Making a Living in the Midst of a Pandemic

If you were laid off by your employer today, what would you do?  Would you find another job?  Do you have enough money in savings to survive for a while?  What would you do next?  

In years past, this would have been a much easier question to answer.  Now, with the pandemic affecting literally every part of our lives, the question is a lot harder to answer.  From the mandates that closed so many of our businesses to those that are still regulating what businesses can operate and how they may do so, finding a job just keeps getting harder and harder.  And if that's not bad enough, it seems like every single day we hear about yet another industry that is laying off thousands of people.  

Will those jobs come back?  Studies are predicting that up to 40% might never come back, so if you are one of those that's laid off, you'd better plan your way forward rather than wait a few months and hope that the economy will bounce right back, because chances are, it may not.  

With that in mind, let's look at the different ways to move forward.  If you've got savings or you received a decent severance package, you can live off that for a bit, but at some point, you'll most likely need to look for another job if that's your plan.  And for many of us, that will work, however, expect the competition for those jobs to be fierce as there will be more candidates competing for each position.  You may also find that salaries and benefits offered will be significantly lower, both due to the availability of applicants, and to the effect the pandemic has had on the businesses themselves.  Budgets will be tighter for years to come to make up for losses incurred over the duration of business shut downs, slow downs, increased regulating, etc., and if budgets are down, salaries will also be down.  

Another option for many might be to start your own business rather than go back to work for someone else.  That way, assuming you're successful, you'll have some control over both your time and your economic future.  But, what type of business should you start? 

First and foremost, look at your experience.  What did you do in the workforce?  Is that something that you can do on your own?  If so, are you interested in continuing to do so?  If not, what are your hobbies, your interests, your passions?  Is that something that you can turn into a career?   Just remember, whatever you choose needs to be something that you're good at, something that you enjoy doing, and something that you can make money at.  If not, you're less likely to succeed, and at this point, success could mean the difference between going back to work or not.

Secondly, don't be afraid to start your business as a sideline.  If you're still working, spend your free time setting up your business, making product, bidding jobs, selling things… whatever it is that you choose to do.  There will be far less stress if you're able to start slow and still earn money while you're building your own business.  

And finally, keep at it!  Don't quit.  Too many people start something and they never finish.  Building a business takes time and effort, just like doing a job takes time and effort.  The difference is, if you're working for yourself, you call the shots.  

Credit Tips for Buying Your First Home

Thinking about buying your first home?  Before you even consider making an offer, before you get pre-qualified, before you do anything at all, you'll want to take a good, long look at your credit report. Believe it or not, even those of us with the best credit almost always have something that holds up the mortgage loan process, so if you can head off any problems before you start the process, you might make it a little less stressful later on.  

Here are a few tips to help you along:
 
  • Closing Old Accounts Can Actually Hurt Your Credit
    • One of the main factors that lenders look at when reviewing your clients’ credit history is how long accounts have been open.  They typically average all current and past accounts to get an average length of time. The longer your credit history, the better. By closing an old account, you are effectively reducing the impact that individual account may have on your overall credit history. Instead of closing the account, keep it open.
  • All Debt is Not Equal
    • Lenders look at the specific type of debt to better understand the risk associated with it. Short-term accounts, like credit or charge cards, are considered more risky if the account has a high amount of revolving debt. This is due, in part, to the requirement that credit cards be paid off monthly.  In contrast, a 30-year mortgage is considered to be a long-term debt and is treated as such. Therefore, just because you have a car loan with a high balance remaining, does not mean that it will hurt your credit as much as a credit card that is maxed out.
  • Credit Repair Doesn't Always Improve Your Credit Score
    • The old adage of “if something is too good to be true, it probably is” couldn’t be more accurate in this example. Younger generations have become increasingly interested in getting help establishing or repairing their credit.  Companies such as Credit Karma, Credit Sesame, and even the major three credit reporting companies such as Equifax, Experian and TransUnion offer ways to improve or “boost” credit. However, buyer beware.  These companies can only assist you with creating a plan to pay down or consolidate debt. They cannot magically make or reduce the amount of debt a person has — this can only be done by paying off an account.
  • A Paid Off Bill is Not Immediately Removed From Your Credit Report  
    • Unfortunately, a derogatory mark like a collection or missed payment can stay on your credit report for up to seven years. While paying this off will stop future attempts by the collection agency or banking institution to collect on the debt, there is no way to remove a derogatory mark from your credit report unless it was reported incorrectly due to fraud or identity theft.
  • Marital Status Changes Can Affect Your Credit Score
    • Information like income, employment and relationship status are not reported to credit bureaus. Questions regarding this information will likely be asked during the credit application process in conjunction with your credit score.  However, they will not show up on a credit report. This is important for those going through a separation. If one partner does not pay a debt and the other partner is on the account, it will negatively impact both parties.

