the MoneySmartLife.org Lifestyle blogEmpowering sustainable financial well-being for working class families
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The COVID-19 pandemic has affected every American family. The severity of the impact varies based on socioeconomic and demographic factors. For most working-class people, the result will be short-term economic devastation due to the loss of income, health benefits, and savings. It does not matter where your family is on the pandemic financial disaster scale, The pandemic left working-class families worse off. The economic toll has yet to be calculated.
At the time of this writing, the economic situation is very fluid. Without income, families are in housing default or food insecurity. The longer it goes on, the more widespread the economic suffering will be. The final impact on your family’s financial well-being may be unknowable and out of your control. What is in your control is resilience. Resilience is an integral part of financial well-being. As any world-champion prizefighter would tell you, “It is not just how hard a punch you threw; but also how hard a punch you took that matters.” Stuff happens in life all the time. We don’t know its name and duration until it happens. “COVID-19 pandemic” is this large steaming pile of stuff’s name. And when stuff happens, you have to deal with it. To continue to torture the prizefight analogy, “In life, it is not that you got knockdown. Instead, it is how long you stay down and what you do after you get up that determines the outcome.” So no matter how hard you got knockdown. Get up. Here is how. 1. Start Planning Your Comeback Now While You Are Going Through. Focus on what you want your life to be. Set short-term recovery goals. What do you have to do to keep your vow “not to be caught like this again?" Start or add to your Emergency fund.. Restock or build your Food bank. Build and improve Relationships with members of your safety net. Vote. Engage with all levels of civic government. Understand the impact of civic appropriations and taxiing decisions and whose interests are benefited by those decisions. Then vote your interests. Local, state and the federal government should be run competently with an adequately resourced staff of honest public servants. Also, there should be citizen oversight with political and criminal accountability. 2. Stay In The Moment. Every day has its own supply of challenges and joy. You can’t know the future, good or bad. Don’t create horrible future mental scenarios. Focus on making informed good choices now. The right decisions lead to good outcomes. Why worry about tomorrow? Doing so will not add an hour to your life. Matt 6:34 3. Believe In Yourself. You can do this. You don’t have to know every step of how. Just do the best you can each step of the way. Remember, you are playing a long game. Your outlook is post-pandemic. Don’t let a short-term decision lead to long-term financial turmoil. 4. Trust in God. If you believe He provides, then face each day with confidence. 5. Give. Don’t be so inward-focused. Turn your attention outwards and help others less fortunate than yourself. 6. Maximize Self-Care to mitigate the stress and depression that your situation fosters. In every airline pre-flight video, you are instructed to put on your own oxygen mask first. Only then help others in the event of a loss of cabin pressure. Money troubles increase pressure. You must find a way to release it before hurting others, generally those closest to you. For additional information on mental Resilience.
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COVID-19 is affecting many business collection practices. If your bank is anything like mine, you got an email notification that they were offering payment deferrals for mortgages and credit card customers. In this post, we're going to take a look at what deferred payments or a forbearance looks like in your mortgage account should you choose one and what are the pros and cons of a mortgage forbearance.
Forbearance is when you and your mortgage company agree to temporarily suspend or reduce your monthly mortgage payments for a specific period. This allows you to deal with short-term financial problems by giving you time to get back on your feet and bring your mortgage current. Keeping your word is paramount in this situation. Do not make commitments you can't keep. You may have to go back to your creditors for additional relief. Broken payment promises may make them less likely to provide help. You should contact your mortgage servicer to see what terms are offered. Doing so will help you better understand your options. It is always better to contact a creditor before you get behind on payments. You have to request and qualify for forbearance. If you have a federal loan (FHA, VA, USDA), your qualification is guaranteed during the COVID-19 pandemic. A forbearance allows you to maintain your cash as you navigate through a temporary crisis. Typically, the forbearance is for three months. You don't have to pay your mortgage during a forbearance. That deferred monthly payment becomes a cash cushion for you during this time. Understand a 'deferred payment' doesn't mean a 'never payment.' You will eventually have to make up any deferred payments. Please read the previous two sentences again. Deferred payments may accrue additional interest and extend the length of your mortgage, depending on the forbearance terms. If your monthly payment includes an escrow amount, that will also be deferred. That will create an escrow shortage. An escrow shortage will increase your monthly mortgage payment escrow amount the next time your servicer does an escrow reconciliation. Be aware and prepare for such an eventuality. Escrow shortages and reconciliation timing can create future monthly mortgage payment volatility. You can pay your escrow amount during the forbearance to prevent a deficiency. If you decide to do this, verify your partial payments are credited to your escrow balance. Before you agree to the forbearance, understand how it will report to the credit bureaus. Most lenders will not report your account to the credit bureaus during the forbearance, if you abide by the terms of the forbearance. The credit score impact of a late monthly mortgage payment can be devastating and long term. Most new credit scoring models more heavily weigh mortgage than other types of payments when calculating your payment history. Some newer credit scoring models treat late payments during a natural disaster less harshly. Surely the COVID-19 pandemic is a natural disaster. In times of financial uncertainty, cash on hand gives you options. A deferred payment doesn't increase your income. It lowers your outgo. During such times, reducing your monthly obligations is prudent. You can always pay your mortgage during or after the forbearance. Should you take a mortgage forbearance offered during the pandemic? For the vast majority of borrowers, that answer would be yes. A lot depends on where you are on the pandemic financial disaster scale. There are three benchmarks on the scale:
Regardless of your situation, your deferred payments are not for vacations, entertainment, clothes, and other things "you deserve or owe to yourself." Do not use debt to finance your wants. Wants are why you have savings accounts. Beware of "easy money." Don't get greedy and let a short-term decision lead to long-term financial turmoil. Here are two other considerations. First the less time you have left on your mortgage, the more impractical a forbearance. Since now, the majority of your payment is going toward extinguishing your principal and not interest. In such a situation, access forbearance in an extreme emergency only. Second, home equity line of credit (HELOC) loans are considered revolving accounts by most banks and generally don't offer traditional mortgage forbearance. Even though the loan is secured by your home. Most lenders will try to assist, if you need it. No one knows the final impact of the virus or how long the pandemic will last. Every family is sure to be buffeted by its economic turbulence. Society will respond in various ways. There are future financial decisions to be made. But for now, taking a mortgage forbearance makes sense for a lot of us. |
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