7 Ways to Get COVID-19 Financial Help
The COVID-19 pandemic has caused many to look for financial help. With massive shutdowns of non-essential businesses and industries, Americans are in unchartered territory. For those struggling to make ends meet, here are 7 things to consider that could help your cash flow situation.
1. Review your budget
Reviewing your budget is a good exercise in any season, but it can be especially useful during a crisis. Now is the time to review any wasteful or unnecessary spending. Unused subscription fees and memberships would be a good place to start.
Also, now might be a good time to reduce your debt payments to only the minimum and build up cash reserves.
2. Request mortgage forbearance
To help reduce the impact of the crisis, Congress passed The Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This CARES Act includes several provisions to help Americans. One allows for mortgage borrowers with Federally-backed mortgages to request temporary loan forbearance for up to 180 days. And, it’s also possible to apply for an extension up to an additional 180 days
To qualify, borrowers must attest to enduring some sort of financial hardship as a result of the COVID-19 pandemic.
It’s important to note that the CARES Act is not specific on how borrowers must make up the delayed payments at the end of the forbearance period. Some banks are requiring delayed payments be due at the end of the forbearance period. Others are offering payment plans if borrowers cannot make up the difference.
In other words, be careful about requesting forbearance as it’s not a “get out of jail free” card on your mortgage payments.
3. Refinance your mortgage
A good side effect of the crisis is that interest rates have plummeted. Refinancing your mortgage could allow you to free up cash flow by lowering your initial mortgage balance, interest rate, or a mix of both.
4. Defer student loan payments until September 30th
The CARES Act also allows for the deferment of Federal student loan payments through September 30, 2020. Different from loan forbearance, this deferment option truly allows borrowers to avoid making payments until October at 0% interest. Voluntary payments may still be made but are not required.
It’s very important to note that this deferment will not happen automatically. Individuals must take proactive steps in order to defer payments.
Any time spent in deferment will still count toward federal loan forgiveness programs. For those planning to have their loans forgiven, that means it is a no-brainer to apply for loan deferment. As a result, the payments that would have been due during deferment would never have to be paid back.
5. Request leniency from your creditors
Aside from mortgages and student loans, it wouldn’t hurt to reach out to your creditors and request flexibility in your payment terms. Credit card companies, landlords, and healthcare providers understand the global crisis we are in. It could be more likely that they offer alternative payment methods or extended terms.
6. Take penalty-free distributions from retirement accounts
While it’s not an ideal move, the CARES Act allows for individuals to take Coronavirus-related distributions from qualified accounts. These include 401(k)s, 403(b)s, IRAs, or other types of employer-sponsored retirement plans in 2020.
Previously, distributions for individuals under 59 ½ would have been assessed a 10% early withdrawal penalty. Now, Coronavirus-related distributions will have the 10% penalty waived. Distributions are allowed up to $100,000 and the income (and tax associated) that results from the distribution may be spread over 3 years. In the event that an individual wants to pay back the distribution, there is a 3-year period to do so.
The downside to choosing this option may be that the underlying investments in these accounts have likely decreased in value. Therefore, selling now could lock in a permanent loss. However, if you have tapped all other options and still need help, tapping into your retirement accounts could be an option to help bridge your cash flow gap. Before doing so, be sure to speak with a qualified advisor who can help you determine what investments would be least harmful to sell.
7. Take advantage of expanded unemployment provisions
The CARES Act has also, thankfully, expanded unemployment benefits in several ways. The self-employed, gig workers, freelancers, and others who are generally ineligible for unemployment compensation, could qualify for assistance under the Pandemic Unemployment Assistance (PUA) program.
The Pandemic Emergency Unemployment Compensation (PEUC) program extends benefits for an extra 13 weeks after regular unemployment compensation benefits have been exhausted.
And lastly, the Federal Pandemic Unemployment Compensation (FPUC) program provides a federal benefit of $600 per week through July 31, 2020.
The impact of every financial decision has been heightened as a result of COVID-19. While the COVID-19 pandemic has certainly impacted us all, there are steps you can take to get financial help. A silver lining in this all is that the CARES Act has offered more options than ever before to help bridge the income gap.
As always, seek help from a qualified professional if you need assistance in any of these areas. Also, you can get additional help at our COVID-19 Resource Center.
Joe Allaria, CFP®
As featured in The Wall Street Journal, USAToday.com, CNBC.com, Nasdaq.com, and Yahoo Finance.
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