The coronavirus pandemic has caused financial hardship for millions of Americans, leading many to seek alternative forms of income. In fact, roughly a quarter of Americans have either lost their job or had a pay cut resulting from the coronavirus shutdowns, according to CNBC’s All-America Economic Survey.
If you’re tight for cash due to COVID-19, Jared Friedman, a certified financial planner at Redwood Financial Planning, says it’s critical to take an inventory of your assets and liabilities, incomes and expenses to better understand your current financial situation.
“You need to be honest with yourself to see where you stand,” Friedman says. “Start changing behaviors now, so you are heading in the right direction when things get back to ‘normal.’”
Take advantage of government relief
The Senate recently passed a $2 trillion coronavirus stimulus package, in an attempt to minimize the economic impact of the pandemic. With the new relief bill in place, it’s critical to act quickly and utilize any government funding available if you’re struggling financially due to COVID-19.
Tom Shohfi, CFA, assistant professor of finance and accounting at the Lally School of Management and Technology at Rensselaer Polytechnic Institute, recommends first identifying whether or not you or a family member is eligible for a stimulus check.
As part of the coronavirus relief bill, individuals who make less than $75,000 are promised a one-time payment of $1,200. If you used direct deposit for your 2018 tax returns, then you’ll automatically receive deposits first and others will receive checks by mail.
If you’ve lost your job, consider filing for unemployment benefits as soon as possible. The sooner you apply, the better since the majority of state agencies are overwhelmed with the number of unemployment claims. In total, about 16.8 million American workers have filed claims for jobless benefits over the last three weeks.
“Make sure all of the necessary documentation has been prepared to be eligible for state benefits so that your application is not set back by some technicality,” Shohfi said.
Withdraw cash from taxable accounts
Checking or savings accounts should be the first sources of funds since there are no penalties for withdrawing money.
Whereas pulling from an investment account may incur capital gains taxes that will need to paid next year, Shohfi said.
“Keep an eye on the cost basis of any sold investments,” Shohfi said. “For certificates of deposits (CD), there is usually a penalty for early withdrawal. If the interest rate from a CD is much higher than current market rates, it may not be a good idea to take an early withdrawal.”
Consider borrowing money from lenders
Borrowing money at this time should be the last resort, since it is typically high-rate lending, but nonetheless, it is an option if you’re struggling to make ends meet right now.
Shohfi said a credit card is could be very expensive in terms of interest rates, so it should not be your first go-to option, unless you qualify for a very low APR (or take advantage of a 0% intro APR credit card). However, personal lines of credit can be an alternative option for those with higher credit scores and are typically available at rates near 6%, Shohfi said.
“Highly expensive payday loans should be avoided entirely if possible,” Shohfi said. “Be a smart financial shopper: use online resources to investigate the upfront and interest rate costs associated with any private financing source.”
Reach out for temporary relief
Dozens of credit card issuers, lenders, service providers and utility companies are providing temporary relief to those hit hard by the pandemic. Some states are even providing additional protections to their residents such as New York.
Shohfi suggests checking the websites of providers to see what type of help they are offering their customers.
“Potential changes will depend on the vendors that a person works with,” Shohfi said. “If a vendor is not offering benefits comparable to competitors, then, by all means, use the opportunity to switch when possible.”
However, it’s important to keep in mind that any relief offered is not permanent and all missed payments will have to be made up. If you still have a job and a steady stream of income during the pandemic, Friedman recommends that you continue to pay your bills and leave behind any temporary relief for those who truly need it.
“If you are laid off and do not have any income then you can request relief, but be smart,” Friedman said. “Do not use unemployment income to buy a new TV versus not paying bills. Not being able to pay back bills when the relief ends will ruin your credit and your future financial success.”
Should you tap into a retirement account, life insurance or home-equity lines of credit?
Even though retirement accounts can now be withdrawn from without penalty, it’s not a good idea to withdraw from a 401(k) plan or individual retirement account and potentially jeopardize your retirement, Shohfi said.
The same principle applies to life insurance. Shohfi said selling a life insurance policy for cash can put the provider’s family in jeopardy if something were to happen to them.
“In a dangerous pandemic, not having life insurance in the event of an unexpected death could be devastating,” Shohfi said.
However, home equity lines of credit (HELOCs) could be a source of cash given the current low interest rates. With a HELOC, you can borrow credit secured by your home to pay for other expenses. It’s similar to a credit card in that the amount of credit available replenishes as you pay it off.
Before making a decision, Shohfi said you should consider how long you expect to be in the home and whether or not you can afford HELOC payments in the future.
At the Simple Dollar, we have been following COVID-19 since the start. Check out the articles below for resources and the latest news on financial relief from the coronavirus.
- Where to Find Financial Relief During Coronavirus (COVID-19)
- Trump Suspends Student Loan Payments for Two Months — But You Have to Ask
- Laid Off? Here’s How to Apply for Unemployment Insurance
- The New Tax Deadlines, Explained
- How To Get Help With Your Taxes While Social Distancing
- 7 Insurance Companies Providing Coronavirus Support
- Coronavirus Mortgage Relief Is On the Way, But What About Renters?
- What’s Happening to Interest Rates and Why Does It Matter?
- Is Now a Good Time to Invest?
- Coronavirus and Your Car Insurance: A Practical Guide
- Coronavirus and Your Home Insurance: A Practical Guide
- Coronavirus and Your Life Insurance: A Practical Guide