Update on Unemployment Programs: What You Should Know about the American Rescue Plan Act of 2021

Unemployment programs have been incredibly important throughout the COVID-19 pandemic. When the global health crisis first began, many businesses shut down and the unemployment rate spiked almost immediately. Now, over a year since the initial outbreak, many businesses have been able to adjust to the “new normal” and hiring is picking back up. However, many people are still out of work, and thankfully there is still relief. Here is a quick look at some of the important updates you should know.

On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law (also known as ARPA). This law is the most recent in a line of pandemic-related legislation going back to early last year. The CARES Act was the first legislation. It was followed by the Consolidated Appropriations Act, 2021 (which included the Continued Assistance for Unemployed Workers Act), and now ARPA. ARPA arrived just in time and extended provisions in the previous Continued Assistance for Unemployed Workers Act which expired March 14. Here is a closer look at some of the important provisions regarding unemployment benefits under this new law.

Unemployment Benefits

Legislation during the pandemic has created a robust framework of various unemployment programs. Here are some of the most important ways ARPA affects the different programs:

Pandemic Emergency Unemployment Compensation (PEUC). This program provides unemployment benefits even after you exhaust state your state unemployment compensation benefits. You can think of this program as essentially extending the period of time you can collect unemployment. Though the money comes from the federal government, this program is designed to essentially work like an extension of your usual state benefits, and the program is administered by each state.  ARPA extends PEUC benefits up to a maximum of 53 weeks and through September 6, 2021.

Pandemic Unemployment Assistance (PUA). This program temporarily provides unemployment insurance to freelancers, self-employed individuals, and other workers who would usually not be eligible. ARPA provides for a maximum duration of PUA benefits of 79 weeks (up to 86 weeks for individuals in those states with high levels of unemployment) and it extended the program through September 6, 2021.

Federal Pandemic Unemployment Compensation (FPUC): This program originally provided an extra $600 per week in unemployment benefits in addition to state benefits. The program was extended by the Consolidated Appropriations Act through March 14, 2021, but at a reduced benefit level of $300 per week. ARPA extended the program through September 6, 2021, and the amount remains at $300.

Mixed Earner Unemployment Compensation (MEUC). This program was not part of the CARES Act. Instead, it was created by the Continued Assistance for Unemployed Workers Act. This program is designed to help workers who have self-employment income and traditional income (i.e. reported on a W-2). It provides assistance to eligible workers who earn at least $5,000 in self-employment income, are not in the PUA program, and who are eligible to receive state unemployment. The MEUC program is extended through September 6, 2021, under ARPA.

Income Tax Waiver

One of the big “gotchas” with unemployment benefits (both before and during COVID-19) has been that the benefits are considered taxable income. ARPA has provided some relief on this issue. ARPA provides a tax break by waiving federal tax on $10,200 of unemployment benefits collected in 2020. This applies to each taxpayer who earns less than $150,000. Many, but not all, states are offering similar tax waivers for state taxes.

Moving Forward

As you can see, ARPA has brought about many important changes. Perhaps most importantly, key unemployment programs have been extended, and there is a tax break for the benefits received last year. Gig workers may also find some additional assistance as they now have PUA and MEUC as potential relief options.

If you are unemployed, you not only need to determine the right benefits options, but you also need a structured budget and financial plan. The NFCC can help. Contact an NFCC-certified credit counselor to get started.

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Where to Apply for Jobs During the Pandemic – Who’s Hiring?

If you’re out of work because your position was cut during the pandemic, you are certainly not alone. Many service-based industries have made substantial job cuts since March, and the employment landscape is constantly shifting beneath our feet. Hopefully, you are already taking the basic steps of staying in touch with your state unemployment office to make sure you receive your benefits. That office should also be able to point you to many resources that could help in your job search. However, you might also consider that some industries and sectors in the economy are hiring right now and may be more stable in the future. Here are some jobs you may consider moving forward.

Sectors that Jumped in August

The most recent report from the Bureau of Labor Statistics showed that a few industries made impressive hiring gains in August. Government hiring was up significantly, mainly due to positions related to the census. Retail added almost 250,000 jobs, professional and business services accounted for 197,000 new positions, 174,000 people started jobs in leisure and hospitality, 90,100 people were hired in health care and social assistance, and the transportation and warehousing sector added 78,100 jobs.

Some of these sectors, most notably leisure and hospitality, were hit hard by the pandemic and many of these “new” jobs might just be filling roles that went away when the pandemic began. Still, these numbers provide some hope for workers seeking employment in restaurants, bars, and other travel or hospitality settings.