Working from Home?

 

Are you one of the millions of people who have been asked to work from home this year?   Believe it or not, shifting to staff members working from home is actually proving beneficial to businesses and employees in many areas.   So far, 65% of workers say they are more productive in a home office than in a normal office, and, even more interesting, 67% of employers say remote workers are more productive.

Employers and employees alike are discovering that working from home can result in lower stress levels for workers, reduce commuting times and costs, and help the environment. An infographic (below) from UK firm Computers in the City explores the benefits of remote work and delves into how businesses can ensure employees are healthy, happy, safe, and productive while working from home.

Repairing Your Credit Score

As if 2020 wasn't bad enough already, what with a pandemic, lockdowns, and an economic downturn unlike any other, millions of people also lost their jobs… and that will leave millions of us with blemishes on our credit reports that can and, in many cases will, take years to clean up.  We all know what the effect of just one missed payment can be, but what about months of missed payments?  What about repossessions, evictions, and the inevitable court cases that are sure to arise?  Is there anything that can be done to salvage some of your credit score?

Although there really is no good answer to these questions, there are some things that you can do to mitigate some of the damage:

  • Review your Credit Report:  Even though it is not a particularly pleasant activity in light of recent events, sit down and go through every single item on your credit report.  Make a list of the changes (favorable and unfavorable) over the past few months, and then, address each of the unfavorable items individually.  What options are available to you for correction of each and every item?
  • Put a Statement in your Credit File:  Most credit bureaus have the option for you to put some notes, explanations, letters, etc., into your file.  Take advantage of those options!  While it may not improve your score, it will help future lenders, employers, etc., to see exactly what caused the problems that are in your credit file.  And, while it might not seem important to you now, having a note about your job loss due to the pandemic will definitely help to explain those late charges on your credit cards later on.
  • Find and Dispute Errors:  Errors in your credit file are far more common than most people realize and taking the time to review and remove negative, inaccurate information is vital to maintaining your credit file.  Common problems include incorrect name, address, phone numbers, accounts belonging to others, identity theft, data errors, and more.  Dispute each and every single issue that you find – identify, clarify, and submit backup documentation to substiantiate your claim, then as that it be corrected or removed.  It may take time, but it can and should be done!
  • Watch your Credit Score as closely as you do your bank account:  With so many free credit monitoring services available, there is really no excuse for not knowing what your score is and exactly what is impacting your score at any given time.  
  • Make your payments on time:  Once you get past your problems and get your income back on track, get your payments back on track as well.  Many people figure that there's no way they'll ever catch up or repair delinquencies, so they just ignore them without ever making the effort to get back on track.  That's the wrong approach – contact your creditors and work out a plan to get each and every account up to date.  You might even be able to negotiate the removal of those late payment notifications in return for catching up, but first you have to try.
  • Get your Credit Utilization Score down as soon as possible:  Since this one thing makes up a huge part of your credit score, getting it down below 30% is vital to improving your score.  (Get it under 7% and that puts you in league with those who have "very good" credit.  1%-3% puts you in league with those who have "exceptional" credit.)
  • Increase your Credit Limit:  Although this is not always the best route to take, opening a new credit card can decrease your credit utilization, and therefore, increase your credit score.  Just be sure that you don't make the mistake of overusing your new credit card and/or applying for too many new cards!

