Six Personal Finance Rules You Can Vary from During the Pandemic
- Author: Jacob Greene
- Posted: 2024-08-31
The pandemic has changed personal finance as we know it for the short term. Until the threat from COVID-19 recedes, the primary goal for many is financial survival. While this can largely be harmonized with longstanding personal finance rules, there are some standards that you can break in order to stay afloat right now. Here are six personal finance maxims from which you can have some flexibility to get by during the pandemic.
You Can Use Your Credit
Many experts will always tell you that it is best to now use too high of a proportion of your credit. This is because your credit score depends in part on your credit utilization ratio. The credit bureau will look at how much credit you have and the amount that you are using, and it will count for as much as 30% of your credit score. Experts tell you to use less than 30% of your available credit. However, if you find yourself falling behind and have no other choice, you may be forced to borrow on your credit cards. It certainly beats a more dubious source of funding like payday loans. If you find yourself stuck, you can go above 30% and break this rule.
You Can Skip Retirement Saving or Cut Back
Of course, it is always best to put money away for retirement each month. This is how you will be able to afford retirement. However, if you miss a few months because you are struggling financially, it is not the end of the world. Nobody would suggest that you borrow money elsewhere just so you can continue to keep putting money into your 401(k) or IRA. It is always better to cut back on saving than to borrow money from a credit card or somewhere else.
You Can Borrow from Your Retirement Accounts
Normally, borrowing from your retirement is not the best option because it pulls your money out of the market until you pay the loan back. It is better to get a personal loan under some circumstances if you can obtain a reasonable interest rate. However, if you are in financial distress, you may not be able to get a loan or at least one with an affordable interest rate. When you are up against a financial wall, borrowing from your retirement is one way to get access to your own money. It means that you do not have to deal with a creditor as you are borrowing money from yourself. You will miss out on stock market returns, but it is better than having to pay back a punishing rate of interest.
You Can Use Your Credit Card More Often
Some experts will tell you that you should frequently shop with cash in order to avoid the lure of easy credit on your cards. Many people do not consider the ramifications of their spending until they get the bill. However, if you are impacted by the pandemic, you will need to conserve the cash that you have. While nobody is saying that you should use your credit to make impulse purchases, you can use your card more often in order to preserve your own liquidity.
You Can Take Your Time Paying Student Loans
You may have some relief on your student loans because of President Trump's Executive Order. Take full advantage of it. Do not feel the need to pay student loans during this time if you have no obligation to do so. You have much better uses for the money, and your loans are not piling up interest during this time. Besides, interest rates are historically low and will stay there for a long time. You are better off taking any extra money that you have and paying off other higher interest rate debt.
You Can Try to Negotiate a Settlement with the Credit Card Company
Normally, experts will tell you that the impact of the credit card company discharging some of your debt is not worth the benefit. You end up with a tax bill and your credit takes a hit from this. However, if you find yourself in financial trouble, this is exactly what you need to do to stay afloat. You should try to take advantage of the situation to negotiate with the credit card company if you are in financial trouble because they will also lose if you default.
