Take These Extra Steps if You've Lost Income

Trimming expenses and talking to creditors can go a long way if you're out of work.
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A staggering number of people have lost their jobs due to the pandemic, and many others have had their working hours, wages or income reduced.

This presents big challenges and stresses as people try to navigate a changing situation and unclear economic outlook.

Some may have committed to big-ticket purchases such as a new home, or started a large remodel project when the economy came nearly to a stop.

Assuming you have already applied for any financial resources that might be available to you, such as unemployment, here are a few tips that can help you survive and carry you through until your income picks back up.

The sooner you start, the better off you will be. By taking some of these basic steps, you may be able to avoid taking more drastic action a few months from now.

Take a look at your expenses. Write a list of all of your monthly expenses. Decide between the items you must pay and others that can be put on hold or delayed. For example, most gym memberships are an expense you can request a hold on. Other costs with some flexibility are entertainment, groceries and personal care items.

Talk to service providers and creditors. If you are going to be late on a payment such as a mortgage or a credit card bill, call and talk to someone at the bank or mortgage company. Explain your situation and request a lower payment or a deferred payment. Make sure you get the name and identification/phone number of the person you spoke with and the plan you agreed to. You may be surprised how much money you can shave off of your monthly budget by simply making a call.

Avoid Risky, High Fee Loans

If even after doing these things, you still find yourself with an income gap, there are more drastic ways to find cash during this time. But some of these come with a very big “buyer beware” warning.

Cash advance: Before you take a cash advance on your credit card, make sure you find out what fees they will add on. Often, it’s not just a higher interest rate you will pay, but an origination fee as well.

Home equity: Pulling out money from your home’s equity is another way to get help, but again, check for those hidden fees. Make sure there isn’t a penalty for paying it off before the due date. And be sure to ask your accountant if the interest will be a tax deduction for you.

Unsecured loans: Out of desperation, some people turn to high-interest unsecured loans. This is where you really need to be careful. Some of these unsecured loans charge as much as 47% interest. The same goes for car title loans. These loans allow a borrower to exchange the title and a set of car keys for a loan based on your car’s value. The interest rates here are also high, ranging from 30% to 120%. Another hit: if you miss a payment your car can be repossessed.

One of the highest interest rate loans you will find are payday loans. These loans give you money borrowed against your future income. The annual interest rates can go as high as 871% and inevitably make your financial situation worse rather than better.

Even if you think it’s worth the risk – don’t. At least, don’t get a payday loan until after you’ve read this consumer information from the Federal Trade Commission.

This brief from the FTC also has alternatives to payday loans, including credit union resources, how to shop for credit, overdraft protection and information for military consumers.

Trying to avoid the more drastic measures is the way to go. So, even if you aren’t too concerned right now about your cost of living, it’s still a good idea to start saving where you can. The best-case scenario is for you to have more money in your savings.