SOURCE: PEW RESEARCH CENTERNOTE: SURVE< OF ,91 U.S. ADU/TS, APRI/ ʟ 1 , % of Americans who have lost a job or
taken a pay cut due to COVID-Low Income 52 %Middle Income 42%Upper Income 32%% of Americans without emergency
savings to cover three monthsLow Income 77%Middle Income 52%Upper Income 25%A Big Hit—With
No Protection
0 any Americans are struggling ɿnancially
as a result of COVID-19 and don’t
have savings to fall back on. The less
they earn, the greater the challenge.Periscope
12 NEWSWEEK.COM
Tap the Equity In Your House
homeowner equity was rising
before the coronavirus struck, which
means that if you’ve owned your place
for a while, you may be able to borrow
against it to help pay your bills.
In the best-case scenario, you
already have an open home equity
line of credit, commonly called a
HELOC, that you can draw on as
needed. “There are no tax disadvan-
tages, the rates are low, and you can
generally pay it back when you have
the cash flow to do so,” says Balti-
more-based certified financial planner
Brent Weiss. As of May 6, HELOC rates
nationwide averaged 5 percent, with
some lenders offering home equity
lines below 4 percent for the most
creditworthy borrowers.
If you don’t already have a HELOC
in place, though, you could be out of
luck. Lenders probably won’t be keen
to offer a new line of credit if you’ve
lost all or part of your income or
you’ve fallen behind on bills. In fact,
with the economy in distress, many
banks are reluctant to lend to home-
owners under any circumstances: J.P.
Morgan Chase recently paused new
applications for HELOCs and other
lenders are expected to follow suit.
For homeowners 62 and older,
there may be another option: a reverse
mortgage, which also allows you to
draw on your equity for income in
the form of a line of credit. You don’t
have to repay the loan as long as you
live in your home and keep up with
your property taxes. Instead, the debt
is repaid when your home is sold.
The advantage to this approach is
that you can avoid tapping retirement
savings for living expenses at a time
when stock prices are down, which
would lock in current losses, or taking
Social Security early, which typically
permanently reduces your benefits.
But there are drawbacks too: A reverse
mortgage can be expensive, with addi-
tional fees that you don’t usually have
with a traditional HELOC, and the
rules can be complicated. Plus, if you
were counting on the proceeds from
the sale of your home at a later date
to help fund your retirement or leave
a nice inheritance for the kids, you
could be out of luck.
For that reason, Weiss recommends
considering a reverse mortgage with
extreme caution. “It may relieve the
hardship in the short-term, but this
can have major adverse consequences
years down the road when it matters
the most,” he says.Use Credit Cards Smartly
taking on credit card debt is a
permanent feature of the certified
financial planner no-no list. But in
tough times like now, when you need
the money, you need the money. And
for the almost 170 million Americans
who have at least one credit card, it’s
probably the easiest and fastest way to
get your hands on extra cash or funds
to cover your bills.
But it’s potentially a very expensive
form of help.
If you charge living expenses to the
card and carry a balance, you’ll pay,
on average, a 17% interest rate on that
debt, according to the Federal Reserve.
If you get a cash advance instead, the
rates are even worse, often a full 10
points higher. Plus, you’ll typically
pay an additional fee, most commonly
$10 or 5 percent of the amount you’re
borrowing (whichever is higher) and
interest begins building up immedi-
ately (there’s no grace period, as with
regular charges).
A better option, if you can manage it,
is to charge what you must to a credit
card with a long zero percent financ-
ing period on purchases, hopefully
one lasting 12 months or more. Look
to see if any of your current cards offer
that option, since it will be tough to
qualify for a new card now. If none do,
contact your lender to see if they are
“willing to work with you to either skip
a payment or lower the interest rate,”
says certified financial planner Bobbi
Rebell, host of the Financial Grown-Up
podcast. (Nine out of 10 credit card-
holders who’ve asked for a break on
their bills due to the COVID-19 out-
break have gotten one, according to a
recent Lending Tree survey.)
Then, plan on prioritizing paying
off this debt when you get back on
your feet to avoid high interest kicking
in after the zero-percent or low-inter-
est financing period expires. -OHNSCOTTʔ*ETT<MAY 22, 2020YOUR MONEY