Overcome Personal Cash Flow Crisis Caused By COVID-19
- June 1, 2020
- 5 min read
- 1101 reads
With financial markets crashing and the loss of millions of jobs, Americans are questioning their financial future. It is yet to be determined the real economic impact of the coronavirus as data is changing quickly with limited time to analyze.
There are indications that joblessness will increase in the short term, which can be scary; however, the government and lenders are stepping up to aid households in the pandemic.
If you are one of the millions affected by COVID-19, it may not all be doom and gloom. Although you cannot control this pandemic, you can control how you will financially weather this storm.
Government and amenities providers are stepping up to aid the financial disruption that coronavirus has induced.
We have put together a shortlist of how to get back on your feed after COVID-19.
Federal regulators are ordering Lenders to extend flexibility in mortgage repayments over the next 12 months.
Through this new federal plan, those who have suffered a loss of income can qualify for a reduced payment amount or a mortgage holiday for up to twelve months. Homeowners in a forbearance plan will not incur late charges. Keep in mind that this is not free money and payments will need to be repaid in the future.
Before you go ahead and stop paying your mortgage, make sure to contact your loan provider to confirm what plan they have in place during the pandemic.
Although this is good news for homeowners, it does not affect renters. The government has issued a recommendation to halt the eviction of tenants.
Contact Your Providers
If you are in a cash flow crisis due to COVID-19, make a list of all your amenity providers such as:
- Mortgage / Rent
- Car Loan
- Student Loan
Contact each provider and ask what flexibility is available due to the coronavirus outbreak. Explain your circumstance and provide proof of your job loss.
Keeping in communication with your providers will enable you to keep your credit score intact for future lending.
Create a Budget
Now that you know what you are going to be paying for most of your basic needs create a 6-month budget. Forecast what you will need to live and how much you are going to be short within that period. This is an excellent way to determine how much lending you are going to need. Borrow the least amount possible to help you get back on your feet.
There will be millions of people in need of personal lending due to the COVID-19 pandemic. Avoid emergency credit card use and astronomical interest payments by setting up a personal finance strategy now.
With multiple models of lending available, it is essential to know how each one will impact your future.
If you have a substantial amount in your 401(K), taking a loan on it may be beneficial. However, if you have obtained a job loss cashing out your 401(K) is not a good idea.
Borrowing from your 401(K) can be a low-interest way of taking a loan if you still have the same employer. Not all 401(K) funds allow loans, but if yours does, it could be a cheap way to get money now.
Each plan has a maximum amount you can borrow. The IRS allows you to borrow 50% of your vested balance up to $50,000.
Borrowing from your 401(K) does not require a credit check, which means it should have no effect on your credit.
Our cautionary advice would be to take only what you need to get back on your feet. Dipping into our future retirement needs to be done thoughtfully. You need to be aware that taking a loan from your 401(K) can harm your retirement plan, as you will miss out on compounding interest.
If you have been laid off due to the COVID-19 pandemic, you may be able to leave your 401(K) with your previous employer. If you do this, it will allow you to not have the tax implications of having a 401(K) loan and leaving your job. But be very careful here as you may have to pay full income tax on your 401(K) loan.
Our recommendation would be to compare multiple online lenders to find the right personal loan for your household. It is important to only borrow what you need to get back on your feet from the COVID-19 pandemic.
Make sure that the loan you choose offers no prepayment fees. This means that if your cash flow increases before expected, you will be able to pay the loan back without penalty.
You can search our online database to compare loan rates with multiple lenders at once. This does not, in any way, affect your credit score.
Our online loan calculator saves you time and ensures that you are making an informed decision from researching many options before making a decision.
5KFunds is another well-established platform that allows you to search their database of over 100 vetted lenders to find the right loan. Their personal loans range from $1,000 – $35,000.
You can read our full review of their site here.
While this time is stressful and can create genuine fear of the future, we encourage you to not make any knee jerk reactions. Don’t borrow more than you have to.
Take the time to enjoy the simplicity of life for a while, and remember, humanity has overcome far greater things than this pandemic.
What steps are you taking to ensure you will land on our feet after COVID-19? We want to hear from you, comment below.