How to handle a pay cut or job loss due to COVID-19 and repay debt
In this current situation, people from every corner of the earth are suffering from the effects of the COVID - 19 pandemic. People having illnesses or who have lost their jobs are facing the hardest hit among all.
As per a recent study conducted by NYTIMES , about 39% of former workers in households who were earning $40,000 or less, have lost their jobs. Apart from that 18% of American households also report a job loss or hour reduction of one family member at work due to the coronavirus pandemic. According to CBSNEWS , till May the total number of people applied for unemployment aid was more than 43 million, which is 1 in 4 U.S. workers in the last 10 weeks, since the coronavirus pandemic spread across the nation. Nearly 2.1 million people filed for unemployment benefits in the last week of May, as per the Labor Department.
On the 9th of April, 2020, the Labor Department listed 6.6 million Americans who filed for unemployment aid for the first time, in the week ending April 4.
The situation is getting critical day by day. People are having no jobs, no wages, or even taking a pay cut due to the COVID - 19 pandemic. As a result, they are experiencing financial hardships, such as an unstable household budget, uncertain or lack of future savings, and most importantly, falling into a huge debt burden.
I am not talking about the most obvious credit card debts here. Thanks to the CARES ACT, there are several breathing spaces given by our government to save us from it, such as lowered monthly payments, relief from late fees, temporarily lower interest rates, and more.
Here I am warning you about the high-interest payday loans. Americans tend to borrow short-term payday loans if they face any urgent money requirement. They do not think about the consequences if they can’t pay off that loan. In most of our states, there are certain rules regarding payday lending, and in some states, it is also illegal. But during such a crisis people may fall into this trap and borrow money on high interest from those payday lenders.
So, if you are also facing a pay cut or job loss due to the outbreak, there are certain things you can do to sustain in this situation. Also, check out how you can repay your pdl so that you can avoid paying the interest rate.
How to handle debt when you're experiencing a pay cut or job loss due to COVID - 19 PANDEMIC
1. Make your choice - Your employer might offer you two choices between leaving your current position or taking a pay cut. To decide what is good for you, you should think of the possible outcome. Is it possible for you to sustain without a job? Or is it wise to accept the pay cut, so you don’t have to deal with the financial hardships due to lengthy unemployment, especially during this pandemic situation?
Practically, in such a crisis, it might be risky for you to leave your job. Potential employers normally do not entertain a jobseeker too much during such circumstances. But the situation doesn't always work the same for everyone. You should also think about the unemployment benefits you may receive beyond the paycheck, which might be worthy. There will be a lot more to consider than simply thinking about the paycheck. If you have resources available to you, then it might be worth leaving the job rather than taking a pay cut.
2. Create a budget - Create a budget so that you can generate free money to pay for the essentials, such as medication and groceries. Your household budget should be based on your basic living expenses. The payout shouldn’t affect these categories. Do not forget to pay non-discretionary bills such as rent and utilities. But you may skip other expenses that aren’t important to you or your family. These may include online subscriptions, dining in restaurants, streaming services, gym memberships, and entertainment expenses.
3. Contact your creditors - You might have difficulties in paying off debts, both secured and unsecured ones. So, you may contact your creditors about delaying monthly payments. Many creditors and lenders are offering support to consumers. The coronavirus relief bill helps federal mortgage followers to delay payments up to 12 months. On March 21st, President Donald Trump instructed foreclosures and evictions to cease for 60 days across the U.S. Meanwhile, the Federal House Finance Agency (FHFA) has ordered mortgage lenders Fannie Mae and Freddie Mac to allow borrowers to stop their mortgage payments for up to 12 months.
However, most banks only allow 90 days to provide such assistance. So, after 90 days, ask your bank or creditor to extend the assistance program so that paying off debts could be easier for you.
