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It’s one financial cliff after another.
The end of 2020 is looming, and with it comes the expiration of a patchwork of economic relief programs enacted by Congress, local and federal agencies, and even some private lenders in response to the COVID-19 pandemic.
A national eviction moratorium will end. Deferred student loan payments will come due. Gig workers will once again be ineligible for unemployment benefits. Rules that make it easier to borrow from your 401(k) will go away.
And there’s no guarantee that additional help is on the way. President-elect Joe Biden has proposed new relief legislation — including more stimulus checks and the return of extra unemployment benefits — but Congressional leaders still can’t agree on a deal, and it’s unclear who will even control the Senate in January.
To be safe, don’t count on any meaningful relief from Washington, personal finance experts say. “I really can’t stress this enough: people need to assess their situation as if they’re not going to get benefits,” says Sarah Nadav, a behavioral economist and member of the World Economic Forum’s expert network. “If the help comes, it’s a bonus.”
Instead, now is the time for anyone in financial distress to take a realistic look at their budget and develop a clear-eyed sense of what they can and cannot afford, according to Nadav and others. The window for taking advantage of most forbearance programs will close by the end of the year.
“You have two months’ notice,” says the personal finance educator Tiffany Aliche, who was given just three days’ notice when she lost her job as a public school teacher during the Great Recession of 2008-2009. “Don’t wait for things to fall apart, if you can help it. What’s the worst-case scenario? What would you do then? That’s what I want people to solve for.”
Here’s a rundown of some notable relief and stimulus programs implemented this year, when they expire, and how you can prepare.
Access to Unemployment Benefits
What changed: The CARES Act — a $2.2 trillion response to the pandemic passed by Congress in the spring — told states to expand the definition of who is eligible for unemployment benefits. This opened up the system to independent contractors, freelancers, and other groups not previously qualified.
When it ends: Dec. 31, 2020
What to do about it: If you haven’t applied for unemployment benefits yet, for whatever reason, now is a good time to do so. Depending on your state and personal situation, you may get retroactive payments dating back to when you became eligible, says Leslie H. Tayne, a debt resolution attorney based in New York.
In fact, if you’ve had any income reduction at all this year, you should apply — even if you’re not sure you’ll qualify, she says. Each state has its own rules to parse, and the new federal guidance has caused confusion at every level. But as long as you are truthful about your situation in your application, it’s worth applying. “The worst-case scenario is it gets rejected, and then you can always appeal it,” Tayne says. “Don’t miss the opportunity.”
For anyone whose benefits are set to run in 2021, get organized now, Tayne says. “Work out your budget. Figure out what you can and cannot do financially.” Reach out to any creditors you foresee a problem paying, she says. Especially with private banks, it’s critical to communicate before you fall behind. Once you’re in arrears, your forbearance options narrow dramatically.
The details: Applying for unemployment is an onerous process this year. Unemployment offices have been overwhelmed and backlogged, and claims have taken months to process.
Be prepared for a slog. If you hit roadblocks, seek out local and online communities organized around this topic, so you can connect with others who are dealing with the same problem. You can even reach out to your state senator or representative for help in moving an application along. Applicants have taken months to receive payment they are owed — NextAdvisor’s Jason Stauffer spoke to some of them for their advice on pursuing delayed unemployment benefits.
401(k) Hardship Withdrawals
What changed: Borrowing from a 401(k) has long been a money taboo, but the CARES Act altered the equation. Now, you won’t pay a penalty for taking money out. And though you’ll still owe income taxes on the money, now you can spread the burden out over three years.
When it ends: Dec. 30, 2020
What to do about it: Tapping a 401(k) is not a decision to be made lightly. That money is meant to compound over many years, tax-deferred, and support you later in life. It’s even protected from bankruptcy.
So don’t let deadline pressure force you into a move you might regret. Breaking the glass on a 401(k) or other retirement account is something to do “when your back is against the wall,” says Aliche. Even in times of crisis, it’s a true last resort, she says: “You’ve called your aunts and uncles. You’ve slept on someone’s couch. You’ve called your municipality. You’ve called the people you owe money to. And it’s this or homelessness.”
For help in talking through your financial options — for free — reach out to a nonprofit credit counseling organization.
