Protect Your Financial Health During and After the COVID CrisisJuly 2, 2020 - by Patrick Redo
As we are all painfully aware, the Coronavirus has altered many aspects of our lives. People are working and studying from home and shopping and intermingling in ways we never would have expected one year ago. Simultaneously, millions of people have suffered a significant loss of income at an alarming rate through pay cuts, decrease in work hours and layoffs and furloughs. These reductions came in response to the stay-at-home orders as businesses and other organizations were forced to close their doors.
The uncontrollable household debt and a continuing health crisis has a lot of individuals and families strapped for cash and need to learn how to manage their debt now and after the health crisis comes to an end.
If you find yourself in debt as a result of the COVID crisis, don’t despair, because there are many steps you can take to effectively deal with your debt. Dealing with your debt now will put you in an even stronger position when the economy starts its recovery. There’s no time like the present to buckle down by getting organized and start dealing with your debt in a few easy steps.
You need to know what you owe.
Create a list of all your creditors, your balance with each, your current interest rate and your payment schedule. This list will allow you to decide how to eliminate your debt over a specific period of time. This may also be a great opportunity to summarize your recurring monthly bills in an effort to see if there are any areas you could cut or reduce your expenses.
Contact your creditors to explain how the health crisis has affected your ability to meet your monthly obligations. There is no shame in asking them for some type of financial assistance. When you understand your options, you will have the tools you need to help manage your debt. Now is also a good time to research lower interest rates, balance transfers or other payment options that can help you confront your debt.
Make your payments in a timely manner
Your on-time payment history is the leading contributing factor to a respectable credit score. Payments 30 days in arears or more negatively affect your credit score. So, if you’re late, but within that 30-day period, pay up now before it is reported. Even if you can only pay the minimum, it’s important to pay on time. The other important reason to pay on time is the impact the late fees will have on your budget and overall debt. Try automating your payments which can eliminate paying late fees.
Prioritize your debt
Pay off high-interest loans first. This is called the debt avalanche theory. This payment method will minimize the burden of compounding interest on your monthly payments. By using this methodology, you make minimum payments on all but your highest-interest credit. Once you’ve paid off your first balance, you move on to the second-highest interest rate, and so it continues down the line.
If you are daunted with the size of your balances, maybe a different tactic can be utilized. Check out the debt snowball method.
Don’t take on any unnecessary new debt
As you walk through your debt management process and your credit score improves, you can become a target for credit card companies to entice you with new cards with introductory rates. Stay true to your debt management plan and in time it will work.
Pay yourself first
Make yourself a line item in your monthly budget and pay yourself. Start by creating an emergency fund to deal with sudden expenses without falling back to credit cards. Once you have a healthy emergency fund, focus on your retirement goals.
If you follow these simple steps, you will be in a stronger financial position when the COVID crisis comes to an end or when another crisis comes around. You’ll be in control of your debt instead of your debt being in control of you. Talk to us and take advantage of allU.S. Credit Union products and resources. Unlike the big banks, we’re committed to protecting the financially vulnerable. If you need some personal guidance on how to navigate these challenging times, we’re here to help. Ask about our Recovery Loan, skip-a-pay options, and payment extensions. Always remember the health and success of your credit union depends on our members and your financial health is our number one priority. So, let’s wash our hands and get down to business.