In 2020, a severe pandemic hit millions of people all over the world out of blue. People suffer from the illness and also the unemployment. However, bills keep coming up. At this critical moment, we should pull it together and figure out some ways to pay the bills when we lose our jobs.
1. credit cards
To begin with, you should have more than one credit cards and choose the one with lowest interest rate. Using this card to pay your bills at first and if you break the limit, move on to another card. When the pay day comes, you should pay at least the minimum balance.
2. debit cards and checking accounts
Every one of us has a credit line attached to our checking account. It allows us to buy on credit with a debit card or withdraw from ATM when our account has nothing left. The amount we can get ranges from $500 to $3000 and it may be higher if you ask the bank when certain crisis struck your family. Although it’s not much, it can help us during a crisis.
3. retirement accounts
Normally, it is not wise to withdraw money from 401(k), but if you put most of your saving there, you don’t really have much choice. You can take money in two ways: loans and withdrawals.
Participants of 401(k) can borrow money from their account and pay it back within certain years (3 to 5 years). In the year 2020, due to the coronavirus pandemic, the government raised the borrowing limits from $50,000 to $100,000 to help those suffer from the crisis. Note that some employers do not adopt this new rule and still keep the $50,000 limit. Meanwhile, the money borrowed from 401(k) is not tax deferred and any default will cause penalties.
Besides borrowing money from they account, participants can also withdraw money directly. However, if you choose to do so, you will not get any money when you retire unless you pay it back in three years. Also, if you withdraw the money before age 59½, you have to take 10% penalty.
4. 529 plans
529 college savings plan is invented to help alleviate the burden of educational cost, but people can withdraw the money for any reason if they want. However, consequently, you have to pay a 10% tax penalty if you withdraw money from it except spending the money on qualified educational expenses, such as student loan.
1. prioritize your bills
When you face a pile of bills but have limited money, you should prioritize your bills and think clearly which one should be paid first. Generally, during a crisis, you should put food and shelter at first, save the money for them, and cut the unnecessary cost.
2. checking for assistance
If you have rent, mortgage payments, car loans or student loans, although it is impossible to stop paying them, you can always ask for a deferral or a reduction of payment, especially in the face of financial crisis. Note that your lenders may also have financial difficulty, thus you should talk with them and checking for assistance or relief as soon as possible.
3. protecting credit rating
Credit rating is changing all the time, thus a negative deferral or breach will ruin you credit rating level. Therefore, you should pay at least the minimum within the due date.
4. re-prioritize your bill once the crisis is over
When you finally make through the crisis and go back to work, you should always re-prioritize your bill and pay back the money you owed, staring with the one with highest interest rate. At the same time, you’d better set an emergency fund or keep a part of your saving (at least worth of 3 to 6 months of living expense) in a liquid account.