I'm Living Paycheck to Paycheck During the Pandemic. What Should I Do?
If money is extremely tight right now, here are some moves that can buy you more breathing room.
Many Americans have seen their finances take a turn for the worse during the coronavirus pandemic. For some, it's been a matter of income loss. For others, it's boiled down to additional expenses, like childcare costs in the absence of full-time in-person schooling.
If you're suddenly living paycheck to paycheck during these trying times, you may be feeling a huge amount of financial stress. Here are three things you can do to free up some cash and make money just a little less tight.
1. Try to lower your mortgage payments via a refinance
If you're a homeowner with good credit, it pays to see what savings you can reap by refinancing your mortgage. If you're able to lower the interest rate on your mortgage substantially, your monthly payment could go down quite a bit, thereby freeing up money in your budget.
Imagine you have 15 years left on a $200,000 mortgage that has a 4% interest rate. If you can lower your interest rate to 2.6% (a very achievable rate right now), your monthly payments will go down by about $136.
2. Try to consolidate debt to make monthly payments cheaper
If you're currently making a number of debt payments each month -- say, your minimum credit card balance plus a personal loan payment -- then it could pay to consolidate that debt. Doing so may not only make it easier to manage, but also make it less expensive to pay off.
If you're refinancing your mortgage, you might look at a cash-out refinance, which allows you to borrow more than your remaining mortgage balance. Going back to the above example, say you're able to refinance your $200,000 mortgage at 2.6%, only you owe $10,000 combined on a credit card and personal loan charging 20% and 8% interest, respectively. If you do a cash-out refinance for $210,000, you'll be able to pay off your home loan plus your credit card and personal loan at a lower interest rate.
If you don't own a home, there are other ways to consolidate debt. You can take out a new personal loan and use it to pay off other debts, or you can look into a balance transfer credit card with a 0% introductory rate. Just be careful with the latter, because those introductory periods only last so long, after which your rate will start to climb.
3. Try to bank "forced" savings
Maybe you're no longer commuting to work due to the pandemic, or your normal habit of dining at a restaurant once a week has been put on hold. Chances are, you're being forced to cut back on some expenses whether you like it or not, so take a look at what you've been doing with that extra money. Are you substituting your weekly restaurant dinner for two takeout meals? If so, you may want to cook those meals at home and bank the cash.
A lot of people are having a hard time financially right now. If you're suddenly living paycheck to paycheck, do your best to break that cycle and put some money into savings. You'll not only help your finances, but give yourself some much-needed peace of mind at the same time.
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