COVID-19 epidemic Financial turmoil continues to arise for a lot of Americans. If you qualify for the latest round COVID-19 promotion check, You have either already received it or you are eagerly awaiting its arrival.
Whether you are eligible for some or all of the COVID-19 $ 1,400 incentive check, make sure you use the money where you need it most. Yes, this is an incentive check, but don’t be shy to spend it on nonprofits until you’re in really good shape financially.
Should You Pay Off Credit Card Debt or Save Your Incentive? I know that you want to use that money in the best way, given your own unique situation. So I’m going to help you figure this out.
Let’s look at three different scenarios and see how the solutions play out for each:
By the way, I wish that I could cover every possible situation so that I could adapt it for you. But hopefully you will get at least some common ground here which will take you in the right direction.
Scenario No. 1: Large amount of high-interest credit card debt and no savings
If you have zero savings and you are still facing epidemic-related losses or even unemployment, I want you to put your incentive check in an emergency fund.
For now, keep making the minimum payment on your credit card by the due date. Using more than 30% of your available credit limit reduces your credit score, but an excellent payment history can help reduce your losses. FICO score.
Credit card debt is definitely “bad debt”, so I’m not going to let you off the hook. An example of “good debt” is The mortgage At your home, assuming you don’t owe more than you deserve it. It is a good loan because it is an investment.
As your employment situation stabilizes, you need to focus on paying off your credit card debt. But in your situation, financial survival is a priority, so in the case of your savings keep the check in a position when you need to make a minimum payment or pay off the mortgage later.
But what if your income situation – and that of your partner, if applicable – is stable? This changes the mixture slightly. Suppose you got a credit card with a 25% annual rate and a $ 10,000 balance. If you still have great credit, apply for one Balance transfer credit card With an introductory 0% APR. Right now, the best offer carries a 0% intro rate for about 12 to 18 months.
Calculate how much you need to pay per month to get out of debt – and don’t forget to include the potential transfer fee amount, which is 3% to 5% on average. That way, you start paying off your loan, still saving that incentive check.
View Topic? Save as much as possible to ride the rest of the epidemic, but if your family income situation is still stable, start paying high-interest credit cards with a balance transfer card or with a credit card. Consolidate debt With a personal loan that has a very low APR.
Scenario number 2: some low-interest credit card debt and some savings
We are going to look at this scenario based on your savings amount at this time. How many months of expenses can you cover using your emergency fund? Take a look at the breakdown, and be completely honest.
- Less than three months: Put the entire savings in your savings.
- Less than six months: Put entire savings in your savings.
- More than six months: This is awesome. If your income is stable, pay a little more than the minimum payment on a credit card, say an additional $ 50 to $ 100. The remaining check remains in savings.
This particular scenario can cause the most confusion. You are not sure which fire should be extinguished first. Again, I leaned towards caution. Pay a little debt, but only if you have an emergency fund that covers at least six months of savings.
Scenario number 3: Small amount of high-interest credit card debt and large emergency fund
During an epidemic, I believe in reducing the risk. But there are exceptions, especially if your job situation is stable right now. If so, take most of your incentive checks and either repay your credit card debt or pay more than the minimum payment on each credit card.
And now we are clear, a large emergency fund means that you can live on your savings for at least nine to 12 months. And if you’ve got that, then congratulations on accumulating the money for a big rainy day. This is an impressive achievement.
But if you are too The tiniest Slightly unsure about your employment status, keep the entire check in your savings. It is unlikely that any epidemic-related financial difficulties or job instability will last longer than your savings, but it is best to overstate just in case.
For now, try to turn around, and we’ll make it through the rest of the COVID-19 crisis. Once your finances are back in order, I will help you choose a strategy to get rid of your credit card debt.