COVID-19 is increasing your debt? Then try these 5 financial management tips during a pandemic.

You probably don’t need us to tell you that these are extraordinary times. Even if you or someone in your household has not lost a job or been otherwise directly impacted by the pandemic, many of us are considering how COVID-19 is affecting our finances and how to manage it.

Whatever your situation, it is never too late to plan ahead of time. With that in mind, we’ve compiled a list of quick tips to get you started in keeping your head above water.

1. Create a household budget.

If you don’t already have one, make a list of all your essential and non-essential weekly and monthly expenses and sort them from highest to lowest dollar amount. This simple action can help you gain full visibility into how much money is flowing into and out of your home each month, as well as establish a baseline for your debt-to-income ratio.

There are numerous plans and tools available for developing a household budget, but the key component of many of them is having a clear understanding of what percentage of your income goes to which types of expenses and debts. While doing so, you may come across recurring expenses for services that you and your family no longer use and that are simply charged to your credit or debit card every month. Identifying and eliminating these expenses can result in significant savings.

The 50/30/20 budget plan is one budgeting template. The 50/30/20 plan assists you in categorizing your various expenses into three distinct categories:

Spending on necessities (50%)

  • Utilities & Housing
  • Debt Repayments for Food, Clothing, Transportation, Phone, and Internet

Spending on desires (30%)

  • Splurges on entertainment, dining out, and shopping

Making Plans for the Future (20%)

  • Set aside money for gifts (birthdays, holidays, events)
  • Spend less on vacations and travel and more on appliances.
  • Set aside funds for your next vehicle (and Repairs)
  • Put money aside for a down payment.
  • Make Provisions for Emergencies
  • Invest in retirement accounts (401k, 403b, IRA)
  • Invest in Education Savings (529, Coverdell)

By allocating your household income across these categories, you position yourself to meet the most important expenses while also paying down debt and not depriving yourself. Using MoneyFit’s 50/30/20 debt calculator tool is an excellent way to get started quickly.

2. Maintain a healthy credit score by balancing your cash-to-credit ratio.

This can be difficult, but consider which expenses you can pay for in cash and which can be financed with credit cards.

The advantage of optimizing your cash-to-credit ratio is that it reduces the amount of your everyday debt that may incur extra interest fees at the end of the month. While you may be confident in your ability to pay your credit balance now, unforeseen circumstances, especially in uncertain times, are always a possibility, so it pays to minimize how much you may potentially have to accrue interest fees on. Furthermore, paying down more debts (with cash where possible) and keeping your credit utilization low can help you keep or even improve your credit score. A good credit score can help you with any short-term financial decisions, such as applying for an emergency credit card.

Keeping track of your credit and noting changes in your credit score is an important part of the process.

3. Determine your eligibility for assistance programs.

At the time of writing, the federal government had just passed the CARES Act, which provides direct financial assistance to individuals, families, and small businesses affected by the coronavirus pandemic. The act allows for a tax credit of up to $1,200 per individual with an annual income of less than $99,000, or $198,000 if you file jointly. In addition, there may be state and county-level relief programs, such as tax relief and small-business assistance.

Relief programs such as the CARES Act can assist you in obtaining additional funds to cover your basic expenses. As a result, you can devote more of your standard household income to aggressively repaying your outstanding debts.

For more information on the CARES Act and to determine who is eligible for assistance, visit the government’s official website.

Check out our CARES Act Stimulus Calculator to see how much you might be eligible for to include in your household budget, as well as how you can potentially get your stimulus payment faster (if you haven’t already).

4. Determine which debts and bills you can compromise on.

One easily overlooked area where your household could potentially save significantly is in the monthly bills for certain utilities. It’s easy to believe that whatever amount appears on your monthly bill is fixed, and for some municipal utilities like water and electricity, this is true. However, subscription services such as telephone, cable, and internet service can sometimes be negotiated.

Negotiating lower rates for your services is frequently as simple as calling your provider and asking what kind of arrangement can be made. There is no guarantee that you will receive the desired adjustment, but service providers are in the business of keeping long-term customers. You may be able to achieve a favorable outcome if you approach the conversation with a firm but non-confrontational attitude. Ramit Sethi, a personal finance expert, has created an effective guide on how to approach these conversations, as well as tactics you can use.

This due diligence is useful not only in times of uncertainty, but also whenever you want to maximize the value you get out of everyday services you pay for on a monthly basis.

5. Determine the status of debts that can be deferred and triage your debt.

As we previously stated, you are not alone during this period of transition, and you should not be afraid to seek assistance where it is available. In response to the COVID-19 situation, a number of lenders and creditors are offering debt relief.

However, it is critical to confirm the current status of these relief programs. Make certain, in particular, that forbearance is applied automatically or that you must contact your lender or creditor to request it. In particular, you should always contact your lender or creditor to inquire about the types of forbearance available, and obtain a written agreement between all parties outlining the details of the forbearance you and your lender agreed on. As part of the CARES Act, forebearance is automatic for very few loans; for example, federal student loans are in automatic forbearance from March 13 to September 30, 2020. There are also a number of insurance companies that offer assistance, but most of them require you to make a specific request.

When you know which of your debts can be postponed, you’ll be able to better “triage” your overall debt. Essentially, if Loan A and Loan B do not accrue more interest in the next three months, you can prioritize paying down Loan C faster and avoid compounding interest.

By taking some or all of these steps, you can put yourself in a position to keep your debt under control and be prepared for any unexpected expenses that may arise. If you found this information useful, or if you have any additional questions that we did not address here, please let us know in our SesameThrive Community.