What's the Most Affordable Way to Borrow During the Coronavirus Crisis?

Need money to pay your bills? These are your options. 

COVID-19 is wreaking havoc on the U.S. economy and forcing millions of Americans out of their jobs. That means many workers have difficult financial decisions to make as they scramble to keep up with their bills. The good news is that many mortgage lenders, utility providers, and telecom companies are cutting customers some slack, letting them defer payments for the time being. But if your income has been slashed or is nonexistent, you'll still need a way of paying for basics like food, medication, and household and pet supplies, and that could mean borrowing money to cover those expenses. 

But if you're going to borrow money, it's important to do so as affordably as possible so you don't get stuck paying loads of interest on your debt. Here are your options in this regard. 

1. Home equity loans or lines of credit

If you own a home that you have equity in, borrowing against it may be your easiest and most affordable option. Equity is the portion of your home you own outright. For example, if your home has a market value of $200,000 and your mortgage balance is $150,000, you have $50,000 of equity in your home, or 25% worth of equity. You usually need at least 20% equity for borrowing to be an option.

You can borrow against your home in one of two ways: a home equity loan or a home equity line of credit (HELOC). With the first, you take out a lump sum that you pay off over time at a fixed interest rate. With the latter, you get access to a line of credit you can borrow against as needed, and you only pay back the amount you withdraw. The interest rate on a HELOC is generally variable. Compared to other borrowing options, home equity loans and HELOCs still offer some of the lowest rates you might find. And qualifying for either one is easy provided the equity in your home is there, since your home itself is used to secure the loan; your credit score won't be much of a factor in getting approved. 

2. Personal loans

A personal loan is a sum of money you can borrow for any purpose, and unlike a home equity loan, there's no collateral behind it. As such, you'll need decent credit to get approved, but if you are, borrowing is generally affordable. Personal loans tend to be shorter-term loans, with a repayment period of one to five years. They're typically more expensive than borrowing against a home, but far less expensive than borrowing via a credit card balance. 

3. Credit cards

If you don't own a home and can't get a personal loan, your next best bet may be to charge your expenses on a credit card and pay them off over time. This option can be extremely costly since credit card interest can be brutal. As such, you should treat it as a last resort -- especially since carrying a high credit card balance can damage your credit score, which will make it even more difficult to borrow money. 

That said, if money is very tight in the near term and you already have credit cards you haven't maxed out, racking up a balance may be your quickest and easiest means of borrowing. You could also try applying for a new card with a 0% introductory rate. If your need to borrow is only temporary and you pay that card off quickly, you’ll avoid a pile of interest that only costs you more. Just do your best to pay off that debt quickly, and only use this option to charge essential expenses, like food, that you can't live without.

Money is tight for a lot of people right now. If you need to resort to borrowing, aim to do so as affordably as possible so that when this nightmare is over, you're not stuck with an unmanageable load of debt to pay back.