Big Employers

The current environment, with future economic uncertainty still looming, may make the perfect time for joining a large established company. Large employers can often offer stability when others cannot. This is particularly true when the company’s business model is well-suited for the realities of the life during the pandemic. Enter Amazon.

Amazon’s hiring plans have made major headlines this year. As MarketWatch reports, just this month Amazon announced 33,000 new jobs in its corporate and technology divisions, and today it announced 100,000 new positions. This is actually the fourth major hiring announcement Amazon has made this year.

Amazon is not the only company on a hiring spree this year. Other companies with business models related to online shopping and shipping/transportation having been doing quite well and hiring new workers.

And that industry is not the only game in town, either. Companies in other industries are hiring, too. the Muse has published a list of large companies hiring during COVID-19, covering a wide array of industries and job types.

Small Businesses

Working for a large company has its perks, but you may also want to consider smaller businesses. Some small businesses are beginning to hire more regularly, after weathering the initial storm of the pandemic. Before COVID-19, the low unemployment rate had made it hard for some small businesses to attract and retain good employees. Now that more people are looking for jobs, good opportunities at small businesses may be more competitive.

If a small business made it through the pandemic and is hiring full-time positions now, that may be a positive indicator of the company’s stability moving forward. Definitely don’t count out successful, smaller employers.

Pandemic-Proof Occupations

One way to think about a job search is by asking who is hiring now. Another way is to think about which jobs are pandemic-proof. The disruption of the pandemic has divided jobs into those that are “essential” and those that are not. With a potential second wave on the horizon, or even without a second wave, many job-seekers may prefer the stability that comes with an essential role.

The Economic Policy Institute has labelled the following sectors “essential.” That is not to say that these sectors did not experience declines this year. Instead, it is an indicator that they were most resilient. It could be a smart move to transition to one of these career fields, though most will require specific skill-sets and training:

Food and agriculture
Emergency services
Transportation, warehouse, and delivery
Industrial, commercial, residential facilities and services
Health care
Government and community-based services
Communications and IT
Financial sector
Energy sector
Water and wastewater management
Chemical sector
Critical manufacturing

Moving Forward

Being out of a job is difficult, but there are some promising signs that hiring will continue improving in certain sectors. Consider learning any new skills required, dusting off your resume, and taking advantage of the opportunities that are available in the job market now. Even if landing a dream job is not an option right now, you will likely be much better off by getting full-time employment and then continuing to look for a better fit in the future.

If your employment situation is having a negative impact on your personal finances and credit, talk to a credit counselor for free help.


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What the President’s Executive Actions Mean for Your Finances: Student Loans, Unemployment and Housing

Millions of Americans have been watching the developments in Washington D.C. closely in recent weeks. With the pandemic and its economic effects lingering, many looked to Congress to pass additional relief, potentially including more stimulus checks to Americans. However, with talks in Congress stalling, President Trump signed executive orders and memoranda on several key issues. Notably, these did not include direct checks. This does not mean that Congress will not further deliberate, and it is still possible that Congress will pass a bill providing additional relief. But for now, here is what you need to know about a few key topics—evictions, unemployment benefits, and student loans—after the President’s recent actions.

Evictions (No Federal Moratorium for Now)

President Trump signed an executive order related to assistance for renters and homeowners, but this order is limited. The CARES Act had previously created a moratorium on evictions for federally subsidized housing and properties with federally-backed mortgages. However, those protections expired on July 25. The new executive order does not renew this moratorium or create a new moratorium. Instead, it directs the Secretary of Health and Human Services and the Director of CDC to consider whether additional eviction protections are necessary. It also directs other federal agencies to take steps toward helping tenants during this time.

What should you do? The good news here is that this may lead to some additional protections for renters in the near future. But as of now, there is no widespread protection or moratorium from the federal government. If you are at risk of eviction, you should follow our tips in this post, specifically about knowing the current law in your state (some states have their own moratoriums or other restrictions) and contacting legal aid or other groups for help.

Student Loans

In the early stages of the COVID-19 pandemic, the Trump administration announced a plan for federal student loan relief that involved suspending payments and temporarily reducing interest rates to zero percent. The CARES Act later extended this program, and set an expiration date of September 30, 2020. In an executive memorandum signed last week, President Trump extended these protections through December 31, 2020.

What should you do? First, you must remember that this only applies to federal student loans. If you have private student loans, you need to continue making payments or working within whatever arrangement you have made with your lender. In the case of federal loans, you likely will not need to contact your servicers in order to have your payments paused through the end of the year—this is supposed to happen automatically. Still, keep an eye on your statements and other communications to be sure.

