How to deal with 5 instances If You Can’t repay bills Due to The Pandemic

Almost every day, we are coming across a humongous number of COVID-19 cases in our country! According to the CDC (Centers for Disease Control and Prevention), on 8th July 2020, the total number of positive coronavirus cases in our country are 3,487,780! Isn’t it shocking?

At the same time, the number of claims for unemployment benefits is rising sharply! In April 2020, the unemployment rate hit 14.7% and it’s the highest since the Great Depression! Some of the major reasons being sudden lockdown and massive loss in business!

However, according to a report by the US Bureau of Labor Statistics, the unemployment rate has reduced a bit to 11.1% in June 2020!

But the harsh fact is, many people are still unemployed or getting a pay cut due to this pandemic! And most of them are worried about finding a way out to pay bills during COVID-19!

So, if you are one of them, don’t worry, my friend! Today, we are gonna discuss some of the best possible ways to consider if you can’t afford to pay off your different debts and bills!

Let’s start one by one!

Instance 1: You are having student loans

On March 27, 2020, President Trump signed the CARES (Coronavirus Aid, Relief, and Economic Security) Act to provide economic assistance to the peeps of our country, affected by this pandemic!

According to the CARES Act:

  • You don’t need to make payments for your student loans until September 30, 2020. And most importantly, no interest will be accrued during this tenure!
  • All collection activities for defaulted student loans are temporarily suspended.
  • Your employer can pay up to $5,250 towards your student loan and that too tax-free till December 31, 2020.

However, you can reap the above benefits only if you have taken out a federal student loan! And it includes Direct Loans, FFEL (Federal Family Education Loan Program) Loans, Perkins Loans held by the U.S. Department of Education.

In case you have taken out private student loans, talk to your lender about your financial hardship asap! Many private lenders like Sallie Mae, Discover Student Loans, etc. are offering various repayment assistance to support their consumers during this pandemic!

Read: How can debt consolidation help to pay off the student loan?

Instance 2: You are having a mortgage loan

Well, if you owe a federally or GSE-backed mortgage, the CARES Act can be your savior during this situation!

  • If you are going through financial hardship due to the COVID-19, you can request a forbearance for up to 180 days.
    But remember, mortgage forbearance can temporarily suspend or reduce your monthly payments. So, you will still owe your mortgage!
  • During the forbearance period, your lender can’t charge any interest or penalty or late fee on you.
  • Your lender is not allowed to foreclosure on you till at least August 31, 2020.

But what if you have opted for a private mortgage loan?

In that case, talk to your lender about your financial hardship due to the COVID-19 pandemic!

Many private mortgage lenders like Ally Bank, Bank of America, etc. are offering support to their consumers by offering payment deferrals or forbearances for a certain period.So, talk to your lenders about your financial hardship asap and seek repayment assistance!

If you can’t find a way out, you can look for strategic ways to get out of student loan debt.

Instance 3: You are having credit card debt

A poll reveals that almost 59% of the consumers had entered the pandemic with credit card debt!

So, if you are one of them and going through financial hardship, it might be cumbersome to pay off credit card debt now!

The sad news is, the CARES Act hasn’t provided any relief for unsecured loans like credit cards.

However, some credit card companies like Chase, Citi, etc. are offering repayment assistance options like reduced interest rates, allowing consumers to skip payments.

So, reach out to your creditor and explain your financial situation to get repayment assistance!

But what if your creditor isn’t offering repayment assistance or what if you aren’t eligible for it?

Well, in that case, if you fail to pay on time, delinquency might be reported!

Read this article: What happens if you don’t pay credit card bills and what to do!

Instance 4: You have rent to pay

Most probably, you are thinking whether or not you will be evicted if you fail to pay the rent!

Well, the chances of eviction are very less! The CARES Act has provided a 120-day moratorium on all evictions from the properties financed with a federally-backed mortgage. However, this moratorium ends on July 25, 2020.

After that, if you can’t pay off your rent, your landlord can serve you a 30-day eviction notice. In that case, you need to find an alternate option within that period!

But what if you are a renter in a building with a private mortgage or the mortgage is paid off?

In that case, the National Apartment Association (NAA) recommends talking to your landlord about your financial situation due to the COVID-19 pandemic.

Besides, many states, counties, cities have issued moratoriums for evictions for at least 30 to 90 days to help renters.

So, check with your local or state government to find more information about moratoriums on evictions due to the COVID-19.

