Dealing with debt in the pandemic
As the coronavirus lockdown wears on, the bills are becoming more frightening. Many people are still waiting for unemployment or stimulus checks to arrive. Others are dealing with cuts in work hours or commissions or tips, resulting in lower income. Here are some ideas on how to prioritize paying those bills.
--Student loans: Federal student loans payments and interest are suspended until September 30, removing that worry. In fact, most servicers have simply stopped the monthly auto-deduction for your federal student loan.
Unfortunately, private student loans carry no such protection. That's going to be a big problem because, according to a new survey from LendEDU, 78 percent of private student loan borrowers are not sure they can make their payments.
Here's a tip from LendEDU: If you are able to continue to pay your federal student loan, almost your entire payment will go toward principal instead of interest now. So be sure to target any payments specifically toward the loan with the highest balance or highest interest rate.
--Mortgage payments: The original coronavirus relief bill (aka CARES Act) protected homeowners who have federally backed or guaranteed mortgages. That includes home loans owned by Fannie Mae and Freddie Mac as well as VA, USDA and FHA mortgages.
If you are impacted by the pandemic, you can get mortgage forbearance for up to a year and lenders cannot foreclose on your property. And even if your mortgage doesn't qualify under this federal program, most lenders are offering some kind of deal -- allowing you to skip a payment or two and have that amount added to the end of your loan term.
Contact your mortgage servicer immediately to try to make arrangements. Get the details in writing on how the skipped payments will be repaid. And if your servicer is also collecting your property tax and homeowner's insurance payments each month, remember to set aside money for those costs, which will not be forgiven.
--Rent payments: The CARES Act also created a moratorium on evictions from federally financed properties -- which accounts for about one in four apartments. It basically halts evictions for 120 days. Many cities and states have also banned evictions, whether or not the property has a federally backed loan.
Contact your landlord to explain your situation and make arrangements. Remember, the landlord must make his or her mortgage payments, as well as pay for building utilities and property taxes. So if you can afford to pay something, you'll help those who really have no income right now.
--Credit card debt: The amount you owe on your credit card is unsecured, so your clothing or furniture can't be repossessed. But failure to pay at least the minimum will have an impact on your credit score. That said, if you can't pay, simply don't! The banks are preparing for large losses. If you're still current on payments, this is a good time to try for a balance transfer to a card that offers zero rates for a year or more. Find them at www.CreditCards.com.
--Car payments: Unlike the items purchased with credit card debt, the lender on a car loan can definitely repossess your car. And if you need the car when it comes time to get back to work, making this monthly payment should be one of your top priorities -- after food and utilities.
--Health insurance: Losing your health insurance along with your job can have devastating financial impacts. Try to negotiate with your boss for an extension of healthcare coverage if you are furloughed. Check the cost of COBRA, which extends coverage of your job-provided insurance.
Job loss is a "triggering event" for accessing insurance through the Affordable Care Act, so go to Healthcare.gov/Coronavirus. Or go to www.eHealthInsurance.com and check out less expensive short-term policies to get you through this gap period.
Now is not the time to worry about credit ratings or scores. This economic crisis isn't going to last forever. And most Americans are facing the same challenges. If the lenders want to continue to make money off Americans, they'll have to be a bit flexible in dealing with us in these tough times. And that's The Savage Truth.
(Terry Savage is a registered investment adviser and the author of four best-selling books, including "The Savage Truth on Money." Terry responds to questions on her blog at TerrySavage.com.)(c) 2020 TERRY SAVAGE DISTRIBUTED BY TRIBUNE CONTENT AGENCY, LLC