If you are in the fortunate position of having money left over each month to put toward your student loans (and you don’t have other debt with higher interest rates), then continuing to aggressively pay the loans may be a great move. After all, the loans will be much cheaper in the long run if you prevent as much interest from accumulating. The order specifically allows for you to continue making payments if you would like.

On the other hand, if you are not in a position to be repaying your loans currently, think of this order as a measure that can buy you some more time. Start setting aside money for when your monthly payments begin again next January. Reevaluate your budget and make additional cuts if you can, to help free up more funds for your savings and future loan payments.

Unemployment Benefits

The $600 in additional unemployment benefits, called for by the CARES Act, has expired. In response, President Trump signed a memorandum calling for a “lost wages assistance program” that would work similarly to the previous program but provide $400 in extra weekly benefits instead. Importantly, this new program has a new eligibility requirement: in order to receive the extra $400, you must be receiving at least $100 in state unemployment. This means if you receive less than $100 in state unemployment benefits, you will not be eligible. One economist estimates that this will exclude about six percent of unemployed people.

The other details of this program are still coming together. The President’s action calls for states to provide 25 percent of the funding, something states may not be able to do for very long. The program has multiple scenarios under which it could end, with one potential ending date of December 6, 2020.

Out of all the executive actions, this may be the one to watch most closely. It arguably presents the greatest logistical challenges, especially given that states have struggled to handle abrupt changes in unemployment benefits and have constrained budgets.

What should you do? First, do not rely on receiving these extra benefits in the immediate future. There is no guarantee that the new program will be implemented in your state right away. Follow the news to learn about the developments of this issue, and stay in touch with your state unemployment office for the latest information and any action required on your part.

These changes may impact your situation. And, there may be more helpful changes and programs on the horizon. For now, continue focusing on what you can control, like maintaining a budget and trying to stick to it each month. We are here to help, contact a credit counselor for a free review of your situation.

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How to Prepare Financially for When Your $600 of Federal Pandemic Unemployment Compensation Ends

If you have been receiving an extra $600 in weekly unemployment benefits—through the Federal Pandemic Unemployment Compensation (FPUC) program, you should know that those benefits are set to expire very soon. That money may have been helping you hold together your budget during these uncertain times, and having it stop suddenly may pose financial challenges. Here are some tips on how to prepare for this upcoming change.


As a quick refresher, the FPUC program was created by the CARES Act. It provides $600 per week in federal unemployment benefits in addition to unemployment benefits that come directly from your state. According to the CARES Act, the program runs from April 5 to July 31. However, the real “end” date for the program is based on how your state runs its calendar for processing benefits. In most states, the FPUC program—and thus the $600 weekly payment—ends July 25 or 26.

Note: The FPUC program is one part of the broader “Pandemic Unemployment Assistance” (PUA). PUA has another component called the Pandemic Unemployment Emergency Compensation (PUEC), which provides an additional 13 weeks of unemployment benefits beyond what your state provides. The PUEC program remains in effect until December 31, 2020.

Planning for the Change

Since the income under the FPUC program is coming to an end very soon, here are some steps you can take to prepare.

#1 Stay Informed

You may have seen recent media coverage about the “next stimulus bill,” and you may have heard significant speculation about what it will include. Of course, any speculation is just a guess at this point, but you will want to be aware of any new changes that take effect. It is possible that the FPUC program could be extended or that a similar program could be created. There has also been discussion of bonuses for going back to work, which could affect your job searching strategy. You do not necessarily have to worry about every detail being discussed in Congress, but you will want to know the ins and outs of any new law that takes effect, since it will likely impact you directly.

#2 Save Up Now

Even though the end of the FPUC program is right around the corner, choices you make now could pay dividends for weeks, if not months, into the future. Set aside as much extra money from your final FPUC payments as possible. Padding your savings account may provide some much-needed reserves later.

#3 Keep Looking for Work

If you have been actively searching for employment opportunities, keep up the efforts. It can be difficult and disheartening to go through an extended period of unemployment, but your big break may be just around the corner. You might want to consider other sectors and industries. CNN put together a list of companies that are hiring during the pandemic. Given the nature of COVID-19, there can be an understandable degree of hesitation about working environments and an increased risk of exposure to COVID-19. Thankfully, many employers have created protocols to protect workers, but you will have to assess your level of comfort for each opportunity you consider. Also, remember that a back-to-work bonus could be part of a future stimulus bill.

#4 Cut Expenses

This sounds a bit cliché, but it is true regardless—when money is tight you will need to cut expenses as much as possible, in addition to attempting to increase your income. We have written about some cost-saving ideas during COVID-19, and now is a good time to implement those strategies if you haven’t already.

