As the coronavirus pandemic stretches on and the U.S. economy remains mired in a recession, many Americans may be struggling to come up with cash.
Almost half of the population is still out of work, according to the Bureau of Labor Statistics. The employment-population ratio, which is the number of employed people as a percentage of the U.S. adult population, was 52.8% in May. That means 47.2% of Americans are unemployed.
Meanwhile, another stimulus package is still pending in Congress. While the final outcome is unclear, President Donald Trump recently said Americans he favored more stimulus checks. Also on the table is extending unemployment benefits and offering back-to-work bonuses.
The additional $600 that the unemployed are currently receiving each week is scheduled to end on or before July 31. However, for some it will end on July 25 or July 26, based on how states prepare their weekly unemployment cycles.
That means a lot of people may need to find ways to come up with more money.
“The real important thing here for everyone is do a quick budget for yourself,” said Chad Parks, founder and CEO of Ubiquity Retirement + Savings.
“Start with the income coming in and put down all of your absolutely necessary expenses,” he said. “We are talking bare bones here.
“If you have a negative number, then you do have to look for sources of cash.”
Parks also suggests coming up with money to last you six to nine months, so if your budget is $1,000 short a month, look to access $6,000 to $9,000.
Where you may be able to get that money depends on your situation.
Consider a 401(k) loan
Experts warn against taking a withdrawal from your 401(k) plan, which is now penalty-free under the coronavirus relief package, or CARES Act, for amounts up to $100,000.
However, a loan may be an option. You have to pay interest, but you are paying it back to yourself.
Typically, you can take a loan of up to $50,000 or 50% of your vested account, whichever is less. The CARES Act temporarily doubled that amount to $100,000 or 100% of your vested account, whichever is less. The term of the loan is usually five years, but can be longer for the purchase of a home.
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However, there are pitfalls.
If you leave your job, you’ll have to pay all of the loan back, usually within 30 days. If you don’t, it will count as a distribution and you’ll pay a penalty.
“Unless you have good job security and you know for sure that nothing is going to happen, I tell people to be very cautious taking 401(k) loans,” Parks said.
Pay less for loans
If you need to borrow money, here’s a good strategy.
Join a credit union. It’s similar to a bank, but it’s not exactly a bank.
Credit unions are not-for-profit organizations that exist to serve their members. Like banks, they can accept deposits, offer loans and provide other financial services. Your money is federally insured in a federal credit union up to $250,000, under the National Credit Union Administration, an insurer of accounts.
One difference is that credit unions are member-owned cooperative institutions. Banks are commercial, for-profit enterprises. When you put your savings in a bank account or take out a loan, you are a customer. Any profits go up the chain to the shareholders.
That difference generally means you get a higher rate on your savings at a credit union, and also can borrow money at a cheaper rate.
Here’s a look at the difference in rates from March, the most recent data available, from the NCUA.
The national average rate for an unsecured fixed rate three-year loan at a credit union was 9.28%, and 10.2% for a bank loan of the same duration.
You must be eligible for membership to join a credit union, but that’s less challenging than you might think, says Jacqueline Ramsay, vice president of public affairs and communication at the National Association of Federally Insured Credit Unions.
Use credit cards
It may seem counterintuitive, but use the available credit on your credit card to help pay the bills instead of “raiding your retirement account,” Parks suggested.
You certainly wouldn’t be alone.
Nearly half of U.S. adults (47%) currently have credit card debt, according to a CreditCards.com poll released in May. Of those who already had credit card debt heading into the pandemic, 23% added to it, the survey found.
Reach out to your lender and see what help they have to offer. You may be able to skip a payment or two or lower your interest rate and it won’t affect your credit score.
“Some are being very generous with their hardship programs,” said Ted Rossman, industry analyst at CreditCards.com.
Your credit card provider may also have programs that help you pay for large purchases or give you access to cash. You may get a lower rate and more predictability in your payment schedule.
However, steer clear of cash advances from your credit cards, since those interest rates can run around 25%, in addition to a cash advance fee, Rossman warned.
If you rack up debt, be sure to come up with a payment plan so that you don’t carry that for years.
Refinance your home
You could free up some money each month by refinancing your home at a lower rate, and have a lower monthly mortgage payment.
“With mortgage rates at record lows, it has opened the door to refinances, even for homeowners with a really low rate who never thought they needed to refinance,” said Greg McBride, chief financial analyst at Bankrate.com.
The benchmark 30-year fixed refinance rate is currently 3.33%, according to Bankrate.com.
However, you’ll still have to pay closing costs, so shop around for the lowest fees.
Cash-out refinancing, which lets you walk away with money in your pocket after you close, is harder to come by these days.
It is also getting tougher to borrow against the equity in your home.
If you are unemployed, you’ll be out of luck. Some banks have even temporarily stopped accepting applications for home equity lines of credit.
McBride cautions against going the HELOC route if you are looking for cash to ride out these tough times. That’s because, if your financial situation deteriorates, you could be out of luck.
“You are putting your home at risk,” he said. “The potential consequence of not repaying it is a foreclosure or selling the home and walking away with little or nothing to show for it.”
Get a tighter grip on your expenses by taking stock, says Andrew Rosen, a certified financial planner and partner at Diversified Lifelong Advisors in West Chester, Pennsylvania. He uses a method that’s more personal than simply tracking money and making cuts.
Start by asking yourself what’s most important. Then, look at your past expenditures and calculate what percentage of your income they take up. For instance, if you bring home $5,000 a month and are spending $1,000 of that on car payments and maintenance, that’s 20%. Now is the time to see if you want to spend that amount on your car alone.
Once you’ve saved that $1,000, for example, Rosen says, a logical next step is finding other cuts. “There are all sorts of thrifty ways to save on the things you want to keep in your life,” he said. You might swap cable for a cheaper streaming service, ditch a credit card with a high annual fee, or cancel an annual membership.
Normal financial wisdom doesn’t always apply in abnormal times. If finances are tighter, it might be a time to stop aggressively paying down a loan, says Tony Zabiegala, a chartered retirement planning counselor and vice president at Strategic Wealth Partners in Independence, Ohio.
You can also create income by temporarily reducing your 401(k) contributions. “At least contribute up to the match,” Zabiegala said.
Side hustle how-to
One relatively easy way to increase income: the side hustle.
You can pick up extra cash in a variety of ways, but be sure to report any extra income on your tax return.
Nearly half of working Americans have a side hustle outside their main jobs, Bankrate found in a 2019 survey of 2,500 adults.
Even in a healthy economy, a third of working Americans with a side hustle said the extra income was essential to help meet their regular living expenses, according to the survey.
Robert Nickelsberg | Getty Images
As more people are out of work and doing their own errands, side hustles may not be as easy to get. One thing people are doing for money: starting their own home-based cooking businesses. Other possibilities are delivery jobs and remote teaching.
Platforms and websites such as Etsy, Skillshare, eBay, Poshmark and BackMarket, among others, make it easy to sell your own goods and creations. TaskRabbit, Thumbtack and Nextdoor are a few sites where you can list your skills and sell services locally.
The internet is also a rich source of how-to info on side hustles, with sites like Side Hustle School.
Nick Loper, who runs Side Hustle Nation, actually makes his living from side jobs. After several years of trying out different side jobs — from self-publishing on Amazon to online sales to affiliate marketing — Loper, who lives in Livermore, California, eventually left full-time employment.