Updated on April 13 at 5:06 p.m. ET
Forget living paycheck to paycheck. Many families have lost work during the pandemic and are running out of cash as they wait for unemployment checks and government rescue money to arrive.
These are highly unusual times, and family budgeting recommendations are also unconventional.
Kathy Hauer, a financial planner based in Aiken, S.C., says she's telling people to do things she has never recommended before: "Defer as many payments as possible and worry about it later."
But, she says, don't just ignore all the bills. Make sure to call all the companies and ask for forbearance — either a delayed payment or a new payment plan.
This is an especially hard time for lower-income families who don't have a lot of wiggle room in their budgets, Hauer says. They may not be able to borrow money from other family members. If they have bad credit, they can't qualify for personal loans from banks. Many also don't have credit cards or are close to maxing those out.
Normally, personal finance experts tell people to avoid credit cards — and their high interest rates — like the plague.
But these days Greg McBride, a chief financial analyst with Bankrate.com, says, "This is the one time where it's OK to make minimum payments on your credit card." At least that will buy consumers some time for their bills and allow them to take care of necessities.
Here is some of their advice:
Make a list of all bills coming due in the next two months. Call each company and ask if they can delay your payment or put you on a more affordable payment plan.
On Housing, Student And Medical Loans
- See if you can get a break on your mortgage. U.S. regulators ordered loans backed by mortgage giants Fannie Mae and Freddie Mac to offer flexibility in mortgage payments for up to a year. Some banks are offering options to defer mortgage payments, for example. Either way, check the fine print, because some of those agreements come with harsh terms.
- For renters: Many cities have called for a halt to evictions, but without offering much additional guidance. Bigger companies might have more flexibility to accept late payments. Dyan Navejar, who lives in Lexington, Ky., says her landlord told her he isn't a conglomerate and needs her rent on time to be able to pay his mortgage payments. So, he told her, "It's business as usual."
- Student loans and medical loans often offer adjustments based on ability to pay. Student loans often adjust payments based on income, for example. Hauer, the financial adviser, says the same is true for medical bills. "Most medical providers will allow you to set up a payment plan, and most of them charge no interest or very low interest," she says, so don't put those bills on your credit card, where interest rates are much higher.
For Other Monthly Services And Bills
- Many water, electricity and gas utilities are not shutting off service, but be sure to confirm that you qualify for this program and ensure your service isn't accidentally cut off. Check with your Internet and phone providers, too.
- Review all recurring charges you might have on auto-pay. Cancel all unnecessary items, which might include cable TV, streaming music and other subscriptions.
Candace Grenier, a dental hygienist hunkering down in Anchorage, Alaska, lost her job last month. Both she and her son applied for unemployment benefits but haven't gotten them. "That's been kind of a struggle," she says. Unemployment offices "have been so overloaded with requests because there's been so many layoffs," Grenier says. The long list of services she has cut from her budget include cable TV and plowing her snowy driveway.
- Some choices are especially difficult. Take health insurance, for example, if you qualify. "You're really faced with a huge, huge choice because if you don't pay your health insurance and somebody gets sick, it can be a disaster," Hauer says.
In Orlando, Fla., this is a worry for Andrea Delacruz and her husband, both of whom have been out of work since last month. Her husband lost his job as a bus driver before they became eligible for health insurance benefits. To tide them over, her husband thinks about driving for Uber or Lyft. His wife worries that will expose the family to the coronavirus. "I'd rather not have money and owe a whole bunch of money [and] when everything is over, talk to people and try to see what they can do, [rather] than me risking my life," Delacruz says.
Shoring Up Cash
- Buy the necessary items first, like food and medicine — items that cannot be delayed. Try to save cash by using credit or loaned money for those items, if you can. "Lower-income households tend to run a much leaner budget to begin with and don't have those extraneous expenses that can be cut back," says Bankrate.com's McBride.
- If you need to borrow money, ask family or friends first. If that's not an option and you have good credit scores, you might also be eligible for a personal loan from a bank. Those interest rates are about half that of most credit cards.