#5 Ask for Help

If the change in income puts you in financial bind, consider asking for help to get you through the transition period. This could take many different forms such as negotiating with your landlord to delay rent, receiving assistance from family members, or tapping into community resources to help you meet your basic needs. If you’re juggling credit card debt along with everything else, then credit counseling also may be able to help.

Change is around the corner, and the end of the $600 benefit may create a challenging transition period for you. Stay informed, keep making every effort to stretch your budget, and know that the NFCC is here to help should you need it.



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How Credit Counseling Can Help When You are in a Financial Crisis

A personal financial crisis can take different forms. Losing a job, having your work hours or income reduced, facing a huge medical expense, and having your identity stolen are just a few examples. Many times, these situations can lead to larger problems, especially mounting credit card debt. If you find yourself in a financial crisis, you should know that credit counseling is an available resource, and it could be the perfect solution to help you recover. Let’s take a closer look at exactly how credit counseling can help.

Talking to Someone

We know that financial stress can impact your mental health, and many people find comfort and relief by talking about their concerns with someone else. Credit counseling pairs you with someone who is willing to listen and ready to help you move toward your goals. No, a credit counselor isn’t a therapist, but credit counselors are known for providing comfort in difficult times. Your credit counselor will approach your situation with understanding and empathy, and give you space to voice your financial regrets, concerns, and goals.

Trusting an Expert

A credit counselor isn’t just confidant; he or she is an expert trained in helping consumers overcome financial difficulty and make a plan for their future. There is great peace of mind that comes with working alongside such an expert. When you are in “crisis mode,” you may not have the time or mental energy to get bogged down in the details or pull yourself by the bootstraps to achieve financial recovery. The great thing about credit counseling is that you don’t have to. You get to put your financial situation in the hands of an expert and educator who can guide you toward your desired outcome, help you create a structured plan, and teach you new financial strategies and behaviors along the way.

Reviewing Your Credit Report

Your credit report is an extremely important financial indicator, because the information it contains affects your credit score. Unfortunately, mistakes are far too common in credit reports and many go unnoticed. If you are going through a financial crisis, you will want to keep a close eye on your credit report to make sure it does not have errors holding back your score. You will also want to watch the data on the report over time as a sign of your progress paying down debt.

Walking through each line item of your credit report with a credit counselor can reveal errors, highlight areas to work on, and give you the opportunity to ask questions and learn more about how credit reports and scores work.

Exploring Numerous Solutions

Sometimes you have a general problem and aren’t sure what the best solution is. Money inherently works this way. For example, if you are having a hard time paying rent, credit card debt might actually be the bigger underlying problem. If you could free up some cash away from your credit card bills, rent would be easier to make. That’s just one example. The good news is that credit counseling helps identify the major issues and identify your best solutions.

For some, housing really is the main issue. In that case, a credit counselor can point you to a housing counselor to explore options for how to keep your home. Alternatively, maybe your credit card debt makes you a good candidate to consider a Debt Management Plan. Or, maybe your financial strain is best addressed by some minor tweaks to your monthly budget. Your counselor can explore all of these solutions with you and even connect you to local resources in your community in cases where doing so would be helpful.

Simplify Your Month-to-Month Routine

If you opt for a Debt Management Plan, you will receive numerous benefits. One benefit that is particularly helpful is that your month-to-month routine will become much simpler. By making one monthly payment to cover all of your credit card debt, you don’t have to worry about the hassle of keeping track of multiple bills. Simply make one payment to the credit counseling agency, and you’re covered for the month. Not only that, but the DMP will put an end to those pesky creditor and collection calls, which are the last thing you need when you are in an already stressful situation.

Getting Started is Easy

If you are in a crisis, you may not have much time and energy left in the tank. Thankfully, it is very easy to get started with credit counseling. Sessions can be held online or via telephone (or in-person if you prefer). All you need to do to prepare is gather your basic financial information, including a list of your expenses, recent paystubs, and your credit card statements. You can read more about what to expect, or get started here.

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The Mental Impact of Financial Stress and Tips for Dealing with COVID-19 Impacts

A recent poll from the National Endowment for Financial Education shows that 88 percent of Americans are experiencing financial stress as a result of COVID-19. That does not come as much of a surprise, given the way in which the pandemic has created widespread uncertainty and significant economic fallout in such a short time. Financial stress revolves around money, but it is a form of stress and therefore both a personal finance and mental health issue. If you are experiencing stress and anxiety about your finances and are concerned about the future and making ends meet, consider the following tips and resources to preserve a positive outlook.

