With a rapid rise of unemployment claims and accelerating number of layoffs hitting restaurants, hotels, airlines and other industries due to the coronavirus, many Americans may have trouble paying bills and covering daily expenses.
The best way to get through those periods is turning to emergency savings — usually three to six months of expenses is recommended. But a significant number of Americans lack those funds.
Only 2 in 5 U.S. adults have enough emergency savings to pay an unexpected $1,000 expense, according to a 2019 survey from Bankrate. Otherwise, they need to borrow money in some way.
“We all know that many Americans are not at a point where they have that amount of money available to them in savings,” said Bruce McClary, the spokesman for the National Foundation for Credit Counseling. “Many Americans are going to struggle during any period of work stoppage that may last more than a week.”
For those without enough savings, experts offered these options to deal with a reduction in cash flow.
File your taxes
While tax day has officially been moved to July 15, you shouldn’t wait that long to file if you’re expecting a refund.
Tax refunds can help cover expenses during joblessness or periods of unpaid leave from work. This year, the average refund is just under $3,000.
So far, 59.2 million Americans have received their refund this year, which is just over half the number of the taxpayers who got one last year. That means a significant number of Americans can still benefit from this cash influx.
Avoid rapid refund loans, McClary said, because they are costly. Instead, “it's best to get the refund from the IRS through direct deposit,” he said.
You can track your refund status online at the IRS or through the agency’s IRS2Go mobile app. Most taxpayers will receive their refunds within 21 days after filing their taxes.
Skip a big payment
Another way to relieve a cash crunch is asking your mortgage lender or auto lender if they have a program where you can make an interest-only payment and then skip a month on your payment. Some homeowners can delay mortgage payments up to 12 months.
Consumers who have been paying their loans on time and are in good standing may get this option for one month.
“It's probably not something you're going to be able to repeat very often or at all,” McClary said. “So you want to make sure you're very strategic about when you use that.”
For private student loans, your lender or servicer may offer loan modifications or temporary hardship concessions on case-by-case basis. It’s also possible to have payments significantly reduced or to receive a forbearance, according to McClary.
Additionally, New York has suspended debt collection for student debt, medical debt, and other forms of state-referred debt, for at least 30 days.
Reduce or cancel payments
Americans can also reach out to their utility providers and ask whether they qualify for assistance or a reduced payment plan.
“Sometimes instead of getting a large bill during peak season, it might give you a reprieve if they were able to evenly bill you each month based on your usage patterns,” McClary said. “So that in peak season you’re not hit with a very expensive bill.”
A reduced payment plan is often available on seasonal usage of your utilities such as your electric or heating oil. Additionally, utility companies also have hardship programs or special assistance programs which could delay the payments.
Cancelling or freezing for a month optional utilities like cable TV or streaming services subscriptions could help ease pressure on your household budget. Same for gym membership.
Internet providers like AT&T, Comcast, and Verizon — which owns Yahoo Finance — have agreed to help subscribers who can’t pay their bills due to coronavirus and won’t terminate service to customers unable to pay their bills in the next 60 days.
Turn to charitable resources
“Before you even think about borrowing money, you should look at the community charitable resources that may be available to help you get through a very difficult stretch,” McClary said.
Identify charitable resources that can provide food assistance, clothing assistance, and the kind of support that helps people stretch their budgets.
National organizations like Goodwill, Salvation Army and Red Cross have a local presence in many communities and can provide assistance to those in need. There are also local food banks and faith-based charities that can help when families require help accessing basic needs.
“If you have items that you can sell that are of value where you can generate some quick cash that will help you avoid borrowing,” McClary said.
The items you can sell include small personal items of value, collectors’ items, or furniture you’re not using.
Tap home equity or retirement
Refinancing your residence and Roth conversions may also be a good option if you don’t have enough saved in an emergency fund.
“We are in one of the lowest interest rate periods of all time,” said Matt Chancey, a certified financial planner based in Tampa, Florida. “If you can qualify to do a cash-out refinance of your primary residence at less than 80% loan-to-value to create near-term liquidity to survive this pandemic, in my opinion, this would most likely be a good financial move to make.”
Read more: How to stretch your paycheck
Locking in cheap long-term debt in the midst of a potential financial crisis can help you now, but taking out too much equity from your home leaves no cushion to absorb a decline in real estate prices later, said David W. Mullins, a a certified financial planner based in Richlands, Virginia.
“If you need to relocate or sell your home, you are greatly limiting your options on what price you would be able to sell your home for by borrowing against it,” Mullins said.
Other experts suggest borrowing against your 401k as an option.
“[That] is more flexible since 2017, now that the loan doesn't have to be paid back as quickly as prior to 2017 in case of a job termination,” said Dennis Nolte, a certified financial planner based in Oviedo, Florida. “These are excellent sources of liquidity that are cheap, relatively easy to obtain.”
Before you had to pay back the entire loan within 60 days if you lost your job or face taxes and penalties, but the new tax law extended that time. Ex-workers have until the due date of the tax return for the year they lost their job to repay the loan.
“It may be better for an individual to borrow from their bank or credit union and get a closed-ended loan,” McClary said, rather running up balances on credit cards.
A signature loan for the amount that you need for the month will likely have a lower interest rate than your credit card.
For people with excellent credit scores, a credit card may be an option if it offers a zero-percent introductory rate. But it’s critical to pay back what you’ve borrowed before the introductory period expires; otherwise, you’ll end up paying high interest on the remaining balance.
Pay attention to not just the interest rate, but also any fees that come with these loans, McClary said. “You have to be focused on how much any borrowing will cost you in the long run.”