- Make the minimum payment on the credit card and use it to buy food and other necessities.
- Find a free credit counselor. "They specialize in not only helping people budget, but they can also interact with your creditors," McBride says.
For those with retirement accounts, tapping them is a last resort because there are potential tax penalties for doing so. The new CARE Act allows borrowers to avoid penalties for withdrawing money from retirement savings, if the money is returned in three years. Still, experts say, it's a risky option.
LULU GARCIA-NAVARRO, HOST:
Forget living paycheck to paycheck. Many families have lost work in this pandemic and are running out of cash as they wait for unemployment checks and government stimulus money to arrive. NPR's Yuki Noguchi reports on the tough choices some families are making about which bills to pay and what experts recommend.
YUKI NOGUCHI, BYLINE: There are eight souls living under Dyan Navejar's roof. Only one is still working full time.
DYAN NAVEJAR: Food - that's the biggest thing in my household right now. These kids can eat.
NOGUCHI: Navejar, her husband, five children and a grandchild are at home in Lexington, Ky. Sometimes they eat the same meal of potatoes, eggs and hotdogs to save money.
NAVEJAR: Before, you know, if they wouldn't finish their plate, I'm just like, OK, we'll just throw the rest in the trash, and put your plate in the sink. Now it's like, whatever you don't eat, make sure you put it back in the fridge and then finish it later.
NOGUCHI: Her husband lost his dishwashing job last month. He hasn't yet received a severance his restaurant promised. Unemployment benefits haven't arrived. Navejar works from home as a call center operator. But the $480 a week she earns isn't enough. So she asked her landlord for a break.
NAVEJAR: And his response was business as usual.
NOGUCHI: She must also make her car payment. But utilities, like water and electricity, are not shutting off service.
NAVEJAR: They're offering extensions till May 1. So I'm figuring I can get away with that for a minute just to do the car, some of the insurance and the rent and groceries.
NOGUCHI: In many households, cash is scarce, and families are pooling what little they have to pay for what's most needed.
KATHY HAUER: You know, the cliched rock and hard place that we're going to face in the next couple months for the average American family - I just - just staggers me.
NOGUCHI: Kathy Hauer is a financial planner in Aiken, S.C. Lower-income families, she says, have little wiggle room. Some don't have credit cards or are maxed out. So Hauer says she's giving advice she's never given before.
HAUER: Defer as many payments as possible and worry about it later.
NOGUCHI: But, she says, don't just ignore everything. Instead, make a list of all upcoming bills. Then call each company. She says whether it's loans for a home, a car, college or a medical treatment, ask for forbearance. Forbearance might mean a delayed payment or a different payment plan. Then, Hauer says, pay for the most critical things first - daily essentials like food and medications, anything that cannot wait.
Other finance experts advise cutting recurring charges, like cable TV and streaming music subscriptions. If borrowing from family isn't an option, rely on credit because that will buy some time. Hauer says choosing what to pay for can get very tough. Just consider health insurance.
HAUER: You're really faced with a huge, huge choice because if you don't pay your health insurance and somebody gets sick, it can be a disaster.
NOGUCHI: This scares Andrea Delacruz. Last month, her husband lost his new job as a bus driver before qualifying for health benefits. Her work as a photographer and realtor also dried up. They both applied for food assistance and unemployment benefits. To tide them over, her husband thinks about driving for Uber or Lyft. His wife worries that will expose the family to the virus.
ANDREA DELACRUZ: Listen. I rather owe a whole bunch of money when everything is over and talk to people and try to see what they can do than me risking my life. There's so many people dying out there.
NOGUCHI: This is a dramatic reversal of fortunes for her family. They moved to Orlando from Miami last summer when they felt flush.
DELACRUZ: We moved here because we wanted to buy a house. We wanted to do all these things. And now it's like - God knows when that's going to happen.
NOGUCHI: But, she says, she knows there are many others like them waiting for much-needed cash.
Yuki Noguchi, NPR News. Transcript provided by NPR, Copyright NPR.