Tips if You're Going Into Debt During the Pandemic
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What is the main topic discussed in this episode?
Here's your money briefing for Friday, April 24th. I'm J.R. Whalen for The Wall Street Journal. Financial planners generally say you should avoid having too much debt. But during a time of widespread job losses, it can be hard to avoid. If you've got to take on debt, specialists say you should at least make a plan.
Why are more Americans forced to take on debt during the pandemic?
You need to make an order of operations prioritizing putting food on the table. If that's the first priority, then you can rank all of your other payments accordingly.
That's Wall Street Journal personal finance reporter Julia Carpenter. Coming up, she'll explain which existing debt payments financial advisors say you should prioritize and the homework you should do before taking out new loans.
The coronavirus pandemic has put a lot of people in an unfamiliar and unsettling position, having to take on unwanted debt.
What is the recommended “order of operations” for prioritizing expenses?
If you can't avoid that, Wall Street Journal personal finance reporter Julia Carpenter is here with some tips to keep in mind. So, Julia, what are reasons people you spoke with given you for having to go further into debt?
I think it's harder to make ends meet right now. Some people have lost their jobs. We're looking at historic unemployment.
How can you cut spending and pause contributions to free up cash?
Other people are dealing with caregiving for somebody who is sick with the virus or maybe a spouse or partner is sick with the virus. And so their household spending has to adjust accordingly. Other people are looking at gigs that went away or taking on more gigs, having other expenses they hadn't considered before. So it's just a really unprecedented time when it comes to structuring a household budget.
Many people pride themselves on not having to have taken on significant debt, but this is not a usual time.
I was speaking with people who said this is nothing I would want to do in the course of normal events, but it feels like something I have to do just to make ends meet right now.
Which debts should you consider suspending and how does that affect credit?
Seems like the first thing to do is to take a deep breath and make a plan.
I spoke with one expert, a financial planner at Betterment, and he called it an order of operations. He said you need to make an order of operations prioritizing putting food on the table. If that's the first priority, then you can rank all of your other payments accordingly.
How did he suggest people shuffle things in that list?
If the goal is to have more cash on hand temporarily, either to pay for necessities or to meet a big expense, he recommended people first think about what they can cut.
What dangers should you watch for when seeking new loans or payday advances?
So first, they're already thinking about what their normal budget looks like, what things kind of have to go away in a time like this, or what things can be eliminated or lessened in a time like this. And that even includes things like stopping contributions on retirement and education accounts or stopping payments on things like student loans, mortgage payments, exploring forbearance options for those things. And so then once you've taken all of those steps, you're able to then have a bigger picture look and say, now do I need to take on debt? And if you do, then you then you know that you've tried everything else.
Where can you get free financial counseling and help before borrowing?
Does it make sense to suspend some debt payments over others?
I think the important thing for people to think about is what kind of debt they are taking on and what payments they're missing. So there's certain things that hurt your credit score. So I spoke with one financial planner who said that you have to keep in mind that negative behavior affects your credit score negatively. So opening a new credit card when you haven't paid off another one or opening a new credit card that you can't afford. Maybe the APR is really high. Maybe the rewards program doesn't make sense for you. That's something that doesn't make as much sense as suspending a payment and let's say suspending your student loan payment responsibly, talking to somebody about it, getting counsel about it, getting advice about it, and then freeing up that space that way.
And people have to be careful if they seek out new loans.
Absolutely. There's a lot of predatory loans, payday lending and cash advance loans that have super high interest rates and they prey upon people with poor credit.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:05–0:22
2
Why are more Americans forced to take on debt during the pandemic?
0:22–1:00
3
What is the recommended “order of operations” for prioritizing expenses?
1:00–1:17
4
How can you cut spending and pause contributions to free up cash?
1:17–1:52
5
Which debts should you consider suspending and how does that affect credit?
1:52–2:25
6
What dangers should you watch for when seeking new loans or payday advances?
2:25–2:58
7
Where can you get free financial counseling and help before borrowing?
2:58–5:10
Speakers
2 identifiedMore from WSJ Your Money Briefing
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