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I’m 28 years old and I was fired from my job at a real estate company in April, once it was obvious that COVID stayed for a while. I applied for unemployment, but it took about six weeks to arrive. Meanwhile, I basically lived off my credit card, which already had a balance of about $ 5,000 since I moved to New York two years ago. Now that balance is almost $ 8,000, and I still don’t have any income other than unemployment, which is about $ 850 per week. I’ve used that money to cover my rent ($ 1,600 a month), Cobra health insurance ($ 600 a month, Jesus) and student loan bills (about $ 400 a month), plus food, the internet, my phone bill, etc. I also had to buy a new laptop because I was previously using my work computer for everything.
My debt is now starting to scare me, and it’s only getting worse. I consolidated my student loans a few years back, making it a private lender and offering no leniency or anything (I still owe around $ 30,000 the last time I checked). My old employer is still in bad shape, so I have no idea when I will get a new job or a previous one. And I know that by the end of July, my unemployment checks will drop to $ 250 a week, in which case I will be totally screwed.
I’m starting to panic. I have been paying the minimums on my credit card bills, but that barely covers the interest (I think the APR is 17 percent). And the interest rate on my student loans is 8 percent. I stay up at night thinking about how my debt grows every day. I have read that banks and lenders are supposed to help people in my situation, but I am concerned about asking for help. Is there anything I can do to get out of this or at least put myself in a better position to recover financially when I find a job again?
Debt is especially confusing right now, when it is impossible to plan something. How can any of us trust conventional wisdom about finances when disaster has become normal and help is promised but delivered arbitrarily? When do some people rest and others not? I don’t know, honestly. You are in crisis mode for reasons beyond your control, so it is understandable that you feel helpless. The most important thing is to stay safe and chart small, realistic steps to overcome this.
According to the debt experts I spoke to, you have three main goals: You want to keep your credit score as good as possible. You want to accumulate some cash in case you don’t get a new job before your unemployment benefits are reduced. And you want to prevent your debt from growing as much as possible. Unfortunately, these three things are at odds with each other. So this will be a bit of a tightrope.
First, don’t wait for your former employer to hire you again. Start looking for a new job now. You probably won’t find the job you want, but almost anything will be better than trying to live on $ 250 a week in New York. Remember that it will be temporary. The goal is to step on the water until something better, ideally, your old job, or a similar one, reopens.
Second, look for cheaper health insurance. Losing your job qualifies you to enroll in a new plan through your state’s health care market, and you should at least be able to save a few hundred dollars.
As you do (and I’m sorry to say the obvious), take a look at where your money is going. I’m sure you already have a basic budget, but anything you can save will come in handy. I personally write every dollar I spend using the Notes app on my phone. It sounds crazy, I know, but it gives me a sense of control when I’m scattered and anxious, and it helps me see what I can cut. You should also try calling your landlord to see if you can get a rental break. And if you have a chance to move to a cheaper place (for sure!), Take it.
And so, your credit card. Under normal circumstances, you want to avoid accumulating consumer debt at all costs. But these are not normal times. And one important thing to know is that many credit card companies are lowering their customers’ credit limits without notice. “If you have a $ 10,000 credit card limit, there is no reason to expect it to not be $ 8,000 next week,” says Michael Sullivan, director of education for Take Charge America, a nonprofit advisory agency for student credit and loans. “When things are uncertain, banks reduce risk by reducing lines of credit. And the people who lose are often the people who need credit the most. “
For that reason, and it pains me to say this, Sullivan recommends that you continue to put your expenses on your credit card while you collect some cash. “If you have credit, use it now, because you don’t know when it could run out,” he says. “If you don’t have an income or a very limited income, you should keep every dollar.” To be clear: Running a credit card bill to save cash is usually a very bad idea! Credit card debt is expensive and difficult to eliminate. But as a short-term emergency solution, this could be your smartest option in case your credit and his unemployment ends soon. (Congress could extend the special unemployment benefits of the CARES Act, but nobody should bet on it).
In the meantime, keep making your minimum payments on time so that your credit score is not affected. If, at any time, making those payments becomes unsustainable, call the phone number on the back of your credit card and ask for assistance. It will be awkward, but be patient: you are asking for a favor. I recommend writing a script beforehand so you stay calm and focused. Try something like: “I was fired due to the coronavirus and my income has been severely affected. I don’t know when I will be able to go back to work, and I don’t want to be late on my payments. I want to do the right thing. Would it be possible to establish an alternative payment plan or a deferment plan? You may need to ask to speak to the person’s supervisor, but be persistent – they are being inundated with these types of calls.
It’s reasonable to expect your lender to offer you a special hardship plan that will waive late payment penalties for a few months, says Bruce McClary, spokesman for the National Foundation for Credit Counseling. “Some creditors offer plans that give you two consecutive months to skip a payment. Other creditors may offer a one-month deferment at a time, with the requirement that you revisit the issue every 30 days and have a discussion with them. It depends on the credit card company, but generally the programs allow you to skip a payment without penalty, or report it to your credit bureau or send your account to debt collection. “The bad news is that they will probably continue to charge you interest on what you owe, but at least you will be in a better position to tackle that debt later if your credit score is okay. Also keep in mind that following an forbearance plan will likely mean that you can no longer use your credit card, so do it carefully.
As for your student loans: you absolutely must call and ask for help. “Many private student loan lenders are offering more flexible hardship programs during this time,” says Kimberly Palmer, debt expert at NerdWallet. As with your credit card company, your lender probably won’t stop charging you interest, but you should be able to put you on a plan that won’t penalize you if you miss payments for three to four months. This should also not affect your credit score if you comply with the agreement.
None of this will be resolved with a single phone call. You may have to call every day for a week before talking to someone who can really help you. Hang there.
Ideally, following these steps will keep your credit score decent and save you some cash. Your debt won’t look pretty, and as soon as you write a regular paycheck again, you need to aggressively tackle it, starting with your credit card. Palmer recommends applying for an interest-free credit card that allows you to transfer at least part of your existing debt, so you can try to pay it off as quickly as possible. This will be your financial priority for a time.
You may also consider seeking help from a credit counselor through a nonprofit organization such as the National Foundation for Credit Counseling. Some agencies offer free help for people suffering from the COVID-19 crisis; avoid for-profit credit counselors who try to charge you fees for things you can do yourself. Here is a useful guide to choosing a good counselor and what to expect during the process.
Finally, once you’re out of the woods, start saving an emergency fund. I know it sounds ridiculous now, like telling someone with a broken leg that they should be more careful. But the only way to prevent this from happening again in the future is to have three to six months of cash living expenses on hand. Many Americans trust their credit cards for emergencies, but as you know, it is an expensive and unreliable alternative plan. And as this year has shown, it never hurts to prepare for the worst.