Key Takeaways: Your Personal Finances During COVID-19

In January 2020, 27% of Americans reported being financially fragile, with a remarkable 50% of African Americans falling into that category. To combat the negative effects of COVID-19 on personal finances, the Global Financial Literacy Excellence Center built a financial resilience hub that includes resources on managing debt, protecting credit scores, and rebuilding precautionary savings, all of which can be critical strategies for financially vulnerable populations.

Although the CARES Act suspended payment and interest on many student loans, some older federal loans and private loans are not eligible for this relief. Borrowers should check the status of their loans to determine whether their loans have been suspended, as well as review their credit scores to verify that payments were not reported as deferred or delinquent. Once payments resume, borrowers may want to consider income-driven repayment plans which can reduce monthly payments and increase affordability.

To mitigate the financial impact of COVID-19, workers should explore programs available through their employers and benefit providers. Many employers have financial education resources and support programs to help employees and their families cope with the current crisis. The CARES Act made it easier for workers with savings in a retirement plan to withdraw money for short-term needs if they are facing financial stress. Rebuilding emergency savings, which many employers offer programs for, is another option. Treating your future as a creditor—to be paid before any discretionary spending decisions are made—is the key to saving.

To map out financial plans during the current crisis and to prepare for future crises, individuals should aim for stability in three key areas: insurance (e.g., health, life, property), estate planning (e.g., will, medical directive), and cash reserves to protect against job loss. Investment portfolios should be moved into somewhat more conservative assets.

Because of its high interest rates, credit card debt should only be used as a last resort. For people who are financially squeezed, they should tap into retirement assets or other savings before going further into debt. Moreover, in general, it is not a good idea to claim your Social Security benefits in response to the crisis unless you are out of other options.