The details: To take advantage of a no-penalty hardship withdrawal, you have to state that your finances have been affected directly by COVID-19, such as through a positive test for you, a spouse, or a dependent, or a related loss of income. Also, the terms of your emergency withdrawal must be confirmed with your 401(k) plan provider; not every provider is required to abide by these rules. Finally, note that this is not a quick process. The Consumer Finance Protection Bureau warns it could several weeks before you actually get a check. The agency also recommends you talk through the tax implications with a professional.
Student Loan Deferments and Interest Freeze
What changed: Federal student loans — which account for 92% of all student debt, according to the academic data source MeasureOne — have essentially been frozen: no payments due, and no interest accrued. Any payments made this year will be applied entirely to the principal balance.
When it’s ending: Dec. 31, 2020
What to do about it: If you have federal student loan debt, know that the bills (and interest) are set to resume in January. Research your minimum monthly payment and see if you can afford it. If not, you can explore an income-driven repayment plan. If you have multiple federal loans, you could consolidate them and potentially save on monthly payments.
In the hierarchy of financial priorities, student loans should not be high on the list for someone in crisis, says Nadav. “You can’t deny it and pretend it doesn’t exist,” she says, but you can certainly focus on more immediate needs like housing, utilities, emergency savings, and high-interest credit card debt. Be transparent with your provider if you’re not able to make payments.
To talk about your federal student loan and the specific options available to you, use this resource from the U.S. Department of Education for help contacting your lender.
By the way, if you’ve been spared from income loss this year, consider making an additional payment on your federal student loans before the end of 2020. For you, it’s an opportunity to save on interest before the rules change again.
The details: The CARES Act initially extended these relief measures through Sept. 30; in August, they were extended through Dec. 31 via executive order.
The changes only apply to federal loans. For people with private loans, you have a few options. It’s possible you could take advantage of low interest rates and refinance to a lower rate, lower monthly payment, or longer term. (Unlike other loans, private student loan refinances typically don’t have upfront costs in the form of origination fees.) Many private loan companies have also offered their own forbearance programs, such as payment deferrals and waived fees. Contact your lender to ask what it can offer you.
What changed: Under the CARES Act, homeowners with federally-backed mortgages can ask for a pause in payments for up to 180 days. They can then renew that pause for another 180 days. During this time, no penalties, fees, or additional interest will accrue.
When it ends: If you’re already in forbearance and your initial 180-day period ends in 2021, you’ll still be able to request a renewal, says Tayne. But any initial forbearance requests should be made before Dec. 31, 2020.
What to do about it: This is a potential lifeline for millions of people — some 70% of mortgages are federally backed, according to the Urban Institute, including those sponsored by the Federal Housing Authority (FHA), Freddie Mac, Fannie Mae, the Department of Housing and Urban Development (HUD), the Department of Veterans Affairs (VA) and the Department of Agriculture (USDA).
To initiate a mortgage forbearance plan, you’ll have to write a letter attesting that you’re suffering economic hardship due to the pandemic. Many private mortgage lenders have offered forbearance options, too — but only for people who are current on their payments, says Tayne. If you have a privately backed mortgage and need assistance, contact your provider. Be honest about your financial situation, demonstrate the extent to which you’ve been a good customer, and ask for the same protections.
The details: It’s not a long-term fix. In fact, some homeowners could be in for a “nasty shock,” says Nadav, because the law doesn’t clearly state what happens when the forbearance ends. Some banks may expect an immediate lump-sum payment of the entire outstanding amount. Others may let you repay the amount over a period of time, such as by raising your monthly mortgage payments. It’s important to talk with your provider and be clear about the terms of anything you agree to. Document every conversation with your lender, advises The New York Times’ Ron Lieber.
More generally, if your housing costs are not affordable over the long term, start planning now to reduce them, says Suze Orman, the author and certified financial planner. “Everybody really needs to downsize. I don’t care who you are,” she says. The real estate market is hot — a six-month forbearance period could be the window you need to sell your home.
What changed: According to a national order issued by the Centers for Disease Control and Prevention (CDC) in September, anyone can apply to their landlord for eviction protection provided they testify that their ability to pay rent has been affected by COVID-19 and meet certain income requirements. Some municipalities have also enacted local eviction moratoriums.
When it ends: The CDC order ends Dec. 31, 2020. The end of local eviction moratoriums will vary, but many have already expired or will by the end of the year.
