4 Tips to Manage Debt and Loan Payments During COVID-19
BECU Lead Financial Educator Stacey Black shares advice on how to approach debt and loan payments during the pandemic.
Stacey Black has been a financial educator at BECU for more than 20 years. Stacey can most often be found leading student workshops on budgeting, credit and more financial topics.
Now that we are more than six months into the pandemic, we can all agree that the effects of COVID-19 have been real and painful. As a financial educator, I know that for many people, the combination of interrupted income and unanticipated expenses has made it more difficult than ever to pay off debt, stick to a budget, or both.
Below are four tips on how to combat these negative impacts, and increase or maintain your financial well-being during this challenging time.
1. Reach out for help
If your income has been interrupted, consider reaching out to your financial institution to see if they are willing to work with you on changing due dates or delaying payments.
For example, BECU offers a Member Assistance Program to support members facing financial hardship due to unforeseen circumstances, like a global pandemic. The Member Assistance team may be able to help with short-term payment relief, loan modifications or more.
2. Adjust your goals
If you have experienced or think you may experience a disruption in income, consider putting your plans to eliminate debt on pause and focusing on paying only the minimum payment due instead.
Putting your goals on hold may be disappointing, especially if you were working toward a major goal like saving for a house or a wedding, but know that making this short-term setback will benefit your financial goals in the long term.
It's better to have peace of mind and cash on-hand for emergencies or unanticipated expenses. To set up an emergency fund, get in touch with your financial institution and open a savings account that you can only tap into in the event of an emergency. Once you're back in a place where you have disposable income, consider setting up automatic transfers to ensure you're continually saving and looking into other long-term debt payoff strategies.
3. Avoid additional debt
As you work to pay off debt during COVID-19, I recommend prioritizing essential expenses like housing, utilities and food. Also, avoid taking out new loans or turning to credit cards to pay expenses, even though it may seem like the easiest solution right now. In the long-term, you could actually end up paying thousands of dollars in interest – and your credit score could take a hit.
However, if you've exhausted all other options and do need to go the credit card route, look for low interest rates, low fees, and favorable terms. Make sure you also consider how the new minimum monthly payment will factor into your monthly budget.
4. Reevaluate your spending
Just as your income may have changed due to the pandemic, you may also be facing different unforeseen expenses. The first step to managing your finances is to assess how much you're spending and see where your money is going.
BECU members can view categorized expenses in Money Manager to help track and identify spending trends. Or consider regularly reviewing your bank statements to see if there are ways to cut or pause non-essential spending for the time being.
One other way to do this is by starting a spending journal to keep track of all your expenses for at least 30 days. Even if you've done this pre-pandemic, it's important to account for how your spending habits may have recently changed and identify areas where you could possibly spend less. For example, now is a good time to look over any monthly subscriptions, such as gym memberships or streaming services, and cancel any that you can live without.
You can also call your insurance, cell phone or cable company to see if they offer promotions or temporary rate reductions. Anything you pause now can always be added back when your financial situation improves.
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