At CNN Underscored, we know people are hurting financially from the coronavirus pandemic, and we want to help. So we’ve put together this series on how to deal with your money problems in the midst of the worst economy in at least a decade. And since this is an unprecedented crisis, we’re not just offering the same old rote financial advice that you may have heard many times before. We’re sometimes offering unprecedented advice, because when the present looks grim, it’s hard to think about building for the future and more important to focus on fixing things now.
When you’re having trouble making ends meet, there are three basic things you can do: Increase your income, cut costs, or go into debt.
If you’re one of the 33.5 million Americans who filed for unemployment in the last two months, increasing your income isn’t likely an option right now. While expanded unemployment can help keep you afloat for a while if you qualify for it (and if your state government ever gets its act together and sends it to you), you can’t rely on it for the long term.
So if you can’t increase your income at the moment, you have to look to the two remaining options: cutting your expenses or accumulating debt. There are smart ways to do the latter, and we’ll get into those in future installments of this series. But today, we’re going to cover how to lower your expenses in ways that cause the least amount of pain. It can be easier than you think.
People tend to spend the majority of their money on three main areas: their cars, housing costs, and entertainment. So if you’re going to cut your expenses, you’ll want to look at those three spots first, since that’s where you’re likely to get the most bang for your buck.
Let’s start with your car. If you’re not using it as much as you were before, now that you’re no longer commuting, you may be able to lower your auto insurance costs with one quick phone call. And yes, it really can be quick.
So here’s your first task: Put aside 10 minutes today — not tomorrow, today — to find your auto insurance info (it’s probably in your car’s glove compartment) and call your insurance company or agent. Tell them you’re driving less right now and ask what options are available to lower your premiums.
“Switching from commuting to using [your vehicle] for pleasure can save 5% to 10%,” according to Dan Karr, the CEO of ValChoice, a data analytics company that acts as an insurance industry watchdog.
Some companies will also allow you to change your annual mileage estimates, though they may require a cell phone app or device to be installed in order to measure mileage. But, Karr says, “a reduction from 12,000 miles per year to 3,000 miles per year should yield approximately a 25% savings.”
Also, some insurance companies have been offering rebates on premiums, so while you’re talking to your insurance company or agent, ask if there are any credits or rebates you qualify for. And if a lowered premium is still more than your budget can handle right now, ask for your payments to be deferred, which is an option being offered by some insurance companies.
But be careful, because unlike a rebate, deferring payments means you’ll still owe the money down the line. “Drivers need to make sure they will be able to pay when the payment comes due,” says Karr. “Some insurance companies will increase the price of insurance when there is more than one late payment, so drivers want to make sure they don’t end up in this situation.”
Want to save even more money on your car? Consider making a second phone call to your lender and ask to defer payments on your car loan as well, or even refinance your loan. Since interest rates have plummeted in the last few months, you may be able to get a lower rate than the one you currently have, and also extend the length of the loan at the same time, which will reduce your payments even further.
Let’s be blunt: It’s going to take longer than 10 minutes to refinance your car loan, and you might have trouble qualifying if you don’t currently have an income. So use your first 10 minutes to work on lowering your auto insurance payment, then come back to the car loan when you have more time to explore it (and see how much you can do online first instead of calling, because everyone else is calling).
Fewer people are expected to be able to pay their rent this month, and landlords are anticipating that it will get worse as the summer goes along. While you may not be able to afford your rent right now, there are better ways to handle the situation than just not sending the rent check and then ignoring your landlord and hoping he or she will forget about it and go away (pro tip: that’s not likely to happen).
Instead, take another 10 minutes to contact your landlord to explain your situation, and offer to pay a portion of your rent for the next several months. Offering even partial rent can go a long way with some landlords, as it shows an effort to at least make some sort of payment.
Don’t just ask for one month. Ask for a rent reduction for the next several months, so you don’t have to go back and try to negotiate a new rent every month. Start with a low offer and let your landlord counteroffer with a higher figure if necessary. If your landlord balks at giving you any rent reduction, suggest that you can pay a lower rate now and pay back some of the missing rent later.