Instance 5: You have to pay for your insurance

Most of the people are going through some kind of financial crunches due to this pandemic. And it’s becoming cumbersome for them to pay for various insurance policies during this time.

That’s why most of the insurance companies are temporarily offering payment assistance. Let’s have a detailed view:

Life insurance:

Many life insurance companies are offering extended grace periods due to this pandemic. So, make sure to pay for your life insurance after the grace period is over. Else, you might lose your term life coverage!

However, if you have permanent life coverage, you can have options like reducing your death benefit, using dividends to pay your premiums, etc.

Auto insurance:

As the coronavirus cases are rising sharply, most of the people are refraining from going out. And it has resulted in reduced driving! So, some car insurers are refunding a certain portion of the insurance premiums to their customers.

For example, State Farm has declared to refund almost 25% of the premiums paid between March 20 and May 31!

Besides, if you are going through financial hardship due to the pandemic, communicate with your auto insurer and seek some financial assistance options like:

  • Waiving off late fees and penalties
  • Extended grace period
  • Payment plans

Homeowners insurance:

Usually, if you miss your insurance payment, you will start receiving reminders after the due date is over. And most likely, you will have to shell out a hefty late fee!

But due to the pandemic, the state insurance departments urged the insurance companies to offer some flexibilities like:

  • Considering late payments
  • Setting up a payment plan
  • Not canceling coverage due to nonpayment

So, talk to your insurer and explain your financial situation. Hopefully, you will find a way out to pay for your homeowners insurance.

Are you eligible for a stimulus check?

The CARES Act provides stimulus checks up to $1,200 to eligible US citizens to minimize the economic impact of the pandemic. Besides, stimulus checks will help to stimulate the economy by providing some money to common people for spending!

To be eligible for receiving a stimulus check, you need to be a US citizen with a valid Social Security Number. Besides, your eligibility depends on your adjusted gross income (AGI) too! Let’s check!

Filing status AGI Stimulus check amount
Single or married but filing separately Below $75,000 $1,200
More than $75,000 but below $99,000 $1,200 – 5% of (your AGI – $75,000)
Married and filing jointly Below $150,000 $2,400 and $500 for each qualifying child
More than $150,000 but below $198,000 $2400- 5% of (your AGI – $150,000)
Head of household Below $112,500 $1,200
More than $112,500 but below $136,500 $1,200 – 5% of (your AGI – $112,500)

So, if you are eligible for receiving a stimulus check, you might have received it already or might receive it within a short time! Because, according to the latest report by the House Ways and Means Committee , about 30 to 25 million payments are still left to be issued!

My suggestion would be, you should use your stimulus check very wisely! Don’t spend it randomly! You can use it for making necessary bill payments during coronavirus or you can stash it in your emergency fund too!

So, the bottom line is, you have to stop being worried about bill payments during coronavirus. Rather, you should look for various ways that can help you to pay bills during this COVID-19 pandemic! And I hope the above options will certainly help you to do so!

Lastly, take care of yourself and save money as well for a better future ahead!

Stay safe!

Debt Snowball Vs. Avalanche – When And What To Choose And Why?

Are you planning to pay off your debts?

Congratulations buddy! You are one step ahead of leading a debt-free and financially stable life!

But you know what? When it comes to paying off debts, you might hear a lot of advice! And amidst this advice, you might not find out the right way to pay off your debts. The reason being, you need a debt relief strategy that fits into your situation well!

Let’s say, one of your friends has become debt-free by following a debt consolidation method. And he/she has suggested you debt consolidation. But let me tell you, buddy, it might not work well for you!

That’s why I always suggest opting for a debt relief strategy that fits into your financial situation! Else, you might end up being in more debt

By the way, have you heard about the debt snowball and debt avalanche method?

Well, as you know, both of these are effective ways to pay off your debts. But you might be in limbo, thinking which one to choose!

So, here you can get detailed information about the debt snowball and debt avalanche method. And most importantly, when to choose the correct debt payoff method and why?

Let’s start!

Debt snowball method

In this method, you concentrate on paying off your debt with the lowest outstanding balance amount first! But at the same time, don’t forget to make minimum payments on your other debts.

The idea is that starting small will give you a forward momentum; just like a growing snowball. After you pay off your debt with the smallest amount, move to the next smallest debt. This way, you can stay motivated during your debt repayment journey!

Once you pay off one of your debts, even if the amount is small, it gives you a quick win to remain inspired! Then you move to the next smallest debt and the next one and so on until all of your debts are paid off!

