If you must use debt in uncertain times, consider these thoughts
- Dr. Cherry, CFP®
- Apr 28, 2020
- 2 min read
Amid Covid-19, we all are finding ways to adjust our social practices to stay safe & healthy. I recently spoke with The Wall Street Journal about financially navigating the current environment, should a household have to use debt.
Many households are adapting to their financial environment by using the resources available to them. This period of uncertainty could include potential sickness, job loss/furlough, or reduced salaries. Some resources include the household Economic Impact Payments and individually-saved emergency funds. The CARES Act temporarily provides easement to some barriers normally associated with the use and access to Health Savings Accounts (HSAs), 401(k)s, and IRAs. The CARES Act also relaxed some of the negative consequences of mortgage forbearance for federally-backed mortgages and provided some relief for student loan payments.
Emergency funds provide immediate liquidity for times like these. However, many households may exhaust these ready funds fairly quickly. While households find other longer-term solutions, there are some alternatives to temporarily handle this shortfall. If households absolutely must, a credit card that was set aside for emergency use is an option. The caveat must be that a committed plan to pay off the debt is in place before the usage begins, and for when financial stability returns.
Please be mindful, that there is no shame in responsibly using a temporary source while trying to survive to the next stage of life. However, please avoid payday or personal loans from high-interest lenders, and please use them for immediate and necessary living expenses, not lifestyle wants. I share in the article, that credit cards (and debt in general) essentially by time for things, not things themselves.
Another potential resource that I share, could be a trusted, and emotionally-healthy, family or friend relationship. If you are financially and emotionally able (put your mask on first; I guess that is a pun in these times), please consider helping a loved one. This arrangement must be mutually agreed upon to maintain the trust and health of the relationship. This may be hard for some, however, it is a better option than predatory high-interest debt, all things considered.
Please stay safe & healthy. Please continue to pray for those directly affected by CV-19 and for front-line professionals all over the world. Please offer help within your capacity and live in continuous gratitude. Please know that this to shall pass and that keeping a prosperous and hopeful outlook, both for today and the future, helps with your spirit. Cheers!
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