If You Can’t Pay All of Your Bills, Here Are the Ones to Put on Hold First
In the Before Times, you probably built your monthly budget based on a simple principle: More money should come in than go out. But coronavirus has created a pandemic and recession double-whammy, ushering in a whole lot of economic uncertainty. Unlike recessions of the past, there is no roadmap for this one: No bubbles burst nor was there a natural disaster thrusting everything into a downturn—rather, industries were shut down to slow the spread of the pandemic.
So, a few months in, you may be nearing “empty” on your emergency savings fund and needing to recalibrate your budget. In an ideal situation, you’d be able to keep up with your bills. But we’re far from ideal at the time being. Economic anxiety and stress over money is very real.
As a general rule, your first priority should be to make payments on your secured obligations, like your mortgage or auto loan, explains Adam Selita, CEO of the Debt Relief Company. Many creditors are offering assistance during this time, he says, so it’s important you can communicate with any of your lenders or providers before you fall behind on payments.
We asked financial experts for guidance to help you determine which bills you can put on pause, or have negotiating power with, and how exactly to do so without hurting your credit or creating a financial pickle for yourself in the future.
While you may not be able to suspend your insurance payments altogether, most auto insurance companies have offered partial refunds to customers amid the coronavirus pandemic, points out Kimberly Palmer, personal finance expert at NerdWallet. (My own car insurance company has been automatically applying a 20 percent premium credit to my monthly bill). But if your insurance company hasn’t issued a partial refund or credit, Palmer suggests calling customer service and asking for one, especially if you no longer have a commute because you’re working from home or are simply driving much less. In addition to asking for retroactive discounts, Selita recommends asking for a reduction in rate for six months going forward.
Private student loans
Federal student loan borrowers already are placed in administrative forbearance through Sept. 30, 2020, which allows them to stop making monthly loan payments should they choose, and temporarily sets the interest rate at 0 percent. While the Coronavirus Aid, Relief, and Economic Security Act (or CARES Act) that suspends federally held loans doesn’t apply to private loans, many companies are still offering relief, Palmer says. When you call customer service, inquire about forbearance options and be sure to ask about how the interest will accrue, Palmer says. Private services have been authorized to grant a 90-day forbearance to borrowers who are facing financial difficulties due to COVID-19, according to the Consumer Financial Protection Bureau, and taking advantage of this won’t negatively affect your credit.
Most credit card issuers have come up with debt relief programs to help amid the coronavirus, says Sean Messier, a Credit Card Insider. “Issuers typically are recommending applying online or through their mobile apps, since phone support lines are much busier than normal,” Messier says. Available relief is usually on a case-by-case basis, but may include payment deferrals, reduced interest rates, waived late fees, and more. Some issuers have even temporarily halted the reporting of negative information to consumer credit bureaus, Messier says. Credit Card Insider has created a round-up of debt relief programs. You can also call your servicer and ask about hardship programs.
The CARES Act has protections in place for homeowners with mortgages that are federally backed or funded. If you’re experiencing financial hardship due to the coronavirus pandemic, you can request a forbearance for up to 180 days, and then potentially extend it for another 180 days. Forbearance is a process where your mortgage servicer or lender allows you to pause or reduce your mortgage payments while you regain financial footing. According to the Consumer Financial Protection Bureau, there won’t be extra fees, penalties, or interest added to your account. Your forbearance options, though, will vary based on your loan time. At the end of the forbearance period, you could pay back all of your missed payments in a lump sum, spread it out over a period of months or add additional payments at the end of your mortgage. Philip Georgiades, the chairman for FedHomeLoan.org, says entering into one of these forbearance plans will not affect your credit score. To file for forbearance on a government backed loan, call your lender to make a request. Not much paperwork is involved, Georgiades says. Private mortgage servicers may also have forbearance programs in place and many states have mortgage relief options, too.
Looking for more ways to save money amid these unprecedented times? Here’s 31 money-saving tips experts swear by.