by Maurie Backman | March 20, 2020
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It may not hurt to have more borrowing options now -- provided you use them wisely.
The COVID-19 outbreak isn't just impacting people's health; it's impacting their wallets. An initial report from Marist Poll suggests 18% of U.S. workers have either lost their jobs or had their hours cut due to the current crisis. And with so many small businesses getting hammered, we could easily see the unemployment rate rise in the coming weeks.
If your income has been hurt by what's going on, you may be wondering whether it's smart to apply for a new loan or credit card as soon as possible. The answer? It's a good idea, provided you know how to use that credit responsibly.
If your income takes a hit or goes away completely, you can file a claim for unemployment benefits to replace some of your missing earnings. Eligibility for those benefits varies by state. To see if you're eligible, you should file a claim with your state's department of labor online. But even if you are granted benefits, they'll generally replace less than half of your previous wages if you're an average or moderate earner. That means they may not be enough for you to pay your monthly bills.
Now, if you have a healthy emergency fund, you can stay current on your bills by dipping into your savings to cover any expenses your unemployment benefits don't stretch to. Or, if you're not eligible for unemployment, you can use your emergency savings to pay all of your living expenses for the time being. But if you don't have money in savings, then you may need to borrow some for a while to keep up with your expenses. If that's the case, applying for a personal loan or new credit card could be a good idea. That way, you get a little extra leeway at a time when finding a new job may not be feasible.
That said, if you're going to apply for a new loan or credit card now, make sure you limit your use of that credit to essential expenses only. If you don't have enough money between savings and unemployment benefits to pay for things like groceries and medications, then by all means, charge those things on a credit card or use your loan to pay for them while you need to -- they're things you can't live without.
But don't use your new loan or credit card for splurges, or things that aren't absolutely necessary. Sure, you may be bored at home, but now's not the time to buy $300 worth of video games to stay occupied. If anything, spend around $10 to get Netflix for a month, which, though not exactly essential, is a reasonable purchase for a period when you're stuck at home with nothing to do.
Unfortunately, many Americans will have no choice but to rack up debt in the coming weeks or months to pay their bills. If you're one of them, do your best to keep that debt to a minimum. That means using your new credit card or loan for important purchases only, and waiting until your income looks healthier to start splurging again. And remember, too, that you may get some breathing space to defer certain expenses during this time, like your utility bills or even your mortgage, so before you start racking up debt, contact your service providers and find out what options are available to you.
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