an opportunity to take a good overall look at your finances. Where is your money going every month and how much is coming in? Then, if things are really tight, it might be time to start making some phone calls.
“Communication is the best tool you have when you have no other resources available,” said Bruce McClary, senior vice president of communications at the National Foundation for Credit Counseling.
“That means contacting your lenders. That means reaching out to your utility providers. That means at times having uncomfortable conversations with your landlord and anyone else who has financial ties. … It benefits all parties when you can come to some sort of agreement.”
Here’s a look at some strategies to consider.
Prioritize your debt
Pay the mortgage; skip the credit card?
Not so quick, says Laura Adams, personal finance author and host of the Money Girl Podcast.
“A lot of people might think they may need to pay the mortgage before the credit card, but they might be able to get some relief on their mortgage … and might need the credit card for every day essentials,” Adams said during an interview from Vero Beach, Florida.
In fact, there is some temporary relief available for mortgage payers in a pinch, though the balance won’t go away.
For many federal loans or the GSE-backed loans, foreclosures are banned through at least the end of the year. This includes prohibiting “lenders and servicers from beginning a judicial or non-judicial foreclosure against you, or from finalizing a foreclosure judgment or sale,” according to the Consumer Financial Protection Bureau. You also have the right to request an extension for up to another 180 days (for a total of 360 days).
Fannie Mae, Freddie Mac, FHA and the VA are among the loan types covered. But even if your mortgage doesn’t qualify, Adams recommends talking to your lender: “Foreclosure is not something lenders want to do. They are not in the business of owning property.”
As for renters, the Centers for Disease Control has issued a moratorium on evictions through the end of the year, but remember, even though that could provide some time, the moratorium doesn’t make the amount owed go away.
And if it’s getting tough, or impossible, to make the minimum payment on credit cards, don’t rule out asking the credit card company if it would consider taking a partial amount to wipe out the balance. This is a case where waiting might help.
“A lot of times it will be after you’re past due that they will be more willing to negotiate,” Adams said. “If you are behind three months, they might cut a deal. … With an unsecured debt, there is nothing there that they can leverage. Getting at least a partial settlement in a lot of cases will be beneficial for them.”
Savings on insurance, utilities and other regular bills
When things are tight, take some time to shop around. There could be a better insurance rate, a better price for cable TV or even better deals for utilities, without changing your service level.
Start with the biggest bills. Home insurance and car insurance are very important. But many consumers may just simply pay the bill when it comes in without considering whether the deal they first signed up for years ago is still the best deal.
Sometimes, there’s not even a need to change the supplier. Perhaps pricing has changed since you signed up.
“A lot of times, they don’t tell you that there is a cheaper deal for you. The best defense is to shop around,” Adams said.
The Public Utilities Commission of Ohio website energychoice.ohio.gov with its “apples to apples” comparisons makes it easy to shop electric and natural gas prices, and switch to providers offering better deals.
And along the lines of insurance, don’t forget about healthcare.gov if you need medical insurance. Losing your medical care at work can allow you to sign up for an Obamacare plan even at mid-year.
The premiums are subsidized for those with annual incomes of up to 400% of the poverty level. In 2020, that’s $49,960 for a single person and $103,000 for a family of four. Mid-level “silver” plans run 2% to 10% of a person’s or family’s income for those qualifying for subsidies.
Free help from a financial counselor
Non-profit credit counseling agencies offer free financial counseling, pointed out McClary from the National Foundation for Credit Counseling. The organization’s website at nfcc.org can help locate local non-profit credit counseling agencies, or people can call NFCC at 800-388-2227 for help on a search.
“If you really feel like you are at the breaking point and you are deciding which bills you pay and which ones you don’t, I urge people to get advice from a financial professional before making those choices,” McClary said.
“Don’t make assumptions. … In the last 10 years, there have been so many changes to the credit scoring model.” For example, it used to be that cell phone accounts did not show up on credit reports; they now do, McClary said.
A counselor can also help prepare a person for a call to their lender, providing enough information to go into a call with confidence and in a better negotiating position, he said.
Budgeting can be a daunting task for those who have never taken the time to look closely at their spending habits.
KeyBank’s Chavoustie is an advocate of what’s called the 50/30/20 budgeting approach: “It’s kind of a good guideline we use.”
What 50/30/20 budgeting means is determining your cash inflow and allocating 50% for needs, 30% for wants and 20% for savings or paying down debt.
The needs are those really important things like rent/mortgage, groceries and insurance. Transportation is also near the top of the list, Chavoustie noted, because, absent working from home, people need a way to get to work to keep their income coming in.
The wants include optional shopping, entertainment and travel. Think of the last category – for savings and paying down debt – as a set of goals. KeyBank on its website has a printable budget worksheet to help you figure this out for your own budget.
Putting together a budget can be a good step for most anyone, but especially now for people coping with less income than usual nowadays.
“If they haven’t done it in the past, now, more than ever, they need a budget,” Chavoustie said. “They have to have a handle on what is coming in and what is going out. What can they do to prioritize the bills and debt they have to pay? Where can they potentially save?”
Rich Exner, data analysis editor, writes cleveland.com’s and The Plain Dealer’s personal finance column – That’s Rich! Follow on Twitter @RichExner.
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