As the pandemic drags on, desperation is setting in for a substantial chunk of the population whose budgets are nearing the breaking point.
Roughly 1 in 5 Americans is considering a risky move in the next few months, according to a recent study by the financial planning firm Facet Wealth.
That includes 18% who plan to go deeper into credit card debt, 18% who may tap into their retirement savings and 17% who might resort to borrowing money from family or friends.
While strategies like these can provide a quick cash injection, they also have the potential to seriously damage your long-term fortunes. Here are five things you can do instead to find relief.
Rethink your budget
Asking your loved ones for money can make family get-togethers extremely awkward, even over Zoom. A strained relationship can also have a financial cost, as your friends and family will be less keen to babysit or help you fix the front porch.
With a bit of scrimping and some smart shopping, you may be able to avoid that difficult conversation, or at least reduce the amount you need.
Start by creating a list or spreadsheet of all your monthly expenses and identifying any nonessential items you can cut out for the time being.
For example, cancel any subscription services that you don’t use regularly. You can always re-subscribe later, and you may even qualify for a free month or two when you sign back up.
Next, try to reduce the cost of your essentials. Check out a few different grocery stores in your neighborhood, as prices can vary a lot between supermarket chains.
The same strategy can be applied to other key expenses, like your car insurance. By comparing rates from multiple insurance companies online, you may be able to save more than $1,000 a year.
Trade in your high-interest credit cards
Although you might be tempted to coast by on your credit cards until your financial situation turns around, credit card debt is a tough hole to climb out of — especially if you’re only making the minimum payments each month.
Unlike most personal loans, credit card interest rates can be painfully high: over 20% in some cases. To make matters worse, credit card interest compounds, which means that unless you pay off your balance in full each month, you’ll end up owing interest on your interest.
However, if your credit score is in decent shape, you may be able to trade in your high-interest credit card debt for a new loan at a much lower rate.
With a debt consolidation loan, you can pay off all of your current debt immediately. Then you’ll only be responsible for a single monthly payment at a more affordable interest rate.
Depending on how much interest you currently pay, consolidating your credit cards could save you thousands of dollars and help you become debt-free years sooner.
Refinance your mortgage
After hitting record lows 17 times in 2020, mortgage rates continue to sink lower and lower.
If you’re a homeowner and you haven’t recently refinanced your mortgage, you may be able to save hundreds of dollars a month by trading in your existing home loan for one of today’s bargain rates.
Similar to debt consolidation, you’ll need to have a solid credit score to qualify for a refi. It’s also recommended that you have at least 20% equity in your home.
As of last month, there is now a 0.5% fee for refinancing, although you may be able to avoid it if you shop around.
Just remember that different lenders offer different rates, so it’s a smart move to compare at least five offers before you commit to one. Shopping around for rates can make a $3,000 difference in how much you save over time, according to the government-sponsored mortgage agency Freddie Mac.
Use a price-checker when you shop online
With lockdown measures still in effect, you’re likely doing most of your shopping online these days. That includes purchases big and small, essentials and luxuries.
And while big retailers like Amazon and Walmart make it possible to get everything you need in one order, that convenience will cost you.
Unless you take the time to price-check every item in your cart against other retailers, you’ll probably wind up spending a lot more than you need to when you click the “buy” button.
Fortunately, price-checking your order doesn’t have to be a time-consuming ordeal. You can download a free browser extension that will instantly compare prices on everything in your cart against thousands of other online stores.
It only takes a few seconds to install and could potentially trim down your online shopping bills by hundreds of dollars this year.
Call in a pro
If you’re still feeling tapped out, seek out some professional advice before you start raiding your retirement fund.
Under the CARES Act, Americans could make an early withdrawal of up to $100,000 from a 401(k) or traditional IRA without penalty. However, that provision expired on Dec. 30, and the new relief package does not include an extension.
That means that if you withdraw money from your retirement accounts before age 59 ½, you’ll be subject to a hefty 10% penalty in addition to the income tax you’d normally owe.
A certified financial planner may be able to help you get back on track without cracking into your nest egg. These experts will analyze your situation, look at your options and build you a personalized plan for the future.
Many banks provide complimentary financial planning services, so it’s worth looking into whether you’re eligible for a free consultation. If your bank doesn’t offer financial planning, check out this guide on how to find a good adviser.
It’s often cheaper to go with an online financial planning service. Aside from the money you’ll save, you’ll be able to get advice over email or video chat any time you have a question, and you won’t have to worry about social distancing restrictions.
