As the coronavirus pandemic spreads and the US economy remains mired in a recession, many Americans may struggle to find money.
Nearly half of the population is still unemployed, according to the Bureau of Labor Statistics. The employment-to-population ratio, which is the number of people employed as a percentage of the US adult population, was 52.8% in May. This means that 47.2% of Americans are unemployed.
Meanwhile, another stimulus package is still pending in Congress. While the end result is unclear, President Donald Trump recently told Americans he was in favor of more stimulus checks. Also on the table, the extension of unemployment benefits and the offer of back-to-work bonuses.
The additional $ 600 that the unemployed currently receive each week are expected to end no later than July 31. However, for some, they will end on July 25 or July 26, depending on how states prepare for their weekly unemployment cycles.
This means that a lot of people may need to find ways to raise more money.
“The most important real thing here for everyone is to make a quick budget for yourself,” said Chad Parks, founder and CEO of Ubiquity Retirement + Savings.
“Start with cash flow and write down all your absolutely necessary expenses,” he said. “We’re talking about bare bones here.
“If you have a negative number, then you need to look for sources of money.”
Parks also suggests finding the money to last you six to nine months, so if your budget is tight by $ 1,000 per month, look to access $ 6,000 to $ 9,000.
Where you can get that money depends on your situation.
Consider a 401 (k) loan
Experts warn against withdrawing from your 401 (k) plan, which is now penalty-free under the Coronavirus Relief Program, or CARES Act, for amounts up to $ 100,000.
However, a loan can be an option. You have to pay interest, but you pay it back to yourself.
Typically, you can borrow up to $ 50,000 or 50% of your acquired account, whichever is less. The CARES Act has temporarily doubled this amount to $ 100,000 or 100% of your acquired account, whichever is less. The loan term is generally five years, but can be longer for the purchase of a home.
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However, there are pitfalls.
If you quit your job, you will have to repay the entire loan, usually within 30 days. If you don’t, it will count as a distribution and you will pay a penalty.
“Unless you have good job security and are sure nothing will happen, I tell people to be very careful taking 401 (k) loans,” Parks said.
Pay less for loans
If you need to borrow money, here is a good strategy.
Join a credit union. It’s similar to a bank, but it’s not exactly a bank.
Credit unions are non-profit organizations that exist to serve their members. Like banks, they can take deposits, offer loans, and provide other financial services. Your money is insured by the federal government in a federal credit union for up to $ 250,000, under the National Credit Union Administration, an account insurer.
One difference is that credit unions are cooperative institutions owned by their members. Banks are for-profit business enterprises. When you deposit your savings in a bank account or take out a loan, you are a customer. All profits flow up the chain to the shareholders.
This difference usually means that you get a higher rate on your savings with a credit union, and you can borrow money at a lower rate as well.
Here’s a look at the rate difference from March, the most recent data available, from the NCUA.
The national average rate for a three-year fixed-rate unsecured loan from a credit union was 9.28% and 10.2% for a bank loan of the same term.
You must be eligible to become a member of a credit union, but it’s less difficult than you might think, says Jacqueline Ramsay, vice president of public affairs and communications at the National Association of Credit Unions at federal insurance.
Some credit unions are open to people working in a specific profession, such as teaching, or to relatives of a member.
Using credit cards
It might sound counterintuitive, but use the available credit on your credit card to help pay the bills instead of “looting your retirement account,” Parks suggested.
You certainly wouldn’t be alone.
Nearly half of American adults (47%) currently have credit card debt, according to a CreditCards.com survey released in May. Of those who already had credit card debt before the pandemic, 23% added to it, according to the survey.
Contact your lender and see what help they have to offer. You may be able to skip a payment or two or lower your interest rate and it won’t affect your credit score.
“Some are very generous with their hardship programs,” said Ted Rossman, industry analyst at CreditCards.com.
Your credit card provider may also have programs that help you pay for large purchases or give you access to cash. You can get a lower rate and more predictability in your payment schedule.
However, avoid cash advances from your credit cards, as those interest rates can hover around 25%, in addition to the cash advance fee, Rossman warned.
If you are racking up debt, be sure to come up with a payment plan so you don’t carry it for years.
Refinance your home
You could free up money each month by refinancing your home at a lower rate and having a lower monthly mortgage payment.
“With mortgage rates at record highs, this opened the door to refinancing, even for homeowners with very low rates who never thought they needed to refinance,” said Greg McBride, financial analyst at chef at Bankrate.com.
The 30-year benchmark fixed refinance rate is currently 3.33%, according to Bankrate.com.
However, you will still have to pay the closing costs, so look for the lowest costs.
Cash-out refinancing, which allows you to walk away with cash in your pocket after closing, is more difficult to come by these days.
It also becomes more difficult to borrow against the equity in your home.
If you are unemployed you will be out of luck. Some banks have even temporarily stopped accepting home equity line of credit applications.
McBride cautions the HELOC route if you are looking for the cash to get through these tough times. Indeed, if your financial situation deteriorates, you might be out of luck.
“You are putting your house in danger,” he said. “The potential consequence of non-repayment is a foreclosure or sale of the house and leaving with little or nothing to show. “
Get more control over your spending by taking stock, says Andrew Rosen, certified financial planner and partner of Diversified Lifelong Advisors in West Chester, Pa. It uses a more personal method than just tracking money and cuts.
Start by asking yourself what is most important. Next, take a look at your past expenses and calculate what percentage of your income they represent. For example, if you bring home $ 5,000 a month and spend $ 1,000 on payment and maintenance of your car, that’s 20%. Now is the time to see if you want to spend this amount just on your car.
Once you’ve saved that $ 1,000, for example, says Rosen, the next logical step is to find other discounts. “There are all kinds of economical ways to save on the things you want to keep in your life,” he said. You can swap cable for a cheaper streaming service, ditch a credit card with high annual fees, or cancel an annual subscription.
Normal financial wisdom doesn’t always apply in abnormal times. If finances are tight, maybe now is the time to stop aggressively repaying a loan, says Tony Zabiegala, chartered retirement planning advisor and vice president of Strategic Wealth Partners in Independence, Ohio.
You can also create income by temporarily reducing your 401 (k) contributions. “At least contribute to the game,” Zabiegala said.
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A relatively easy way to increase your income: the side hustle.
There are a number of ways you can withdraw additional money, but be sure to report any additional income on your tax return.
Nearly half of American workers have a sideline outside of their main job, Bankrate found in a 2019 survey of 2,500 adults.
Even in a healthy economy, a third of American workers with a sideline said the extra income was essential to help them cover their living expenses, according to the survey.
Robert Nickelsberg | Getty Images
As more and more people are out of work and doing their own shopping, side activities may not be as easy to obtain. One thing people do for money is to start their own home cooking business. Other possibilities are delivery jobs and distance education.
Platforms and websites like Etsy, Skillshare, eBay, Poshmark, and BackMarket, among others, make it easy to sell your own products and designs. TaskRabbit, Thumbtack, and Nextdoor are a few sites where you can list your skills and sell services locally.
The Internet is also a rich source of practical information on side activities, with sites like Side Hustle School.
Nick Loper, who runs Side Hustle Nation, actually makes a living from odd jobs. After several years of trying out different side jobs – from self-publishing on Amazon to selling online to affiliate marketing – Loper, who lives in Livermore, Calif., Finally quit his full-time job.