Before the coronavirus era, our job market was on a roll. Over the last 10 years federal unemployment rates steadily declined from 10% in the Great Recession to 3.5% in February, a 50-year low. Now with over 22 million applications for unemployment benefits since mid-March, our once roaring job market has quickly deteriorated to one in severe recession. While there is hope for a quick recovery, we are currently multi-decade high levels of unemployment.
When you hear advice that you should have three to six months of spending socked away in a savings account, it’s for times like these. Fortunately, new federal legislation passed in March gives us measures for managing our budgets in terms of receiving unemployment benefits and temporarily reducing expenses. Consider these steps when watching your cash flow during this time.
File for unemployment. Many more qualify for unemployment benefits now than before the pandemic. If your hours have been reduced or pay has been cut, or you have been furloughed or laid off, you could qualify for unemployment benefits including a $600 weekly federal subsidy available through July 31. Small business owners and solo workers have historically had a harder time qualifying for unemployment, but the new federal benefits specify that self-employed people can qualify. Colorado and other states have now retooled their websites to accept claims from sole proprietors and gig workers.
Many mortgage payments can be postponed. If you’re not able to make ends meet after filing for unemployment, new laws give you additional options to delay payments. If you have a mortgage that is federally backed and you are experiencing financial hardship, you have the right to request an initial delay of up to six months on your mortgage payments, with an extension of up to another six months if you’re still experiencing hardship. While you may think you do not qualify for this program, keep in mind most mortgages are federally backed including Federal Housing Administration, Veterans Affairs and Fannie Mae loans. During this forbearance period, no fees, penalties or interest should accrue beyond what would normally occur if you were making your payments. It should not negatively affect your credit score.
When this law was passed, there were reports of some mortgage companies making delayed payments due in one lump sum after the forbearance period. Clearly most people suffering financial hardship would not be able to make six months of mortgage payments at one time. With a federally backed loan, you should not have to make the missed payments until you are able to do so, which might mean they are tacked on to the end of your loan.
Renters may have options. Renters who are suffering financial hardship have protection under a temporary national moratorium on eviction filings related to properties that have federally backed loans. In addition, many states and local areas have extended this protection to all renters, including Boulder County, which has delayed evictions until June. While much press has been dedicated to the plight of renters, landlords who depend on rental income to pay their bills should not be forgotten. Landlords with federally backed mortgages also can apply for forbearance. Renters can do their part by only seeking to delay rent in the case of genuine financial hardship.
Delaying payment on federal student loans. Those who have federal student loans have been put in administrative forbearance, which means you can stop making your monthly student loan payment through Sept. 30. Moreover, no interest will accrue on those loans. In order to take advantage of forbearance, you must take steps to stop making loan payments. Should you continue to make them, they will go directly toward principal. Private student lenders may have similar policies but check with them as they tend not to be as generous.
If after running through these steps you still find yourself in a financial pickle, there are new rules in place to access retirement funds. We will run through these options in a future column, but it should be stressed that cashing out funds meant for retirement should only be done if your finances are in dire straits.
David Gardner is a Certified Financial Planner practicing in Boulder County. The opinions expressed by the author are his own and are not intended to serve as specific financial, accounting, or tax advice.