Remember, you're not alone in this situation.  Millions of people around the world have been negatively impacted by recent events, so your hard work to repair your credit will undoubtedly pay off in the future when lenders have to decide who among us is worthy of new credit.  

Bankruptcy & Credit Counseling

Are you one of the millions of Americans now considering bankruptcy?  If so, in most instances, you'll need to complete pre-bankruptcy credit counseling before AND after filing bankruptcy.  Why are you required to complete it twice?  Unbelievably, the first one is to determine if you even need to file bankruptcy in the first place, or if there's another way that you can get the fresh start that bankruptcy provides without actually filing.  And the second one is understandably regarding your emergence from bankruptcy and the steps you'll need to take to keep your future financial life on track.  

But let's talk about the pre-filing credit counseling requirement before you even consider bankruptcy.  Since you'll be required to take this step anyway, you might want this to be your starting point.  Before you call the attorney and start the paperwork to file.  Pre-filing credit counseling might actually help you prevent filing at all because they'll help you to figure out if there are other options available.  Perhaps there are significant changes you can make to your household budget, or there's a debt management plan that you could enroll in, or you may qualify for a personal loan… their job is to help you find these options or, if you're better off doing so, they may even advise you that bankruptcy is the best option.

Since you're considering bankruptcy, and it's typically a requirement, you really have nothing to loose, so why not set up your credit counseling session first?  Not only will the counselor sit down with you and help you to prepare a workable budget, but he or she can actually help you figure out whether you need to file bankruptcy OR if you can avoid bankruptcy and possibly save your credit report from the long term damage a bankruptcy does.  

Whatever direction you eventually take, credit counseling is obviously a win-win situation, and one that you seriously need to consider before filing for bankruptcy. 

 

 

Upside to the Pandemic?

In a highly unusual economic climate, a highly unusual thing is occurring in the United States… Credit card debt is actually declining during the current recession!  In fact, for the first time in years, total American credit card debt has now dropped below the $1 trillion mark.  So, why is this so important, you ask?

Actually, this decline in credit card debt indicates drastic changes in consumer behavior as the pandemic rages on around the world.  For example, with the shutdown of restaurants, bars, and other entertainment venues, Americans are definitely swiping that credit card a lot less!   Then, factor in the job losses, and what do you have?  Not only is the money not there to spend, but people are working extremely hard NOT to spend the money they do have (and not to rack up balances on credit cards, either).

Of course, all of this "declining debt" may soon change as the Federal Unemployment Insurance benefits expire later this week, and more people run out of money for day to day expenses.  That means the recent plunge in debt may be short lived, at least until another stimulus package is agreed upon.  

Should You Skip Your Mortgage Payments Now?

Right now, an unprecedented number of Americans have lost their jobs, lost a large portion of their income, or worse, and simply aren't able to pay their bills.  But what about you?  What bills should you pay?  And what bills should you skip?

Truthfully, if you have the money, you should pay ALL of your bills as usual for as long as you can.  Don't be one of those people who are still working, yet use the pandemic to skip a mortgage or car payment.  Believe me, you will be sorry in the long run if you choose to go that route.  We still don't know what the fallout with respect to our credit reports (and credit scores) will be as none of the legislation that has been enacted either directly or indirectly addresses payments that are skipped during this unprecedented time.  Already, we're seeing lendors of all types, from home mortgage lenders to credit card providers, put stricter requirements in place to even qualify for a new loan, and/or cut back on credit limits, the types of loans available, and more.  So, if you can pay your bills, do so.  