What to do about it: If you’re unsure you can afford your housing costs and you’ve exhausted any forbearance programs available to you, it’s time to “stand in your truth” and make some hard choices, Orman says. “You need to sit down and put yourself in financial therapy. The goal of money is to be secure. What do you need to do so that you can be secure?”
Ask for help. Talking to a housing counselor could help you lay out your options in a holistic way. The U.S. Department of Housing and Urban Development (HUD) operates a national network of free or low-cost housing counselors, many of whom specialize in mortgage delinquency and rent issues. Use this HUD counseling agency directory to find someone near you.
Negotiate your rent if you can. If you live in a multi-unit building, consider negotiating en masse with your neighbors, Nadav says. Look into assistance programs or any other relief measures available at your city, state, or county level. As one example, the city of Chicago enacted a $2 million program to disperse $1,000 grants to city residents to use for housing costs.
If you’re unemployed, Nadav suggests volunteering with a community service organization, advocacy group, or local government office. It can offer both a sense of purpose and potentially an inside view of how the levers of aid work. And “if you have parents with a home you can move into, you should be so grateful,” she says.
These are not easy decisions. “No one wants to solve for those big, hard problems,” says Aliche. “But the truth is that when faced with them, we figure something out. Even if it’s an uncomfortable solution.”
The details: To apply for eviction protection through the CDC order, you’ll need to fill out a declaration form, in which you must attest that you’ve tried to get government assistance for rent or housing costs. There’s an income limit: $99,000 for single filers, or $198,000 for joint filters. Research your state, city, or county offices to see what other eviction bans may be in effect in your area.
Utility Bill Relief
What changed: Many states and local governments issued orders earlier this year that required utility companies to keep electricity, gas, and water on for all customers during the COVID-19 pandemic, even if they couldn’t make payments.
When it ends: Some moratoriums on utility shutoffs have expired, while others haven’t. The National Association of Regulatory Utility Commissioners (NARUC) has a comprehensive list with expiration dates.
What to do about it: If you’re struggling to pay utilities, talk to your utility company immediately to see what your options are. If your utility company isn’t suspending payments, try to negotiate a deferred payment plan so it’s easier to catch up on any missed payments. Meanwhile, try to dramatically limit your usage, Nadav recommends.
“If that means wearing an extra sweater and coat in your house, just do it,” she says.
The details: Utilities in many states with expired moratoriums have continued to voluntarily suspend disconnections for customers who can’t make payments, according to the NARUC. If you live in a state with an expired moratorium, stay in close contact with your utility company and keep an eye on your online account, so you can avoid any surprise bills.
Credit Report Protections
What changed: Private lenders and creditors are offering financial accommodations to struggling borrowers who have been impacted by the COVID-19 pandemic. Financial assistance from your creditor or lender can come in many different forms, such as forbearance, a loan extension, a reduction in interest rate, or a more flexible repayment option.
What to do about it: If you’re struggling to pay your bills, call your lender or creditor and ask about relief options. Look for a customer service number on a copy of your bill for your mortgage, credit card, and any other loans.
Your lender or creditor may ask specific questions about your financial situation, like how much you can afford to pay or when you can resume making regular payments. Be prepared to explain.
The details: The CARES Act requires lenders to report to credit bureaus that their borrowers are current on their loans if they’ve asked for relief due to the pandemic. However, there have been reports of incorrect negative marks on some consumers’ credit profiles. If you’re taking advantage of financial assistance, review your credit report carefully. Because of the pandemic, the three major credit bureaus — Equifax, Experian and TransUnion — are letting people access their credit reports for free online on a weekly basis through April 2021.
In times of financial crisis, prioritize health, safety and basic needs, these experts say. Now is the time to fortify yourself by reducing your minimum expenses as much as possible and banking whatever emergency savings you can muster. That could mean taking advantage of forbearance programs while you still can, downsizing your home, or pausing some debt payoffs.
“Unless you have six months or more in savings, I wouldn’t be aggressively paying down any debt right now,” says Aliche. “I would be paying the minimum to everybody.”
Orman suggests applying for forbearance even if you can afford the payments. It’s better to bank a cushion of cash and protect yourself against future shocks, she says: “So many people have been thrown into a pool of water, and nobody is there to throw them a lifeline.”