With the coronavirus pandemic shutting down normal business operations, there has been no shortage of financial experts showing up in the news telling people how to face a layoff. To my dismay, I have watched many of them in national television share really bad money advice, especially encouraging people to get into more debt.
If you are facing a layoff or furlough, don’t listen to people who encourage you to get deeper into more debt. You could very well get through this difficult time without having to borrow money, if only you consider this anti-debt plan I am about to lay out as an option.
So, let’s look at three pieces of bad money advice for people facing a layoff or furlough, and what to do instead.
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Bad Money Advice During The Coronavirus Crisis
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Three Pieces Of Bad Money Advice From Financial Experts
1.- Put All Your Charges On Credit Cards
Many “money experts” on television and social media are advising people who have been laid off or furloughed, to start putting all their charges on credit cards. They even encourage you to get more credit cards and increase your credit limits. But that is not the answer to dealing with a financial crisis.
I agree that you should do everything possible to preserve your savings if you have any. However, the last thing that you need right now is to be burdened with more debt.
Using credit cards may sound like an easy solution to make up for the loss of wages. However, that is money you will eventually need to pay back. Digging a deeper financial hole by using more credit cards is the last thing you need, especially when you don’t have a job!
INSTEAD OF USING CREDIT CARDS
Instead of defaulting to credit card debt, I recommend that you cut down your expenses, DRASTICALLY. Avoid at all costs using plastic to make purchases. Instead, get on an extremely tight budget and worry about covering your essential survival expenses only.
During this coronavirus pandemic, landlords, mortgage, and utility companies are not taking action against delinquent accounts. Federal student loans are being deferred without penalties or accrued interest. And by all accounts, most creditors are willing to work with customers who have been laid off.
This type of relief is unprecedented. Your living expenses and debt payments take up most of your income. So, with these relief measures in place, it is more possible than ever to get by on unemployment benefits alone.
Budget for your other essential payments like groceries and gas, and cut all nonessential spending. You could very well get by without having to pull a credit card off your wallet. A severance package, if you are getting one, will also help you stay afloat and avoid getting into more debt.
2.- Get A Home Equity Line Of Credit
Again, these financial experts are taking over the airwaves encouraging you to tap into your mortgage equity to survive a layoff. That is terrible advice, even if your situation is dire.
You will be better off applying for a hundred new jobs and taking the first one that becomes available. Even if you are overqualified for a job, all you need right now is to make enough money to ride out this layoff. This is not your new career path!
Taking out a loan on your mortgage should be the last think on your mind. Instead of applying for a home equity line of credit, contact your mortgage company and let them know that you have lost your job. As I said, many are postponing payments to people affected by the coronavirus crisis.
INSTEAD OF GETTING A HOME EQUITY LINE OF CREDIT
The more debt that you get into now, the slower your recovery will be once you get back on your feet. So, instead of getting a home equity line of credit, focus on finding a new job. It doesn’t have to be your dream job, it just has to provide you with enough income to get by.
When the coronavirus pandemic passes and things get back to normal, you will be happy you didn’t pull money out of your home equity.
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3.- Take Money Out From Retirement Or 529 Investment Accounts
Another move to avoid is to take money out from your retirement or 529 investment accounts. Although the Coronavirus Aid, Relief, and Economic Security Act has loosened the rules and penalties for early withdrawals, this is not the best time to pull money out.
Your investments have likely lost a ton of value in the last few weeks. If you withdraw money now, you will lose the opportunity to recover. On top of that, if you are not 59 1/2 years of age yet and you pull money out, you will still owe income taxes on that money, although the 10% penalty may be temporarily waved.
Relying on your retirement accounts to bail you out of a layoff is not going to help you in the long run. It may seem now like an easy way out, but many times what comes easy is not in your best interest.
INSEAD OF TAKING MONEY OUT OF RETIREMENT ACCOUNTS
Instead of tapping into your retirement accounts or even your kids’ 529 college savings, I will encourage you, again, to focus on covering only your essential expenses. If you can get by without incurring any additional debt or pulling money out of retirement, if you are not 59 1/2, it would be a great outcome.
Keep in mind that what we are going through is temporary. Unlike with the 2008 Recession, before the coronavirus pandemic, our economy was in full blast. Chances are good that we’ll have a speedy recovery once businesses can resume normal operations.
Take this also as an opportunity to prioritize building up an emergency savings account. I recommend that you put away six to nine months of expenses in your rainy day fund. Having that money to fall back on is the best way to protect your finances and mental wellbeing in times of crisis.
In Conclusion: Bad Money Advice From Financial Experts
I seriously roll my eyes every time I hear a financial expert on national television, sharing bad money advice to weather the coronavirus storm. Instead, I am discouraging you from getting into more credit card debt. Also, avoid getting a home equity line of credit, or pulling money out of your retirement accounts now.
Take advantage of the financial relief extended to those affected by a layoff or furlough, from the stimulus checks and additional unemployment benefits to the debt postponement or repayment options.
Focus on covering your essential necessities first, like groceries, medicine, and transportation. Eliminate as many other expenses as you can and try to preserve any funds you may have in savings. It will be much easier to recover from this downturn if you follow this anti-debt plan instead of getting deeper into debt.
Related Articles To Riding Out The Coronavirus Crisis:
- Coronavirus And Your Finances: 10 Steps To Reduce Financial Stress
- How To Budget If You Get Laid Off During The Coronavirus Crisis
- Should We Pull Our Money Out Of Banks?
- 5 Positive Outcomes Of The Coronavirus Pandemic
- Budgeting 101: Organize your Income, Track Expenses & Save Money
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