4. Tap into your savings - Your financial situation after taking a pay cut or job loss may depend on your savings. If you have maintained the common 50-30-20 budgeting strategy, then you might be in good shape. You might have to adjust your household budgeting strategy as per your current reduced paycheck. If you can still save after a pay cut, even if it is not 20% of your paycheck, it will be great. Your financial planner and popular financial experts may tell you to avoid dipping into your retirement savings. But if times are really difficult, you may have no other option left.
5. Increase income by doing side hustles - If you are confused about how to handle a pay cut or job loss, the best option available to you is doing some side hustle and earn money to pay for your essentials. So, cheer up if you are creative and start online writing, provide virtual assistance, create online education programs, sell your art, start affiliate marketing service, and work on your social network platforms. Reach out to friends and neighbors and ask if they need your help.
6. Take advantage of federal unemployment benefits - For those people who have lost jobs recently and earlier, it’s a difficult time. So, if you are one of them, do not hesitate, just go and apply for unemployment benefits.
If you are eligible for the stimulus check and filed tax returns for either 2019 or 2018, you will get the electronic payment from the government. The $2 trillion relief package is meant for sending funds directly into the accounts of millions of Americans, who have lost their jobs or having other financial issues due to the pandemic. Use that money to pay for your necessities and for paying off debts.
There are certain aspects you should know about unemployment insurance and stimulus packages
You can get unemployment insurance:
- If you have lost your job, and filed for unemployment insurance. The benefits will be helpful to meet basic needs temporarily, such as housing costs, food, and utility bills.
- People who have lost their jobs, work hours slashed, quarantined, and can't work, unable to join work due to a risk of exposure, or taking care of an infected family member, can get the benefits.
- You can file your claim with the unemployment insurance program in your state. You may apply for the unemployment insurance benefits over telephone or online in most states.
- You may get an additional $600 a week on top of other normal benefits.
You can get the stimulus package:
- If you are affected financially due to the coronavirus outbreak. The Coronavirus Aid, Relief, and Economic Security (CARES) Act is the biggest rescue package worth $2 trillion.
- You have an adjusted gross income (AGI) of $75,000 or less (individual), or $112,500 for heads of household, and $150,000 for joint filers (couples).
- The federal government will provide $1,200 in stimulus check payments to individual taxpayers, $2,400 to married couples filing jointly, and additionally $500 per qualifying child under the age of 17.
7. Avoid financial mistakes and get rid of payday loans - If you are taking a pay cut or facing a job loss, initially you might require some cash in your hand to settle down with the situation. For that reason, if you want to borrow money from other sources, make sure you avoid payday loans.
Payday loans come with high-interest rates, typically 300% or 400% on the money you take out as a loan. Payday loans are short term loans, so if you borrow even a small amount to cover two-weeks expenses, you may still find it difficult to pay it back due to the high-interest rate. If you have any existing payday loans and are getting collection calls from the lenders or collection agency, don't panic. Calls from debt collectors can increase your stress of having financial problems. The collectors may try to harass you, give you threats. But some laws can keep you safe from such abusive collection calls.
If you can’t pay off your payday loan debts, and the interest rate is increasing day by day, then you might want to take help from a debt relief company to settle payday loans once and for all. A popular debt relief company can negotiate with your lenders and bring down the interest rates and waive off all the additional fees and extra charges. The debt relief company may provide you with free counseling where they will evaluate your current financial status and offer you an affordable payment plan.
If you have a small amount of payday loan debt, and if no debt relief companies are enrolling you due to the low pdl outstanding balance, then you should do more research and find another trustworthy debt relief company, which may provide you payday loan consolidation services.
It’s solely your decision whether or not to work with a debt relief company. But as I said earlier, during such a crisis, if you are getting federal unemployment benefits, then you should use the money to pay for your necessities and pay off debts. A professional Debt relief company will look after your finances so that you can settle payday loans easily with maximum savings.
Whether you are experiencing a job loss or taking a pay cut, it’s important to remember that this disastrous economic situation is only temporary. Be an optimist and think positive. It will help you to fight against such critical situations and set up the right mindset towards cutting back expenses and using unemployment benefits properly.