COVID-19: How to Prioritize your Finances in time of Crisis

Deferred payments, delayed payments, and forbearance are some of the programs being offered by many utility companies, mortgage servicers, student loan servicers, and some landlords. While there are benefits to these programs, which may include waivers of late fees and suspension of negative credit reporting while in the program, it’s important to understand that these are NOT forgiveness programs. You will ultimately need to pay back everything you owe. Which takes us to our next tip…

Before taking advantage of any of these options, make sure you completely understand all the details. You particularly need to have a clear understanding of what will happen at the end of the agreement.

In many cases, you will need to pay in full at the end of the program. So, while you may not need to pay your electric bill for 3 months, at the end of the 3 months you will still owe 3 months’ worth of electric bills. In the case of your mortgage, the total amount that has been deferred may be due as a lump sum, it may be added to your monthly payment over a set period of time, or you may be able to do a loan modification to extend your payment term.

Ask your servicer what your options are, as they will be different for every single company offering these programs.

If you’ve never had a budget before, NOW is the time. You need to have a very clear picture of what money is coming in and what is coming out so you can accurately prioritize. This will also help you identify if there are places that you can cut costs. You can Google “Free Budget App” to find many different apps that you can use to help.

If you’ve had a drastic reduction in income, you may not have the funds to cover everything in your budget. In that case you must prioritize. We recommend the Dave Ramsey Four Walls approach.The Four Walls are Food, Utilities, Shelter (Housing/Rent/Mortgage), and Transportation. These are the 4 things that your family absolutely must have to survive. These are the priorities in your budget. Make sure these are covered before anything else.

Once you’ve covered your Four Walls, if you can, continue to make minimum payments and make payments on-time for all other lines of credit, credit cards, student loans, etc. A single late payment can have a huge impact on your credit score. Again, depending on your situation that may not be a priority right now, and if so, that’s ok. But if you can make it work in your budget, your future self will thank you.

Your stimulus check should go into your budget! Use it to catch up on any bills that are past due, or pay in advance on your rent, mortgage, auto loan, etc. If your income has been unaffected to this point, save your stimulus money. None of us know what the future will bring, but it’s better to have that money there as a safety net in case your situation changes unexpectedly.

This pandemic is unlike anything we have ever collectively experienced, and hopefully will be something we will never again experience. But at some point, the storm clouds will clear, and the rainbow will come out. We want to make sure that when that happens, you are in a good position to move forward with your hopes, dreams, and goals. The financial decisions that you make today can and will have an impact on your future.