A sudden loss of income is stressful and scary. Especially if your money supports other people. Focusing on making a new financial plan may help give you a sense of control.
What do I do first?
Calculate the least amount of money you need to live on each month. We're talking basic groceries, insurance premiums, phone and internet bills, minimum debt payments, your rent or mortgage, and transportation costs. Not included: takeout, birthday gifts, gym memberships, and any other "extras" you can live without. Eliminate those expenses from your budget for now. Once you're back on your feet, you can add them back in.
Next, understand what income you still have to cover the bills. You might have access to severance from a previous employer, a side gig, a partner's income, and/or unemployment benefits. Heads up: the expanded federal jobless benefits programs put in place during the pandemic have expired, but other gov programs including food assistance and the enhanced child tax credit are still available.
And if I need more than I can bring in?
If you have money in an emergency fund, time to make some withdrawals. Because this is exactly the kind of situation you've been saving for. Here are some other options:
Call your creditors ASAP. If you have federal student loans, good news: Uncle Sam already paused your payments until February 2022. If you have other debt – like private student loans, credit card debt, medical debt or a mortgage – call your lender (or whoever's responsible for collecting payments). They may have assistance programs that pause, lower or even forgive your bill. If you have a federally-backed mortgage and can prove that your loss of income was related to the pandemic, you can apply for forbearance – aka a temporary pause or reduction in your payment. If your loan is backed by the HUD/FHA, USDA, or VA, your deadline to apply is September 30, 2021.
Negotiate other expenses. You might be able to save money on other bills, like your phone, internet, and even rent, by explaining that you're experiencing hardship and asking for a break. If you've had a long history of on-time payments, mention that. (Psst...the most recent federal eviction ban extension was struck down by the Supreme Court, but you may be covered by a local eviction ban.) While you're making calls, talk to your insurance companies. You probably don't want to outright cancel policies, but you may be able to (temporarily) downgrade certain types of coverage in order to pay less.
Consider whether to use your credit card. If there's still a gap between your bills and income, think carefully about using credit to make up the difference. It'll come at a price in the form of interest payments that compound when you don't pay your bill in full each month. If you decide to swipe, look for the lowest-rate card you can qualify for, and prioritize paying it off as soon as you can afford it. If you have good credit, you may be able to score a special promo for 0% interest. Take advantage.
What about my retirement account?
You can withdraw money you contribute to a Roth IRA (but not the investment earnings on those contributions) anytime without having to pay income taxes or penalties. But that's not the case for money you take out of a 401(k) or traditional IRA. So consider this move a last resort.
There's no sugarcoating: Losing your income sucks. Even if you have some emergency fund cash to help cushion the blow. Getting a handle on what's going in and out of your bank account, asking your creditors to give you a break, and negotiating down some bills are a few ways to help you better navigate a tough financial situation.
Subscribe to Skimm Money
Your source for the biggest financial headlines and trends, and how they affect your wallet.