Once you pay off a debt, you can dedicate more funds to the next smallest debt. This way you move to the next one and so on until all of your debts are paid off! By the way, is it sounding complicated to you?

Let me explain to you the debt snowball method with a simple example! Let’s say, you have 3 debts like:

  • $1,500 credit card bill @5% interest with $50 minimum monthly payment
  • $2,500 private student loan @8% interest with $150 monthly minimum payment
  • $8,000 personal loan @15% interest with $250 monthly minimum payment

In the snowball method, you have to make minimum payments to each of the debts. And extra dollars to pay off the $1,500 balance amount first (as this is the lowest amount debt in the example).

So, out of $500, you can pay $100 for paying off the $1,500 balance amount first. Then you need to make the minimum payments of $150 and $250 for other debts.

Once you pay off the $1,500 credit card debt, start paying off your student loan amounting to $2,500. So now, you can make a monthly payment of $250 for your student loan and $250 for your personal loan.

And finally, once your $2,500 student loan is paid off, you can contribute the whole amount of $500 to pay off your personal loan!

The advantage of the debt snowball method is that it helps to build motivation! A study by Harvard Business Review has revealed that beginning with the smallest debt makes you more motivated. And this can help you to pay off your debts asap with success

Debt avalanche method

It is quite similar to the debt snowball method! In the debt avalanche method, start paying off your debts from highest interest rate to lowest rate, irrespective of the outstanding balance amount!

If you think mathematically, this makes the most sense! You will pay less in interest if you tackle your debts in this order . And saving money on interest means you will help you pay off your debts more quickly!

You will make minimum payments for all your debts. The difference with the debt avalanche is that you have to start making the payments for the debt with the highest interest rate . This approach is pragmatic as it prioritizes the most expensive debt first!

Then you work your way through to the lowest interest rate debt on your list. If your high-interest balances are also your bigger debts, it might take longer to pay off!

To help you stay on your payoff track, you can follow some steps to stay away from personal financial crises.

Let’s say, you have an outstanding credit card balance of $3000 at 24% interest rate and another one of $4000 at a 20% interest rate.

Well, the $3000 credit card balance should be your top priority as it carries the highest interest rate. Continue paying off your debts and rolling their minimums into the extra debt payments amount until all debts are paid off!

In an avalanche method, you may have to wait for a long time to feel the triumph of paying off debt, especially if your high-interest debt is the largest too! You can take the help of a debt payoff calculator to see your progress and be emotionally strong!

Now, you might think which one should you choose? Debt snowball or debt avalanche?

Well, as you can see, it all depends on your financial situation! Debt avalanche focuses on paying off your debt which has the highest interest rate. But it can be cumbersome for you if the highest interest debt is your largest amount of debt.

In that case, I would suggest you go for the debt snowball method! The snowball method focuses on paying off debts with the lowest outstanding balance amount first and so on.

So, you might get an emotional boost once you pay off one of your debts, irrespective of the amount.

Don’t worry! Opt for a debt payoff method which suits best in your financial situation! Hope, this comparison of snowball vs avalanche helps you to decide wisely!

Factors Debt Snowball Debt Avalanche
Motivation You feel motivated with your victory of paying off debt, irrespective of the amount. Can be a factor for your demotivation as the time required will be more
Financial aspect You could end up paying more in interest over time. You can save money if you can stay motivated throughout the entire process.
Time required Comparatively less It takes a long time as the debt with the highest interest rate might take a long time to pay

However, amidst some differences, both these debt payoff methods have a similar goal, i.e, to make you debt-free!

Also, if you want, you can also use both methods together. You will wonder how?

You can select 2 debts from your list – one with the lowest outstanding balance and the other one with the highest interest rate. Then, put an extra amount on both these accounts after making the minimum payments on others.

For example, quoting my previous example,

  • $1,500 credit card bill @5% interest with $50 minimum monthly payment
  • $2,500 private student loan @8% interest with $150 monthly minimum payment
  • $8,000 personal loan @15% interest with $250 monthly minimum payment

You can select the 1st one (credit card with lowest outstanding balance) and the 3rd one (personal loan with highest interest rate). Now suppose, you have an extra $200 every month to put toward paying back your debts.

So, put extra $100 each toward paying off these 2 debts. Doing so, you’ll be able to repay both the debts relatively fast. You’ll stay motivated since you’ll be paying off your credit card debt early and also, you’ll save interest payments on your personal too.

And don’t forget to let us know about your experience!