The economic effects of lockdown have been swift and far-reaching, and are likely to continue through the reopening process and long after the day when, hopefully, the virus will be eradicated. In a small mountain community like ours, with many locally-owned businesses, these months of mandatory shut doors have made deep dents in our pocketbooks, including savings accounts, college savings, family vacation funds, and the simple ability to pay our bills.
I’m Mayumi Elegado, Moonshine’s publisher, and today’s Moonshine Minutes episode gives tips and tricks to keep the financial belt tight in these uncertain times.
I’m joined today by our financial columnist, John Manocchio, who will provide an overview of programs and strategies that can help us all weather the COVID storm.
John, how should we be thinking about saving during the pandemic?
John – 1:
Think about taking the extra time necessary to return to your prior financial situation. Granted, after months of belt-tightening, it’s not fun to think about continuing that way. Keep in mind, it is only temporary and if you continue to scrimp and save as you get back on your feet, your future self will thank you.
M: How can people handle mounting credit card debt with no income?
J – 2:
Credit cards can carry a very high interest rate so doing what’s necessary to at least make the minimum payment, or as close to it as you can come, is important to avoid it taking years to pay them off. One strategy for anyone juggling multiple credit cards is to pay off the smallest balance card first to emotionally reward this type of progress and build momentum in paying down other debts.
Additionally, do everything in your power to avoid a chargeoff of the debt, which is a declaration by a creditor that an amount of debt is unlikely to be collected. This can negatively impact your credit score and there could be tax consequences.
M: What about those with retirement funds? Seems like these times might call for a dip into those reserves early.
J – 3: One source of savings for those with retirement funds not yet unlocked is that the CARES Act includes a provision that allows people to access retirement savings accounts prematurely. Typically, a withdrawal from a retirement account before the account holder turns 59 and a half would incur an early withdrawal penalty of 10% from the IRS. California also has a 2.5% penalty. The CARES Act has effectively waived that penalty if you have been impacted by COVID-19. Income tax due on the withdrawal, however, will still be charged, though over a longer three-year timeline.The act also allows the withdrawal amount to be put back into the account within a three-year period.
M: Is there any pandemic protection for those with student loan debt?
J – 4: If you have a federally-held student loan, your payments have automatically been suspended by your loan servicer for the period of March 13, 2020 to September 30, 2020. This was done to offer temporary economic relief, but if you are in a position to continue making payments, it could be beneficial to do so. The suspension of the payments is not loan forgiveness; rather, it likely adds them to the end of the loan period. Plus, the interest rate is set to 0% during the March to September time period. This means your payment goes completely to principal which could ultimately help pay off your loan more quickly.
M: Home mortgages can be expensive; does the CARES Act or other support legislation address this?
J – 5: Requesting a forbearance may offer temporary relief. Unlike a student loan forbearance, this is not automatic and a formal request must be submitted to your loan servicer. For federally backed mortgages, the CARES Act includes provisions to make this request. For non-government-backed loans, any forbearance availability will be dependent upon the loan servicer’s requirements.
If you are able, the best course of action is to continue making mortgage payments. However, if a forbearance must be requested, it is important to know how your loan servicer treats the suspended payments. As with student loans, the suspended payments are not forgiven but will be due at some point in the future, and any payment plan for those back-mortgage payments is up to the servicer.
Note that under the CARES Act, student loans and mortgages in forbearance are not to be reported negatively to the credit bureaus. Monitor your credit score and if a negative report does occur for these reasons, file a dispute to get the reporting reversed.
The Moonshine squad is grateful for your sound and succinct advice in these matters, particularly in these times. Do you have any final words of wisdom for our listeners?
J – 6:
It is going to take time for both our economy and community to return to the pre-COVID days of just a few months ago. As life begins to swing back to normal, it might be helpful to keep our belts tight for a bit longer until our finances swing back also. It is only temporary. Better days are coming.
Catch Moonshine Minutes Tuesdays through Thursdays and on weekends, and remember to brush up on the episodes you missed in our archives on moonshineink.com. Keep the belt tight, Tahoe, it’s a financial roller coaster and we may not yet be to the top of the highest drop. Stay safe and save; let’s keep Tahoe smart.