However, if you cannot pay your bills, the most important thing that you should do is to sit down and see what your options are with each and every bill that you have.  Does your mortgage provider have a forbearance option?  If so, will that affect your credit report, and if so, how?  What about your car loan?  If there is no effect on your credit score, these may be your best options.  If not, then look at your credit card bills.  Many are offering some type of special payment arrangements, but again, ask what effect this will have on your credit score.  Next, look at your local utility companies.  Many states have passed legislation regarding utility services, so chances are, your local providers will not shut off service if those bills are late, so that may be a viable option if you are strapped for cash.  The main thing is that you look at all of your options.  

Whatever you do, don't just stick your head in the sand.  Communicate with each and every one of your creditors for any bills that will be late, even if it's only a few days.  Let them know when to expect payment.  Request that late fees, if any, be waived.  Request that they not report it to the credit bureaus.  And, if they do, make sure that you add a statement to your credit file explaining why the payment was late.  As hard as it may be to address these issues now, it will save you years and years of grief in the long run.  

Have You Checked Your Credit Limits Lately?

Have you checked thee credit limits on your credit cards lately?  If not, you might want to take time to do just that, especially since roughly 50 million Americans' credit card accounts were either closed or had their credit limit cut in the past 30 days.  That's about 1 in 4 credit card holders, and of those, men between the ages of 18-38 years old were particularly affected. 

What's even worse is that lenders are not even required to tell you when your credit limit is lowered, so you may not find out until you're ready to actually use that credit card.  Why now, you wonder?  Truthfully, this is another financial side effect of the COVID-19 pandemic.  Early on, lenders reviewed accounts, then lowered some credit limits to reduce their risk of loss if it appeared that consumers would struggle to make payments, or even use the cards to live on, as unemployment skyrocketed across the country. 

Sadly, these credit cutbacks occurred just when household budgets were hit the hardest.  Not only are families using their cards frequently right now, but some are having to use them to make ends meet until unemployment funds start coming in, or to buy essential goods.  

Unfortunately,  even though this makes sense for the credit card companies, it didn't make things any easier for consumers.  But, in their defense, total credit card debt has been growing steadily since 2015, and is hovering right around $1.1 trillion nationwide.  And, even before the pandemic, delinquencies had already hit a seven year high as many families struggled to meet payments. 

While we don't have exact details, some cardholders have reported credit limit reductions in the thousands of dollars, so you'll want to log in to every account to check your limits. Then, if you find your credit limit has been reduced, contact the issuer and request that they reconsider the reduction, or even in some cases, closures of accounts that have been dormant for some time.   

In fact, you may want to consider moving a couple of small recurring payments to a dormant card, like Netflix or Hulu subscriptions, and set it up on autopay to handle payments, just so that the card is not considered dormant (and subsequently closed).  Just that one regular monthly charge will keep your credit card account active without adding any unnecessary expense to your budget, thereby  preserving the now-active card’s larger spending limit for true spending emergencies.

Should You Borrow Money Now?

Right now, more than 30 million Americans are on unemployment, or in some states, trying to get unemployment started.  Cash is becoming scarce as the first round of stimulus checks has long since been spent.  But, if you're running out of cash, should you borrow money to survive?  And if so, where should you go to borrow the cash?

If you don't want to go to family members to borrow the money that you need, there are three other options to consider if you need money quickly:

  1. Find an affordable credit card:  When used wisely, a new or existing credit card account with an interest free (or even a low interest) deal is the fastest and easiest way to get the cash you need.  And, chances are, you may have up to two years to pay the balance off!  Just be sure to read the fine print on any cash advance option to make certain that the low or interest free deal includes cash advances, and make a plan to repay the money before the promotional time expires.  
  2. Personal Loans:  An unsecured personal loan typically comes with a lower interest rate than a cash advance on a credit card that has no promotional offer attached, however, you typically have a fixed payment for a longer period of time, so a personal loan might be easier to repay.  Just be careful that you don't overstress your normal budget when you take out the loan or you might just find yourself short of cash after the crisis is over!
  3. Payday Loans:  If you're still working and need an immediate cash infusion, but have no other options, there are payday loans available online that you can take advantage of.  Just be careful not to get into what we call the payday loan cycle, meaning that you're continually borrowing next week's paycheck this week – the interest rates tend to be very high and, once you get into that cycle, it's very difficult to get out. 

