Are you concerned about the effect of the Coronavirus on your personal finances, career, and/or education?
Please bear in mind, due to the volatility of the COVID-19 pandemic, details about the illness, public response, policy, and more, are subject to change. Please consult your state and local offices for the most accurate and up-to-date information about the COVID-19 pandemic in your area; and for global updates, consult the World Health Organization .
Create a Payment Triage Strategy:
Most experts recommend that you prioritize your bill payments according to what you need the most and what you have to lose if you don’t pay.
This means you should first consider paying for the assets and services you cannot do without. This often includes your home mortgage, heat, water, etc. because they can materially affect your health and well-being if they get cut off. For example, if you stop paying your mortgage, you might lose your home, which is definitely a risk to your health and safety.
Next, experts recommend that you pay any debts that are backed by assets1. You may want to consider these debts as your second priority because you can lose assets if you don’t pay the monthly bills. For example, if you don’t pay your car loan, you will eventually lose your car, which can then cause significant trouble in your life.
Lastly, you may consider your final priority of payments to be non-collateralized/unsecured debts. These are debts which are not connected to essential services or backed by any assets, so failing to make these payments does not put you in immediate hardship. Such debts can include credit cards, personal loans, and student loans. While such debts can definitely cause problems if not paid over the long run, they are the least likely to cause significant issues if not paid during a short-term crisis period.
Which Bills to Pay
If possible, experts strongly recommend that you pay all your minimum payments first before paying anything above your minimum payments. This allows you to avoid having missed payments on your record and is hugely helpful in maintaining good credit.
However, if you cannot pay all your minimum payments, you may then decide to mentally prioritize your debts—either using the prioritization efforts described above or using your own prioritization method. This can help you decide which payments to make and which ones you might have to delay.
It is important to keep in mind that if you cannot pay a minimum payment in full, a partial payment will still have a negative effect on your credit. Given that, you may want to prioritize making a lower number of full minimum payments over making a higher number of payments that are only partial.
Negotiate with Lenders
If you are encountering financial hardships due to a crisis, one option you may want to consider is negotiating with your lenders. While minimum payments can seem like hard rules, there are many instances where lenders will be flexible in consideration of a crisis—especially if that crisis is widespread. For example, many financial institutions have provided financial assistance during the COVID-19 pandemic by waiving fees and allowing customers to defer payments on debts. So, it can be of significant financial benefit for you to at least ask your lenders if other options are available.
When negotiating with your lenders, there are several compromises that may be available to help protect your credit. Like in the example above, you may be able to defer payments to avoid having a missed/late payment on your record. You may also ask about lowering your monthly payments in exchange for paying for a longer period of time. This means you are more easily able to make your payments, and the lender also doesn’t lose money on the arrangement. Other options may include lowering your APR so that future payments on any remaining debt will be lower.
For bills that are run by the government, such as utilities, you may be able to take advantage of hardship benefits. For example, Arlington, Virginia offers financial assistance for heating and cooling bills2. Such programs already exist for many local governments, and a major crisis can lead to even more programs being available to you.
Stay Calm and Protect Your Financial Future
By its very nature, a crisis is scary. It can be very easy to not think about your financial situation, and instead focus on just getting by or staying healthy in the case of a pandemic. But staying calm and developing a financial strategy is very important for you and your family. It can help you get through any crisis you may be going through in the short term, and protect your financial future in the long term.