As coronavirus cases spike nationwide, Congress appears nowhere near passing another stimulus bill before the start of the holiday season. Millions of struggling Americans now look to President-elect Joe Biden in the hopes that he will rally legislators around economic recovery efforts — and fast.
On Monday, in his first speech on the economy as president-elect, Biden called on Congress to put differences aside and act quickly to "deliver immediate relief" and help struggling workers get back on their feet.
"Now," urged Biden, "not tomorrow," stating he would support the House's $2.2 trillion updated HEROES Act, which includes enhanced unemployment benefits, a second stimulus check, aid for state and local governments and housing relief.
Some speculate that if Congress comes to an agreement in the final months of Trump's administration, the result could be a compromise between the HEROES Act and the Republican's $500 billion "skinny" bill (which did not include stimulus checks or enhanced unemployment benefits).
However speculative, additional stimulus of any kind between now and January would be a huge relief to millions of Americans, especially as we approach the holidays. But since nothing is guaranteed, we spoke to a few financial planners for their best advice on what you can do right now to get through this time.
They recommend doing these three things to shore up your finances while we wait.
While many Americans are optimistic that a Biden presidency signals economic relief is on the way, the reality is that legislation takes time, and nothing is guaranteed.
"Getting your own 'ducks in row' will further strengthen your financial stability, and any stimulus will be icing on the cake," says Nashville-based certified financial planner Jeanne Fisher.
The first step in preparing for the unexpected is to trim down any unnecessary expenses. Review your credit card statement to find areas where you might be spending on things you don't use anymore now that your lifestyle has changed (gym memberships, clothing/makeup subscription boxes, etc.). Also look for areas where quarantine life has saved you money, such as a reduction in travel and dining out expenses. Note these areas and start to think about putting that money into a savings account instead.
Consider opening an online high-yield savings account, like the Varo Savings Account, so you can also earn little more in interest than you would in a traditional brick-and-mortar account, while also avoiding paying fees.
"Let's face it, most of us can only cut our budgets so far," says Fisher. Once you've trimmed your expenses, you might need to find ways to make extra cash in order to make ends meet.
Here are some ways you might be able to tap into or free up extra cash in your budget:
The above options may be able to hold you over temporarily, but if you need a substantial amount of cash to get you through the next few months, you may need to look at your credit lines and other assets.
"At this point, the next step is really having to look at those harder decisions," says D.C.-based certified financial planner, Alicia R. Hudnett Reiss.
These options might include:
If you think you need to borrow money to make it through the next few months, consider asking a family member for help if possible. The average personal loan APR is 9.34% according to the Fed's most recent data, and the average credit card interest rate is around 16.43%. Borrowing from a family member with a plan to pay them back could help you avoid taking on high-interest date that might take years to pay off.
While it's not always preferable to borrow, especially at high interest rates, using a credit card or line of credit might be necessary to help you pay for daily expenses. If you already have a credit card or another revolving account this is the most convenient option requiring little paperwork or applications. If you do have to borrow, make sure you have a plan to pay it off once you're back to work.
If you have a retirement account, such as a 401(k) or an IRA, you could consider withdrawing cash or taking out a loan against your current contributions.
"With a Roth IRA, your original contributions are always tax free (because it is after-tax money that you have contributed) and penalty free," says Hudnett Reiss.
Through December, you can also withdraw up to $100,000 penalty-free from traditional retirement accounts like your 401(k) thanks to the Coronavirus Related Distributions under the CARES Act. All withdrawals will be taxed, but the early-withdrawal fee will be waived for those under age 59 and a half. You can choose to either pay back what you took out of the account, or pay taxes on your withdrawals over a period of three years.
"We don't know if this [benefit] will be extended," says Hudnett Reiss. This option is currently open until Dec. 31, 2020.
Your retirement accounts are protected if you ever file for bankruptcy, so think twice before draining them — especially if you've been saving up for years.
"If times are becoming very dire...your permanent life insurance policies may allow you take loans," says Fisher.
However, there are often caveats: You can usually only take out life insurance loans on whole or permanent policies after you've made enough monthly payments to build up cash value on the policy. This might mean you have to pay into the policy for a number of years before you can tap into it. You also can't borrow against term life insurance policies, which have lower premiums and don't accumulate cash value.
Life insurance loans shouldn't necessarily be your go-to option, since you'll be susceptible to fees and interest (like any loan), and your withdrawal could impact the benefits you or your family receives if the loan isn't paid back. However, it's worth knowing the ins and outs of your policy's plan just in case.
Personal loans could be a helpful option, as they are more straightforward than borrowing against a retirement plan or life insurance policy. Just know that you will have to make monthly payments on your loan, usually within 30 days. And depending on the length of the loan's term, you could be making payments for a few years.
You'll need to have proof of income to apply for a personal loan. Some lenders may only let you borrow cash for particular uses, such as debt consolidation or refinancing.
You also might get hit with an origination, or sign-up, fee to take out a personal loan. However, you could save in interest when compared to charging your expenses on a credit card.
While Biden is gunning for sweeping stimulus plans meant to help Americans who've been impacted by the coronavirus pandemic, it likely won't happen until 2021. In the meantime, know your options so you can make the best money moves available to you.
This story has been updated to correct the mention of the five-year rule for withdrawing IRA contributions. There is no minimum waiting period to withdraw your after-tax IRA contributions, only earnings. Previously, it stated there was a five-year rule to withdraw contributions.