Financial Strategies To Adopt During Uncertain Times
RACHEL MARTIN, HOST:
Last week, 3.3 million Americans applied for unemployment benefits. And as the pandemic continues to spread, many are thinking about their next paycheck. But whether you're worried about making rent or falling back on your student loans, there are some strategies to help you cut back on your spending.
For more, I'm joined by Michelle Singletary. She's a personal finance columnist for The Washington Post. Michelle, thanks for being here.
MICHELLE SINGLETARY: Oh, my pleasure.
MARTIN: Many Americans have been laid off or have at least seen a drop in income in recent weeks and are probably worried they won't be able to make rent this month. What should they do?
SINGLETARY: Well, the first thing you do is you're going to reach for wherever you can find cash. So if you are unemployed, file for unemployment insurance right away. Obviously, if you've got emergency funds, tap that. Cut any unnecessary expenses. If you've got things that you're automatically paying that are not essential, pause those. And then the next level is looking at pots of money that you wouldn't normally tap, like your retirement account or you want to pause if you're making contributions to your kid's college fund. Look for two things that are not necessities right now.
MARTIN: During the financial crisis of 2008, it was the same situation - many Americans couldn't pay their mortgages; they'd lost their homes, in fact. How was the government response different this time, this crisis?
SINGLETARY: Well, Fannie Mae and Freddie Mac and FHA have encouraged lenders and have put in place provisions that allow them to stretch out when people need to pay their mortgages. But it all depends on who's backing your loans. Many people have nongovernment-backed loans, and they are not subject to these provisions that the government-backed loans are.
So you, first of all, have to find out who owns your loans. And if it's a pool of investors, there's less safety there for you. And what I'm hearing from readers who've contacted me is that many of the lenders are saying, we'll give you a break for 90 days. But at the end of that 90 days, you've got to pay all that money back plus that current mortgage. So the best thing I can tell you to do, if you can get through to your lender - 'cause that's the other problem - many people are calling an on hold for hours and hours and can't get through. Just keep trying to get as much relief as you can from your lenders.
MARTIN: The federal government is going to provide some economic relief - right? People are going to see as much as $1,200 in their bank accounts. Understanding that every household is different and the needs are different, what's your best guidance on what to do with that money?
SINGLETARY: So if you haven't filed a return and you're eligible for this money, go ahead and do an EZ return. You can go to irs.gov. There's Free File. Do not respond to any telephone calls or text messages or emails. You will not be contacted that way for this money. It's coming through the IRS. If you receive Social Security, you'll get it just like you get your Social Security check. There is nothing that you have to do other than file your tax return if you haven't filed one. If you have lost your job or had a disruption to your income, save this money for the necessities - for your rent, your utilities, food. Don't put it on debt. Don't put it on your credit card. Pause that. Call your lenders, say I can't pay 'cause you want to use this money for the things that you need right now. Let's worry about your credit and debt later, when you've got some more financial freedom.
And I'm hearing from a lot of people who are getting this money - some couples as much as $2,400 - and don't really need it. And they're asking me, what should you do? I would say, pass it on to someone else because we're all in this together. And we truly are, in this financial crisis, each other's brother's and sister's keeper.
MARTIN: Michelle Singletary, personal finance columnist for The Washington Post. Thank you so much. Good advice, Michelle. Thank you.
SINGLETARY: You're welcome.
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