Millions of Americans will soon run out of money. Here’s how to deal with bills you can’t pay.
Help is available for those who can’t pay their bills, but you’ve got to ask for it.
The coronavirus has infected the global economy and millions of Americans now out of work are trying to figure out what to do with no paycheck coming in.
Hourly employees who worked at small businesses that are now closed or running on a skeleton crew will take the brunt of the blow, feeling the financial pain sooner and more deeply than full-time employees with paid sick leave and other benefits.
“A lot of people don’t have a safety net right now,” said Bruce McClary, the vice president of communications at the National Foundation for Credit Counseling. “About 40 percent of all Americans don’t have enough savings to cover a $400 emergency. What are they going to do if they have weeks of reduced work or no work at all?”
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It’s scary to see the bills piling up and no money coming in, but don’t panic. Take a deep breath and start looking for things you can do to ease the financial strain. Some relief is already in place and more steps are being taken every day to help you get through this difficult time.
A few examples:
- Congress passed the Families First Coronavirus Response Act, which President Donald Trump signed into law Wednesday night. It ensures paid emergency leave for those who are infected or caring for a family member with the illness, plus additional unemployment benefits.
- The Department of Housing and Urban Development (HUD) is suspending all home foreclosures and evictions until the end of April. Some governors and mayors also have issued emergency measures to prevent evictions during this crisis.
- Numerous utilities across the country have agreed to curtail shut-offs and waive late fees.
- Some credit card companies are waiving late payment fees or interest charges.
- Social service agencies are providing food, emergency housing and heating vouchers, as well as counseling for those who are having a hard time coping. Check with your local United Way to find out what’s happening in your community.
- The IRS extended the deadline for filing federal tax returns and paying any taxes owed until July 15. The extension is automatic and applies to individual taxpayers and businesses.
- Some states with income taxes are offering relief. The American Institute of CPAs has a list of what states are doing.
“Communication is critical right now, whether you have savings or not,” McClary told NBC News BETTER. “You need to reach out to your credit card issuer and other lenders. You need to have a very frank discussion about where you are financially, because these lenders are working on ways to help people during this difficult time. But they may not be publishing details; that’s why it’s important for you to reach out proactively and ask questions. If you don’t ask questions, you could wind up in a bad situation.”
Where do I start?
Take stock of where you are. Make a list of expenses and the money you have — income and savings — to pay the bills.
Then create an emergency budget to help make that money last as long as possible.
“Cash is king right now,” Greg McBride, the chief financial analyst at Bankrate.com, said. “Whether you’ve already lost your job or think you might, take a very hard look at your expenses and identify the things that you can cut back or eliminate. This will allow you to focus what limited cash you have in other areas.”
Your emergency budget should prioritize the necessities: food, shelter, utilities, medical care and transportation. Spending on wants, such as entertainment, takeout food and subscriptions should be cut, eliminated or postponed.
Kimberly Palmer, a personal finance expert at NerdWallet, suggests looking at recurring payments on your credit card or checking account statements to find places to cut back.
“For example, some people don’t realize they’ve signed up for multiple music streaming services when they only need one,” Palmer said. “Look at those monthly expenses to see what you can cancel.”
What if I can’t pay my important bills?
For those living paycheck to paycheck, it may be impossible to pay all the critical bills, such as the rent or mortgage, and car loan. In that case, you need to get out in front of the situation.
“Call your landlord or lender. In some cases, they’re being more lenient right now, giving extensions or waiving late payments,” Palmer said. “It’s really important for your long-term financial stability to protect your credit score by either paying the bill on time, or if you absolutely can’t, calling the company and working something out.”
Utilities across the country are taking steps to prevent hardships during this unprecedented crisis. These include: waiving late fees, preventing shut-offs, setting up deferred payment plans, and making emergency funds available to low-income households. This information should be posted on the utility’s website.
Credit card bills
The recent rate cut by the Federal Reserve will result in slightly lower credit card interest rates, but the drop won’t be big enough to make any significant difference for most people.
Many credit card companies have already announced programs to help their cardholders. You may be able to arrange a temporary credit limit increase, a temporary interest rate reduction or forbearance – you can miss a payment without a late penalty, but the interest still accrues.
A few companies are offering to do more:
- Apple card (backed by Goldman Sachs) sent an email to cardholders telling them they can enroll in its Customer Assistance Program, “which will allow you to skip your March payment without incurring interest charges.”
- American Express told NBC News BETTER its financial hardship assistance “could include waiving late fees, return check fees, and interest charges.”
- Capital One said it is working with consumers and steps that can be taken include “fee suppression, minimum payment assistance and deferred loan payments.”
“The ability to avoid interest and avoid any hit to your credit is really significant,” said Ted Rossman, industry analyst at CreditCards.com. “You definitely need to speak up and tell your card issuer about your situation, because even the companies that are offering waivers, it’s not automatic. You have to contact them.”
Rossman, who always encourages cardholders to pay off their balance in full each month, says “desperate times call for desperate measures.” So if you need the cash, it’s OK to prioritize essentials over the credit card bills right now, he said.
Another option to consider: Sign up for a 0 percent balance transfer credit card that will help your cash flow in the near-term and save you money in the long run. With some of these cards, you can stop the interest clock for a year or more. CreditCards.com has a list of balance transfer cards with no transfer fee.
Do you have a cashback rewards card? Now may be the time to cash in those rewards to pay some critical bills.
What about student loans?
Trump announced last week that interest on federal students loans is being waived until the national emergency has ended. But details about implementation are still sketchy, according to Mark Kantrowitz, publisher and vice president of research at Savingforcollege.com.
“If a borrower is struggling financially, there are several options available to them for financial relief on their federal student loans,” Kantrowitz said. “These include the economic hardship deferment, unemployment deferment, forbearances and income-driven repayment plans.
Those with private student loans should contact the lender to ask about their options. Assistance offers include: forbearance, grace periods, lowered interest rates and interest-only payments.
One-on-one counseling is available
The National Foundation for Credit Counseling (NFCC) is a nationwide network of nonprofit agencies that provide financial counseling, as well as advice on budgeting and dealing with repaying debt. If you’re overwhelmed, they can help. The initial counseling session is free.
“The counselor will explain what you need to be focused on, what resources are available and how those can be effectively used,” McClary said. “If after that you need a little more direct assistance in working with creditors or a mortgage lender, that help is also available through these programs.”