You may be sitting at home across American wondering what will happen to you economically from the coronavirus pandemic. When will it get back to normal? Will I lose my job? Should I sell my stock in my 401k? How do I payoff my debt? Should I back out of a large purchase? You are not alone. Many of us feel this way. Many of us are experiencing financial hardship from the coronavirus.
What we also know is that the daily number of coronavirus cases is getting worse (as of the time of this article on March 25, 2020)
The purpose of this article is to help you understand more about your coronavirus hardship:
- What May Happen with the Coronavirus
- What You Personally May See from The Government Stimulus Bill
- Your coronavirus hardship options
- Your debt relief options from the coronavirus hardship
1. What May Happen With The Coronavirus Economically
On March 15th, the Federal Reserve issued an FMOC statement stating, “…the Committee decided to lower the target range for the federal funds rate to 0 to 1/4 percent.” Further, the goal of this action was to “…help support economic activity, strong labor market conditions and inflation…”
Many people with a mortgage may have expected that lowering interest rates would become a great time to refinance their mortgage. Instead, the 30-year fixed mortgage rates jumped to an average 3.65% on March 19th, the highest rate since January.
Coronavirus Economic Examples
Interest rates are rising, and that is a bad sign for the economy. Why? Because debt become more expensive. If a family living pay check to pay check had a difficult time paying a $125 minimum payment on a credit card at a 15% interest rate, imagine how difficult it would be to make a $200 minimum payment on that credit card if the interest rate increases to 25%.
Let’s take a mortgage example. Let’s say you are looking at a $200,000 fixed rate mortgage at 3.5%. The estimated monthly payment is $898. If the interest rate goes up to 7.5%, that estimated monthly payment jumps to $1,398, a $500 monthly increasing making that house much less affordable.
Summarizing How Economy Could Get Worse
When things get more expensive, people buy less. As people buy less, business review decrease and those companies may have to layoff employees. When business layoff employees, more people end up without a job and cannot afford the debt. When you cannot afford the debt, creditors have to tighten their credit underwriting giving less people access to credit. The recession (or depression) is here, and unfortunately, the Federal Reserve cannot lower interest rates to boost spending as it did it 2008 because it just sent those to 0 – 1/4% last week.
So, in short, the coronavirus hardship you are feeling right now could get worse. This article’s goal is not to tell you what to do with your stock or 401k, but to explain your options and how you may be able to get out of this stronger.
2) What You May Get From Government Stimulus Bill
If you have a few days free, you may be interested to read the 880 page Government stimulus bill tilted the CARES act that just passed the senate on March 25, 2020. Most of us don’t have that time and maybe don’t care to read about the airlines bailout, so let’s get into some of the nuts and bolts of how the plan may affect you. That said, I have also included sections to read the information from the bill yourself.
You can estimate your rebate payment easily by using the Coronavirus Stimulus Calculator. This will help estimate what you will receive.
SEC. 6428. 2020: RECOVERY REBATES FOR INDIVIDUALS.
- Single individuals may be eligible to receive $1,200
- Married couples may be eligible to receive $2,400
- A parent may be eligible to receive $500 per child
The limitation language can be found below about how the rebate is calculated.
Eligible individual is defined by any individual other than:
- Any nonresident alien individual
- Any individual under Section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which the individual’s taxable year begin
- An estate or trust
You may find that this coronavirus question and answers article can be helpful for specific questions about the rebate and other pieces of the stimulus package.
Student Loan Payment Suspension
SEC. 3513: TEMPORARY RELIEF FOR FEDERAL STUDENT
23 LOAN BORROWERS.
- (a) The secretary suspends all payments due on loans under part D and part B (that are held by the Department of Education) of title IV of the Higher Education Act of 1965 through September 30, 2020.
- (b) Interest DOES NOT accrue on the loans that qualify.
- (d) Consumer reporting for those suspended payments are treated as regularly scheduled payments.
- (e) Secretary suspends all involuntary collection related to a loan including: A wage garnishment authorized, a reduction of tax refund by amount of debt, a reduction of any other Federal benefit payment, any other involuntary collection activity by
Unemployment Payment Boost
SEC. 2104. EMERGENCY INCREASE IN UNEMPLOYMENT COMPENSATION BENEFITS
- (a) Unemployment benefits continue to be amount determined by state law
- (b) an additional amount of $600 (in this 22 section referred to as ‘‘Federal Pandemic Unemployment Compensation’’).
- (e)(2) The agreement shall apply to weeks of unemployment ending on or before July 31, 2020.
3. Your Coronavirus Hardship Options
Thankfully the government and creditors are working to provide hardship relief to individuals that are affected economically from the coronavirus. Let’s jump into the details.
Housing Coronavirus Relief
For many of us, your mortgage or rent is the single biggest expense that you have to deal with each month. See what your coronavirus hardship options below.
Mortgage Relief due to Coronavirus
Federal regulator are ordering lenders through Fannie Mae and Freddie Mac to offer homeowners flexibility for those who have lost income or their jobs through the coronavirus. Depending on the situation, you may be eligible to have your mortgage payments reduced or suspended for up to 12 months. This move covers about half of all home loans in the United States.
