During periods of financial hardship, paying bills and managing your money can become a daily challenge.
If you are financially distressed, either due to sickness, reduced work hours, or a permanent job loss, you should know what options are available to help you manage this difficult period.
A conversation with an M&T Banker is a great place to start to understand what your next steps can be. Together, we’ll discuss the short-term advantages and long-term consequences of the decisions you’ll make for you and your family.
Here are five considerations for you:
1. Don’t be afraid to call your Bank
M&T, like most financial institutions, wants to help you find solutions. As your banking partner, M&T Bank Corporation is not looking to take negative action against you. We are experienced professionals who will work with you to help you best understand your options. There is no blame—we want you to succeed. Reaching out early could help you avoid missing payments and damaging your credit.
2. Think it’s too late to make a budget? Think again.
If your income has been reduced or eliminated, it could cause stress financially and emotionally. If you don’t have a savings account to fall back on, you’ll need a budget to help you manage your new reality.
Most important when creating this type of budget is the health and well-being of you and your family. What expenses need to be covered in order to manage daily? Start by calculating your cash inflow. This includes your salary, unemployment benefits, severance pay, or any other sources of income.
Your priority right now is housing (rent or mortgage), groceries, medicines, health insurance, and basic utilities.
Next, eliminate unnecessary expenses. Lower your costs as much as possible. Consider scaling back your cell phone service. You can also trim costs by using coupons or apps when shopping for groceries. Think about other variable costs you can live without for a while such as subscriptions, memberships, streaming or cable services, etc. Also consider ways you can reduce your spend on beverages, snacks, or takeout food.
3. Be creative when reducing expenses
- Consider pausing contributions to retirement accounts
If you are still working but your hours have been reduced or you are concerned you may be laid off you can temporarily suspend contributions to your retirement accounts. You may miss out on a company match, but the extra dollars back in your paycheck could be vital now.
If you are not currently employed, and are still contributing to an IRA, suspending contributions to your account will provide you with immediate cash inflow. While you may fall behind in your long-term goal, the short-term need may be just as important.
- Re-evaluate your auto or home owner insurance
Insurance is important. However, you could potentially save money by shopping for a better rate. You might even consider temporarily changing your coverage level.
- Look into a utility payment plan
Depending on where you live, the fluctuation in your heating and electricity costs could become a burden. Speak with your utility company about setting up an equal payment plan. Your monthly payment may not be reduced but having a predictable monthly bill may make it easier for you to manage your cash flow.
- Examine your bank fees
Check with your bank to see if what, if any, bank fees you may be incurring. If you are paying significant fees, consider switching to accounts with low or no fees.
4. Prioritize your debt
Pay your most important bills first. While this may sound simple enough, how do you accomplish this? There is no “secret sauce.” Each consumer is different. Do your research and speak with your lenders to see your available options and commit to a plan.
Prioritizing your payments for items such as mortgage or rent, credit cards, loans, utilities, and insurance will help you better balance your budget. Which of your expenses has the highest interest rate? Pay those off first, if possible. This may mean making minimum payments on credit cards rather than paying off the balance in full. The idea here is to keep the balance low and limit your credit card use.
Some additional expenses you should consider when prioritizing debt are: 1) child support, 2) cell and landline phone, 3) cable/satellite TV, 4) medical bills, and any other bills specific to your circumstances. Remember to keep track of critical due dates to avoid missing payments.
Whatever you do, don’t make nonessential purchases. Now is the time to distinguish between “wants” and “needs” A cable package is a “want.” Electricity for your home is a “need.”
There may be even more you can do to manage debt during a difficult time:
- Reach out to your creditors
Some creditors may be willing to lower your payments in order to help. Others may not. But it is important to contact them and see what terms you can negotiate.
If you have been affected by COVID-19, there are special programs available to homeowners and borrowers, depending on your state of residence. Reach out to your mortgage company or financial institution. Your mortgage or loan officer may be able to lower or pause your payment for a specific period of time, but this does not happen automatically.
Remember, even if your lender is able to provide relief, it does not mean you do not owe the money. Your payments are not forgiven.
- Suspend your student loan payment
If you are currently paying off a student loan that is backed by the federal government, your payments have already been temporarily suspended through December 31, 2020, thanks to the CARES Act. During this period there will be no penalties and interest will not accrue, but you may continue to make payments if you choose.
Learn more about federally backed student loans.
- Consider alternate forms of funding
Sometimes, you may have resources for cash you didn’t consider initially. Do you have a savings account that you’ve ear-marked for a special purpose—a “rainy day” or vacation fund? As disciplined as you’ve been about not using it, now may be a good time to break your own rule. Other possible sources of funding:
- Your IRA or 401k account – there is a limited time opportunity in 2020 to access these funds penalty-free (Learn more)
- If your credit is in good standing, consider applying for a personal loan or perhaps a credit card that offers a low rate balance transfer
- If you have a credit card, a cash advance could be an option. However, this is an expensive option. Evaluate your ability to pay back before you go with this option
- If you own a house, think about refinancing or a getting a home equity loan/line of credit
5. Apply for unemployment insurance
The unemployment benefit of $600 per week available through the CARES Act has expired. However, President Trump signed an executive order for a $400 per week unemployment insurance expanded benefit. Although the plan is in effect from August 1 through December 27, how soon eligible recipients will see the money is dependent upon the states as they are being asked to cover 25% of the costs, or $100 per recipient, while the federal government pays the remaining 75%, or $300 per recipient.
However you choose to navigate this crisis remember you have options. For more information, explore mtb.com/be-informed for the latest on M&T programs. During times like these it’s good to know you can turn to others for advice and guidance. An M&T Banker is available at your convenience to meet over the phone or in person. Schedule time today.
This article is for informational purposes only. It is not designed or intended to provide financial, tax, legal, investment, accounting, or other professional advice since such advice always requires consideration of individual circumstances. Please consult with the professionals of your choice to discuss your situation.