Protect Your Finances From COVID-19: 6 Things You Need To Know

With the COVID-19 pandemic still going across the United States, many people are focusing on risks. Most people are aware of the coronavirus’s health risks and how to protect themselves against them (social distancing, masks, etc.). There’s also a significant financial risk to the COVID-19 pandemic. With unemployment rates at 14.7%, mass closures across multiple states are wreaking havoc financially for millions of Americans.

If the coronavirus has financially impacted you, here are six things you should know!

You Have Options

First, remember that you have options. You’re not in this alone. Millions of other Americans are in the same boat as you.

The CFPB (Consumer Finance Protection Bureau) has encouraged lenders to work with people who have had negative impacts from this virus. Therefore, if you have lost your job or lost other income (e.g., rental income) due to the virus, there are quite a few loan forbearance and modification programs about which you should know.

For people who owe money on their credit cards, there are no federal programs for this type of debt. However, the CFPB and other regulators have encouraged banks to be flexible at this time. Therefore, most credit card issuers are willing to work with people to come up with a payment plan. Usually, you can delay, adjust, or skip payments. If you’re having trouble paying these, you should call your card company up and tell them your situation and how much you can pay. There’s a good chance that you’ll be able to get a modification.

The CARES act that Congress passed specifically addressed mortgages. If your loan is with a federal institution (e.g., Fannie Mae or Freddie Mac) and you experience financial hardship due to COVID-19, you have the right to request a forbearance for up to 180 days. You can request another 180-day extension after that. There are no additional fees, other than the typical interest that will accrue. You do not need any detailed documentation, either. You merely need to certify that you have hardship.

For student loans, again, if the federal government holds it, then you should know that they suspended payments until September 30, 2020. For loans held by other financial institutions, you will need to contact that bank or credit union to discuss available options.

With auto loans, since the federal government isn’t involved in those, the CARES act does not apply. However, much like with credit cards, auto loan companies understand these difficult times and are willing to work with people to keep their vehicles.

Unemployment Rules Have Changed

If you have lost your employment, there’s good news in the CARES act for you! The law boosted unemployment by up to $600 per week and also provides 13 weeks of benefits above the regular time. This added pay will help most people make ends meet even if they may be in a high cost-of-living area.

Beware Of Scams

Unemployment scams have risen dramatically with the pandemic. In Washington State, for example, they lost hundreds of millions to scammers who stole social security numbers. If you have a job now, it’s easy to miss this type of fraud since you may not receive any notices about it. Someone could be walking away with your unemployment money!

However, if you do lose your job in the future and a scammer targeted you, it’s going to be challenging getting your benefits processed. There will undoubtedly be significant paperwork and investigations that can delay your funds.

The unemployment scam is not the only one. Others, like fake job opportunities, or calls requesting payments, are on the rise as well. Be vigilant and look out for anything suspicious. Sadly, with many people facing financial difficulty, this is a prime time for scammers to try and take advantage of unsuspecting victims.

Look At Your Credit Reports

Check your credit reports regularly. Your credit reports will alert you to scams, but they’ll also do something significant: ensure that any modifications you make to loans reflect accurately. Unfortunately, it’s all too common to make a loan modification, and the lender records it as a late or underpayment. If a mistake like this happens, it could make obtaining other loans challenging in the future.

Of course, checking your report isn’t something about which to be obsessive. Look at it every month or so and make sure there are no new accounts and no incorrect entries.

You Are Not The Only Person At Risk

If you have parents, siblings, a spouse, or children, one or more of them might be at risk financially. Scammers love to target the elderly. Or, this recession might give your grown son or daughter their first bout of unemployment. They may not know about their options regarding student loans, mortgages, or credit card payments.

Protect not only your finances but the money of everyone around you. It certainly won’t do you any good to stress your relative’s life during the middle of a pandemic!

You Can Take Penalty-Free Retirement Withdrawals

If you find yourself in financial distress – no matter what the reason is – you should know that Congress has made it easier to withdraw money from your 401(k) or IRA, and use that for expenses during this pandemic. The CARES act allows people to take money out if the coronavirus has directly impacted them. Usually, this is through a layoff, although having a positive COVID-19 diagnosis also counts.

In these circumstances, the IRS is waiving the 10% penalty for early withdrawals. You can take out up to $100,000. As with a normal distribution, you will have to pay tax on it, but you have the option of spreading those taxes over three years. If you elect to do that, you’ll report one-third of the income in the first year, one-third on the second, and one-third on the final year. This leniency for paying taxes makes dealing with COVID-19 much easier financially.

Stay Vigilant Financially

Unfortunately, this pandemic is bringing out the worst of scammers who are looking for easy prey. They know that people will be distraught and stressed about getting their unemployment, forbearances, and deferrals. They’re hoping people won’t check their unemployment or notice that another account is opening on their credit report. You need to stay on top of these scams to ensure that you and your loved ones do not become unwitting victims.

If you find yourself without income, the first thing to do is to file for unemployment. With the extra $600 a week from the CARES package, most people should find that they will at least tread water for a little bit. You can also withdraw penalty-free from your 401(k) or IRA!

Once you have filed for unemployment, consider your current expenses, how much UI you’re getting, and what you have saved. If you don’t think that you will have enough, begin requesting modifications on your home, auto, and credit card loans as soon as possible (the CARES act automatically defers student loans). With timely requests, you’ll give the institutions the ability to help you get through these unprecedented times.

Of course, always remember that you’re not in this alone! Millions of others are facing similar issues. We will all get through this together! To learn more, contact the adivors at M&A Wealth in Houston.