See the following websites for more information about how this may help you:
Rental relief due to coronavirus
Furthermore, for those of us renting, the U.S. Department of Housing and Urban Development (HUD) provided immediete relief and suspended all foreclosure and evictions for the next 60 days.
Credit Coronavirus Relief
You may have been getting a slew of emails from your creditors about the coronavirus response. If you are experiencing a coronavirus hardship, you may want to text, chat, call or email your bank to see what sort of hardship programs they offer such as an interest rate reduction or not making payments for a few months.
Here are some of the largest banks in the United States response to Coronavirus. You may want to reach out to your bank specifically if you are experiencing a coronavirus financial hardship
- JP Morgan Chase COVID-19 Response
- Bank of America COVID-19 Response
- Wells Fargo COVID-19 Response
- Citibank COVID-19 Response
- US Bank COVID-19 Response
Most creditors are offering some sort of hardship assistance, so it does not hurt to contact them if you are experiencing a coronavirus hardship.
Government Coronavirus Relief
This article should be updated periodically as we learn more about the different types of relief that are offered. There is a comprehensive that may be a helpful resource for you. You may want to review the government response to the coronavirus regarding what you may be eligible. Specifically, here are two articles that you may consider in regards to a coronavirus hardship
A few things to consider from these articles:
- IR-2020-58 – Tax Day is now July 15th. IRS extends the filing deadline and federal tax payments. This is regardless of the amount.
- IR-2020-57 – IRS, Labor, and Treasury announce a plan to implement coronavirus-related paid leave for workers
- Student Loan Servicing – The CFPB recommends to contact you servicer to find out more information about affordable repayment plans.
4. Your Coronavirus Hardship Debt Relief Options
Let’s say you get to the point where you are unable to continue making your minimum payments because of interest rates or job loss or medical hardships. You have many options, so let’s consider them one by one. Each option has pros and cons, so make sure to do your own due diligence.
Debt Payoff Planning
You may want to first consider whether you don’t have to do a debt relief options at all. First, You may still be able to afford the debt via a debt consolidation. The US Government provides some useful information about your debt consolidation options.
Second, you may consider doing debt payoff planning. In this example, you would want to consider all of your income and expenses to see whether you are able to afford the debt. Once you have a solid understanding of all your income and expenses, you will know how to prioritize your debt and get rid of the debt. Next, you will want to use a debt payoff planner application or a spreadsheet to prioritize how your extra monthly payment should be prioritized.
The most common methods are snowball and avalanche method. You can lose a lot of money in the snowball debt payoff method if your interest rates are highest on your largest debts, so we devised the Savvy Debt Payoff method to combine the best aspects of both Snowball and Avalanche method to save you money on interest.
Chapter 7 Bankruptcy
You may be able to qualify for a Chapter 7 bankruptcy. Often a bankruptcy has a bad stigma and there are many misconceptions to bankruptcy. The most important thing to know is that it’s legitimate, legal way to get debt relief. There are negative aspects about a bankruptcy, but it is often the cheapest and fastest way to debt relief.
You have to qualify for a Chapter 7 Bankruptcy using what’s called the means test. It can be helpful estimate whether you qualify by taking a bankruptcy means test calculator. You should consider all pros and cons before doing a Chapter 7 bankruptcy, but it can be a positive way of debt relief for many folks. If you do decide to file for bankruptcy, you may want to consider reading recovering from bankruptcy after coronavirus for specific insights to how to get back on your feet.
Chapter 13 Bankruptcy
A Chapter 13 Bankruptcy is a payment plan based bankruptcy. Many people pursue a Chapter 13 bankruptcy because they do not qualify for a Chapter 7 Bankruptcy, have too many assets, or debt settlement is not right for them.
A general Chapter 13 plan could last 3 to 5 years. There are some similarities between a Chapter 13 Bankruptcy and Debt Settlement in relation to the payment plan.
In a Chapter 13 bankruptcy, you will want to estimate what you would pay each month and compare that to what you are currently paying for your debt. You may want to try taking a Chapter 13 Bankruptcy Calculator to estimate a Chapter 13 monthly payment.
Debt settlement companies work with your creditors to negotiate a lower amount owed. The total cost of debt settlement is often lower than debt management, but it can be more negative on your credit score because creditors will be unlikely to settle the debt until the accounts are past due. Debt settlement often hurts your credit score.
Although debt settlement is a valid option for some people who need relief, you will want to find a legitimate debt relief company as some companies do not seem to have the customer’s best interest in mind. You may also consider reviewing the debt settlement pros and cons as this option does have pros, but it also has cons to consider.
Debt management companies work with your creditors to negotiate a lower interest rate on your debt. These companies are also referred to as credit counseling. Many of these companies are non-profit companies, but most also charge a fee.
People get mistaken between the difference between debt management and debt settlement. A debt management company tries to negotiate a lower interest rate (example: 22% to 8%). A debt settlement company tries to negotiate a lower total amount owed (example: $10,000 to $5,000). You may consider reading debt management vs debt settlement to understand the key differences.
You are not alone in your coronavirus financial hardship. We are in this together, and we will get through it better on the others side.
Finally, please share your additional ideas in the comments below. Also, please share if you found that this article can be helpful to others.