The COVID-19 pandemic has affected Americans in many ways. Even those who have not experienced health effects firsthand have likely felt the financial ramifications of the pandemic on our economy.
As AP News cites, a recent study found that about a quarter of Americans report losing savings during the pandemic, and nearly a quarter of Americans have seen their incomes decrease as a result. Approximately 20 percent report outright losing their jobs. The same survey found that approximately one-third of Americans saw their investments suffer negative consequences during the pandemic.
Times are tough across the board.
While some financial decisions are simply out of our hands during this unprecedented pandemic, borrowers can try their best to avoid certain money mistakes — many of which we may not even realize are counterproductive in the moment. Here are a few financial mistakes worth avoiding if at all possible.
Not Asking for Help When It’s Needed
Many Americans feel finances are something they need to handle completely on their own. There’s often a sense of shame associated with sharing. But asking for help when it’s needed is courageous and can assist people in coming up with a plan before their finances go too far off the rails.
Making a free or low-cost appointment with a credit counselor at a not-for-profit agency is one way to get customized budgeting advice, as well as tips on how to handle debts. As the Federal Trade Commission outlines, any trustworthy credit counseling firm will gladly provide information about its services before you have to furnish any information about yourself so you can find the right partner for your needs.
Spending Money on High-Interest Credit Card Debt
Credit card debt is expensive because it’s comprised of however much you spent and all the interest that compounds on that balance over time. It’s not uncommon to see credit cards carry annual percentage rates (APRs) of 20 percent or higher.
While paying the minimum amount due on credit cards may seem like the best tactic to stay afloat in the moment, keep in mind this will mean it takes longer and hikes up the amount you’re paying in interest. It’s worth exploring other options, from enrolling in a debt settlement program to getting a debt consolidation from Bills.com or another lender. Another potential option is signing up for a debt management plan (DMP) through a credit counseling agency.
However, even if you decide to handle repayment on your own — you should still get a targeted strategy to help you systematically eliminate debts in order of interest rate. It is important to pay the minimum balance every month no matter what to keep your accounts in good standing.
However, it’s often not the only option nor the savviest economically.
Forgetting About Emergency Savings
It’s completely understandable American families find themselves dipping into their emergency savings, or deprioritizing them when times are lean. However, if there’s any way to come up with extra funds to stash away for an even rainier day, you’ll be helping your future self deal with catastrophes.
While it might seem there’s no extra money to go around, a budgeting deep-dive can often reveal funds that can be diverted to emergency savings.
- Review your last three months of spending to create an accurate budget.
- Make transfers to your emergency fund automatic so you don’t have to think about these deposits.
- Wait a certain amount of time (like 24, 48 or 72 hours) before making any non-essential purchases, during which you can mull over whether you really need it.
- Open up a new bank account if you’ll get a bonus for doing so.
Although the pandemic continues to affect Americans’ financial lives, doing the best you can to avoid money mistakes can help you get through it as unscathed as possible.