Millions of people have been laid off during the COVID-19 pandemic. Millions more have had their hours cut back. Governments have helped soften the blow with various financial relief programs, but for many people it’s just not enough. Getting through a financial crisis is a four-pronged approach: getting more income, spending less money, deferring payments until later, and/or going into debt. Find the right balance of options for you.
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For all my articles on this theme, go to Personal Finance during the Coronavirus Pandemic.
Boost Income or Cash Flow in a Crisis
When your regular source of income has been lost, consider other ways of making money.
- Government support programs: Find out how the government is supporting people. Look at federal, provincial/state and municipal govt websites. Know your sources – go directly to government websites, such as Canada’s COVID-19 Emergency Benefits page. If you’re still not sure, contact your local government office for assistance.
- Employment: Get a temporary job with whoever is hiring, such as grocery store, delivery, other essential service jobs. You may hate the work, and it likely isn’t your long-term career aspiration, but it’ll fill in the financial gap for a few months.
- Does anyone owe you money? Tenants, family, friends – they may not be able to pay, or pay in full, but collect what you can.
- If you are self-employed, collect any money outstanding from clients.
- If you are self-employed, can you still earn money from home (to keep physical distancing), with client consultations or anything else.
- Sell your stuff. It’s up to you whether you feel you can safely sell things you no longer need online, including mailing the items or contact-less pick-up.
- Loyalty points: If you have any rewards programs or cash-back programs, cash them out or use them for purchases. In a financial crisis, Airmiles and similar programs can be better used to buy groceries than plan a trip (no one is not travelling anyways these days).
- File your income taxes. You might be eligible for a refund, which will take about 2 weeks to go into your bank account. TurboTax guides you step-by-step through the entire filing process, to help you to uncover every possible deduction that’s available to you. I’ve used Turbo Tax for many years, and I’m confident to recommend this to all Canadians.
- If you’re a student, apply for all the scholarships you can. Find amazing scholarships for students in Canada. Remember that many scholarships go unclaimed, so apply even if you don’t meet all of the criteria.
- If you have been making extra mortgage payments, see what’s in your “mortgage cash account” and have it transferred to your bank account. This will help your cash flow problem now, but will likely add several months to the end of your mortgage.
- Draw down your emergency fund if you have one. This is an emergency.
- Take money from your vacation fund if you have one. No one is going to be able to travel much this year anyways.
- Don’t touch your retirement account unless this is a last resort. The penalties for getting these funds are high. And if they’re invested in stocks, they lost value in early 2020.
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When you can’t increase your income enough to get by, cut back on spending wherever possible.
- Car insurance: If you have 2 or more cars in your family, park one car and remove insurance from it. If you’re no longer driving to work, you can ask for a reduction in your insurance. Just remember to increase it again when you return to work so that your coverage is valid. If your teen is no longer driving because they’re staying home during the pandemic, remove them from insurance.
- Utilities: Call cable/phone/internet companies and negotiate a better package price. If you’re isolating at home, this may not be the time to drop cable or streaming services, but you could drop the sports package of channels. Cancel the home phone if the only calls you get are telemarketers and scammers. See How We Saved $800 on Cable, Internet and Home Phone!
- Cancel any regular monthly payments you’re not using: The gym, daycare, parking or transit passes, etc. Stop automatic payments at the bank after you have cancelled with the provider, so it doesn’t get deducted.
- Pause any automatic transfers to your retirement account, children’s education savings accounts, etc. You can restart these after your cash flow picks up.
- Food: Buy no-name generic foods where possible, meal plan ahead so you don’t shop on impulse, and shop from a list to avoid food waste. If money is tight try to avoid buying take-out or delivery. Check your pantry shelves and freezer – you might have enough in there to delay buying groceries for several days or a week. Find other ways to save money on groceries!
- Don’t stockpile. Buying 2 weeks of groceries and paper products is enough.
- Gift cards: Search the house for any gift cards with outstanding balances, and use them to purchase necessities only.
- Food banks are still running, and distributing food using social distancing. Do what you need to do.
Defer Payments until Later
Deferring payments doesn’t make it go away. But it’s likely that your cash flow crisis will improve later this year when more employees are recalled back to work, and hours are increased back to their pre-pandemic amounts.
- Rent: Call your landlord and work out a deal to pay partial or delayed rent. Try to work with them in good faith. Evictions aren’t typically happening now.
- Mortgage: If you can’t make your mortgage payment, contact your lender and let them know ahead of time. Many banks are allowing homeowners to defer payments. This will accrue interest and result in more cost later, but if you need cash flow now then it’s worth it. Know the terms – will the deferment be due all at once in a lump sum, or spread over the term of the mortgage.
- Government support programs: Check with your local government, can you defer your property taxes or water bill.
- Call the electricity and gas companies if you can’t make your payments. Determine which bills you need to pay, which you can partially pay, and which you can defer.
Borrow Money, go into Debt
When you can’t get more income, you’ve cut expenses as much as you reasonably can, and deferred payments where possible – the next step is to borrow money. Even if you’ve been doing really well with paying down your student loans or credit card debt, this might be your only remaining choice.
- Borrow money from the bank: If you have a line of credit, consider borrowing that money and putting it in your savings account. It’s possible that lenders may cut or freeze lines of credit. If you don’t have a line of credit, it may be too late to get one, but especially if you’re a homeowner you can try to get a HELOC (home equity line of credit). This uses the equity in your home as collateral.
- Borrow money from family if you are desperate for cash flow and they have the ability and willingness to help you this way. Get the terms in writing.
- Credit card: Apply for a no-fee zero-interest credit card, and transfer any outstanding credit card balance to it. If you are desperate and you have 2 credit cards, use one to make the minimum payment on the second, then the second to make the minimum payment on the first. This is terrible financial advice, but this is crisis management.
- Go into credit card debt. if your back is against the wall, buy essentials on credit card and make the minimum payments. Not ideal, but you need to eat.
Give yourself grace. This situation is not your fault. Your cash flow crisis will end, and you will get back on track for paying down debt or improving your credit score later. We may be isolating, but we’re in this together.
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