“Before the pandemic, Americans prioritized paying down debt—now experts say you may want to hold off”
An article in CNBC.com on May 7th posted the following information: “Even before the Coronavirus pandemic shut down many parts of the U.S. and put millions out of work, Americans held an average of $26,621 in personal debt, excluding mortgages, according to Northwestern Mutual’s 2020 Planning & Progress Study which surveyed over 2,600 U.S. adults in mid-February. Those with debt are putting about a third of their monthly income toward paying it down and more than two thirds have a plan in place to pay off their outstanding balances.”
Prevailing wisdom today is that paying down debt shouldn’t be a priority if you’re struggling financially.
Financial planners say you may need to think twice about prioritizing paying off debt. Not all debt is created equal and not all debt is bad. If you do have “bad” debt, such as carrying a high credit card balance, you need to rank paying it off within other financial priorities. You may want to consider applying for a balance transfer credit card offering a 0% APR and use that low interest to pay off debt at a faster rate. Many banks and financial institutions are offering debt relief programs, deferred payments, waiving fees. Ask!
When times are tough, what matters is being able to pay your bills and buy necessities. That takes cash, so you may need to put your debt repayment plan on pause to free up some money in your budget. As long as you can keep paying your bills and keep putting food on the table, you can get through the tough times.
If you’ve lost your job consider your income options. Find out how much unemployment benefits will cover and how long will they last. Consider applying for a temporary job and factor in how much income that will generate. Then rank what money needs to come out of your account in this order: food, shelter, transportation and finally, savings. Aim to build up three to six months worth of cash for now. If you only have enough to cover the necessities, then don’t worry about debt. Right now… cash flow is absolutely king.