Once you come to an agreement, put it in writing. Sending an email to your landlord with the agreed-upon terms after texting about it or talking by phone will be extremely useful down the line if there’s a disagreement.
And if your landlord isn’t willing to come to an agreement, that doesn’t mean you can be immediately evicted. A number of states have temporary eviction moratoriums in place, and even when those end, your landlord is required to go through a legal process to begin an eviction. Knowing your rights and having documentation of your outreach efforts to your landlord are useful in either case.
If you own your home, you can call your mortgage lender and ask for your monthly payments to be deferred. This is called “forbearance,” and eligible homeowners can get a forbearance of up to a year thanks to the CARES Act that Congress passed in March.
The good news is that under the CARES Act, if your mortgage is eligible, not only do you not have to make your mortgage payments for up to a year, but you also won’t accrue any additional interest or fees on your loan during that time.
The bad news is that you’ll still have to make those payments eventually — they’re not forgiven. Some banks are even tacking them onto the end of the forbearance period as a lump sum, which would leave you looking at a huge bill in perhaps just a year or several months from now.
But like everything, a forbearance may be negotiable. “Forbearance isn’t one size fits all, and there are different repayment options,” says Viral Shah, head of financial products at Better.com, a direct mortgage lender. “Homeowners should ask their lenders about different forms of repayment plans, including a modification of the loan, such as to keep monthly payments consistent and add the borrower’s missed payments to the end of the mortgage.”
Even a forbearance with a lump sum is probably better than defaulting on your payments now. So call your bank (expect a long hold time) or contact it online (probably faster, at least to start) and see what it can offer.
Finally, you can look into refinancing your mortgage and lowering your monthly payment that way. “Homeowners can potentially save hundreds of dollars a month by refinancing now,” Shah says. “The cost to borrow has never been cheaper for homeowners as 30-year rates have plunged to an all-time low.”
You might even be able to get cash out of your property at the same time. “A cash-out refinance is a way to refinance your mortgage and tap into the equity of your home,” explains Shah. “With a cash-out refinance, you’ll get cash after closing. The loan usually has a fixed rate, unlike a home equity line of credit, which often has a variable rate.”
But a mortgage refinance definitely isn’t a short process — the average time it takes across the mortgage industry from application to closing is 42 days. You’ll also need to be able to show a steady income to qualify, which may be impossible if you’ve recently lost your job. So stick with the forbearance options if you need to lower your expenses quickly.
You probably think that since many stores and venues are closed, you’ve already naturally cut down on your entertainment expenses. And that’s undoubtedly true. But there are a number of costs that may still be lurking in your budget.
Here’s the third of your 10-minute assignments: Pull out your credit and debit card statements and find all those little pesky monthly subscription fees. Can you live for a while without spending $13 a month for Birchbox or $1.99 for Microsoft’s OneDrive? And do you really need a delivery of new socks every month?
Those little monthly costs add up, and there’s a good chance you aren’t actively using them all. Cancel them now, and you can always restart them once the economy gets better and you get back on your feet. Many companies might even be offering bonuses down the line for coming back.
And while we’re talking about subscriptions, this is the time to look at that monthly cable or satellite bill. Even if you’re not going to give up your TV subscription while you’re spending more time at home, these companies are often open to lowering your bill if you let them know you’re not in a position to keep paying such a high monthly rate.
This concept can also extend out to other industries. For instance, if you’re paying $95 every year for a travel credit card but you can’t travel at the moment, call your issuer when the annual fee comes due and explain that you aren’t able to take advantage of the card. You’ll often find that your issuer is willing to waive the annual fee or drop some extra points or miles in your account.
It can be easier to temporarily cut expenses in the largest areas of your budget — you’re more likely to get bigger savings for the time you spend on it. But even small savings can add up if you’re chopping out recurring monthly expenses like insurance for a car you no longer drive as much or subscriptions you no longer use.
So focus on your car, housing and entertainment costs first, and find money you can save in those areas before worrying about other categories. Just keep in mind whether you’re actually getting a cost permanently removed from your budget, or just delaying it for another day. Both are potentially wise moves to get you through the current crisis — you just don’t want to be surprised if a big catch-up bill is going to show up down the line.