We all want to be smart with our finances. Unfortunately, the coronavirus pandemic has turned the economy and the financial life of many upside down. Millions are currently experiencing a significant reduction in their paycheck. Unfortunately, some have even lost their source of livelihood.
Due to a sudden reduction in income as a result of the pandemic’s effect on the economy, consumers are now acquiring more debt than before. And it’s causing a snowballing effect where, in turn, more people are filing for bankruptcy than ever.
An economic downturn, income reduction, job loss, and increased debt all create a major monster—financial hardship. According to a poll by CBS news, most Americans have either experienced financial hardship or know someone who has. Whether you are experiencing financial hardship because of Covid-19 or would like to know what to do in case, this article will equip you with the knowledge to respond to and restore your personal finances.
What to do in financial hardship due to covid-19
Gaining stability during financial hardship can seem elusive, especially in a pandemic. Most of us do not want to look at debt settlement and bankruptcy before we look at all of the different options. But it’s still possible if you have concrete plans.
Here are some things you should do if you are experiencing financial hardship due to the pandemic:
Look into refinancing debt
With the low-interest rates, refinancing your debt is a smart financial move right now. You might be able to refinance your mortgage or your student loans to get a lesser interest rate. While refinancing your private student loan is a good idea, beware that doing the same to a federal student loan can be detrimental as it blocks you from access to income-driven repayment plans.
Refinancing your debt reduces the interest you pay on your debt, which will free up more funds in your budget. However, to qualify for a significant reduction in interest rate, then you must have a healthy credit score.
Get a grasp on spending
Create a budget if you haven’t done that already. Consider getting a budgeting app for this—it’ll make the process a lot easier. Regardless of whether you decide to use a budgeting app or not, assign a percentage to every aspect of your finances. For example, you can assign half of your income to necessities. Then, about 30% for wants like home décor, dates, etc. Finally, the last 20% can be assigned to savings and debt payments.
After you have established these percentages, if you notice that your wants, or any other aspect is consuming more than the allotted percentage, take concrete steps to reduce such expenses.
Get a side hustle
If you’re experiencing a financial downturn in your income level, finding a side hustle can be the perfect solution. A side hustle doesn’t have to be something technical, it can also be a hobby. For example, if you have graphic design or writing expertise, you could do freelance work. When you think of side hustles, remember that they require as much or as little effort as you are willing to put in.
You may have done all of these and still do not have enough to keep you afloat, so you are considering bankruptcy. Two important things to research is the difference between Chapter 7 and Chapter 13 bankruptcy and consider bankruptcy alternatives. You will also want to find the answer to the questions, “What is the income limit for filing chapter 7?” as there are certain guidelines you have to follow in order to qualify for a Chapter 7 bankruptcy.
How to Protect your Finances
No one knows when everything will return to normalcy. School closure and social distancing have been stressful. To add to the uncertainty, a steady source of finance for some families has gone away. But all hope is not lost, you can still protect your finances if you have the determination and the requisite knowledge for that.
With many cleansing breaths and smart financial decisions, you can protect your finances! Here are some specific tips to protect your finance from the impact of coronavirus:
1. Reassess your financial status
Quite often, we’re so focused on the daily struggles that we forget to reflect on the possibility of our income being halted. What do I mean?
If you’re in a sector with signs of financial instability, e.g., the oil sector, you may need to build a robust emergency fund. You should also take investment and saving more seriously as a drop in revenue could cause your employer to lay off staff.
Carry out a reassessment every six months. And ask yourself if your actions now can take you close to your financial goal.
2. Put off paying your taxes for a bit—or get your tax refund
The government has numerous tax stimuli that you can employ to soften the raging effect of Covid-19 on your finances.
File for a refund: You can immediately file for a tax refund if you qualify for one. Take everything back and save or reinvest it for an emergency.
File later: If you can delay when you pay your taxes within an acceptable time frame, then do this until you get your financial buoyancy back. It can come in handy in helping meet an immediate financial need.
3. Manage Credit Card Debt
Personal finance experts like Dave Ramsey warn that you should avoid credit card debts at all costs. However, debts are seldom unavoidable, as most Americans don’t have enough savings to deal with sudden financial woes. Here are the things to do if you’d like to use the credit card option:
Plan to pay off any credit card debt you plan to acquire: You may not have the financial strength to pay off your debt right now. That said, create an actionable plan to clear it once you’re back financially. Check out a free debt payoff planner app that can help you prioritize and eliminate debt for free.
Choose the right credit card: Most Americans have a credit card, and many have at least two credit cards. Check through with your financial advisor to choose a credit card with the lowest APR.
However, be careful with credit cards as lenders are now lowering credit lines. Borrowing above that limit will put your credit score in jeopardy.
4. Have a budget and stick to it
The biggest mistake that most households make is not having a budget. And those that have one hardly stick to it. Sticking to a budget can help you in more ways than you can possibly imagine.
The effect of the Covid-19 has influenced everyone in one way or the other. Many Americans have been affected financially, or they know someone that has been affected. As such, you should have a plan that will protect your finances during this pandemic.
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