Of course, there is one final option.  You can contact each and every one of your creditors personally and request special payment terms to get past the cash crisis.  Right now, nearly every utility, mortgage, loan, and credit card company is working with customers in response to the COVID-19 pandemic.  Just be sure that you know, in advance, when your arranged payments are due and what effect, if any, the delay will have on your credit score – one or more reported late payments can take years to drop off your credit report.  

Surviving the Crisis

By now, many who've been laid off, furloughed, had our hours cut, or worse, are really running tight on cash, even as the pandemic rages on.  While both federal and state governments have promised quick access to unemployment funds, stimulus checks, and other forms of help, these things take time.  Time that you may no longer have.  So, what are your options?

If you're fortunate enough to have credit available, you may want to consider using your credit cards to get you through the immediate cash crunch.  However, you'll definitely want to sit down and consider all of your options first.  If you're already in too deep with credit cards, racking up more debt might not be the best thing to do, especially if you don't have a plan to repay the debt once you get back on your feet financially.  

But, if you do expect your cash flow shortage to be temporary, and you do have a plan to pay off the debt you incur, then you may be able to utilize your credit cards to get through it.  By using your credit cards to pay when you can, you can save cash to pay for things like your mortgage, car payment, certain utilities, etc.  This one move can give you the time you need to get through a cash crunch, whether that means going back to work, getting your stimulus check, or starting up unemployment.  

 

 

 

2. Buying time, sometimes at 0%

In a crisis, income can fall off a cliff with no warning while expenses continue to pile up. Credit cards can spread out that impact, “flattening the curve” of your expenses and giving you time to adjust. This can especially blunt the hit from one-time or infrequent expenses you might have otherwise paid all at once—a repair bill, for example.

It’s not ideal to carry balances on credit cards with high interest rates if you can avoid it, though. Over time, interest charges can pile up and make that debt harder to manage. If you have good credit, consider getting a credit card with an introductory 0% APR offer on purchases; many of these have interest-free periods of a year or longer. Here’s how to find the best credit cards for every type of purchase.

What to know

Even with a 0% APR credit card, you’ll still have to pay at least the minimum every month. Generally, you’ll also need good or excellent credit (credit scores of 690 or higher) to qualify for a card with an introductory 0% APR offer on purchases. If you can’t qualify for a 0% APR card, you’ll have to pay regular interest rates, which could add to your debt. Yes, credit scores can definitely be confusing. Here’s exactly what a credit score is.

3. Reducing the cost of existing debt

When money is tight, high-interest debt—such as old credit card balances—can snowball out of control. In some cases, the interest charges can be so high that paying just the minimum hardly makes a dent in the balances.

To pump the brakes on interest charges, consider a balance transfer and moving debt to a card with 0% APR on balance transfers. With such a card, you’ll potentially get a year or longer to pay down this debt interest-free. That gives you the flexibility to focus on other, more pressing financial obligations in the short term.

What to know

You generally need good or excellent credit to qualify for the best balance-transfer cards. And moving debt usually isn’t free; most credit cards charge balance-transfer fees of 3% to 5%.

Sometimes, issuers also offer balance-transfer deals to existing cardholders. For instance, you might get convenience checks from an issuer in the mail that count as balance transfers and come with a lower APR (if not 0%, at least lower than what you’re paying). If you can’t qualify for a new card, check your email, snail mail, or online account portal for offers like these. And as always, make sure you understand the terms before making the request.