Establish a Routine and Consistent Self-Care

Most of our routines have been upended in recent months, which can certainly contribute to stress. However, many have referred to life after COVID-19 as the “new normal,” which means that it provides an opportunity to create a new routine. As the National Alliance on Mental Illness explains, “daily habits and routines can help you feel more in control of your own well-being.” To feel most in control, try to preserve as much of your pre-COVID routine as possible. This means trying to find time for the activities you used to do and trying to keep as much consistency in the timing of those activities as possible.

Make sure that your routine includes time to exercise, ways to eat healthy (i.e. adequate time to plan for grocery shopping and cooking), and a healthy sleep schedule. A routine that includes each of these should help you retain a sense of normalcy and limit stress. In addition to these basic elements of a routine, consider building in time for relaxing activities. These could include yoga and meditation, stretching, extra time with pets or kids, or even just a personal hobby that you enjoy. If you have the capacity and desire to take on a new challenge, consider learning a new skill through one of the many online educational platforms. That, too, could be a positive distraction and provide a benefit to your resume.

Your routine should absolutely include a budget, too. Having a plan for where your money is going can ease your anxiety and provide some sense of predictability. As you plan a daily routine, consult the COVID-19 guide from the National Alliance on Mental Illness, which provides in-depth tips and considerations for handling this difficult time.

Access Available Resources

One of the silver linings of this pandemic has been the rapid response by many individuals, organizations, and governments to provide assistance to others. Make sure that you are aware of these resources and take action when needed, because they may provide the help you need. If you feel overwhelmed by looking for or applying for resources, consider asking a friend, family member, or even a credit counselor for help.

Online Therapy

Talking about your financial stress can make it better, give you peace, and help you develop a plan for moving forward. You can speak with a qualified professional from the comfort of your own home. There are many therapists who offer this service. Consider contacting local professionals in your area. They may be able to work remotely with you now, and then hold face-to-face sessions when restrictions related to COVID-19 are lifted. Alternatively, there are remote-only services available, like Talkspace.

If you are not interested in one-on-one therapy sessions, you might consider joining a group online for people who want to share their experiences of dealing with COVID-19. Talkspace has a free Facebook group; NAMI also has free online community discussion groups. The NAMI Guide also provides a list of several other online communities that may be worth considering.

Lastly, for a completely go-at-your-own-pace option, there is an app called COVID Coach. Though it is being marketed by the Department of Veterans Affairs, it is available to and designed for everyone. The app is a self-care tool designed to provide coping mechanisms during COVID-19, and to allow users to track their progress.

Government Programs

Make sure that you are aware of government programs passed in response to COVID-19. These include the economic impact payments and expanded unemployment benefits. If you need to take action to access these benefits, make a plan to do so. You do not want to miss an opportunity for help when it is available. These programs can also be sources of stress if you are confused about how to apply or if there are delays in processing. Find a friend or family member to help you navigate the programs and to be a sounding board for any questions or frustrations.

Friends, Family, and Community Groups

Connections with friends and family matter now more than ever. Just because you cannot be physically together does not mean you cannot have meaningful conversation and connection virtually. Call, text, or email friends and family to see how they are doing regularly. They will appreciate you thinking about them, and you will get peace of mind and comfort from knowing how they are doing. Now that video calling technology is so easy to use, you can even Zoom, Skype, or FaceTime together, not just to talk but to do a variety of activities (eating dinner, watching a favorite TV show, etc.). In addition to friends and family, be sure to maintain connections with community groups. These could include your church, an organization where you volunteer, or something else. Find ways to stay involved and in conversation with the people at these places. It will help preserve a sense of consistency.

More Help

If COVID-19 has impacted you and caused increased financial stress, know that you are not alone. In fact, you are in the large majority. There is absolutely no shame in asking for help. A few important resources that you might like to have handy are the NAMI Covid-19 Guide, tips from the CDC on Stress and Coping, and a dedicated page on COVID-19 issues from the American Psychological Association. Each of these provides important tips for creating healthy routines and seeking help from professionals if needed. Of course, if you also want specific help with your financial situation, including a plan to manage high-interest debt, we invite you to contact a credit counselor for a one-on-one counseling session.

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What Renters Can Do in Response to Financial Uncertainty

Nearly one-third of Americans were unable to pay their rent during the first week of April. The most likely culprit — the coronavirus. As the pandemic swept the nation, many businesses were forced to close their doors, leaving millions unemployed. With no income, many found they were unable to make their rent payments. This month, some renters may be facing the same predicament again. 

If you find yourself in a similar situation and are struggling with financial uncertainty, there are a few things you can do to help make ends meet until stay-at-home orders lift. 

1. Talk to Your Landlord

Many renters are panicked about making rent payments in April and the coming months. If you find yourself in a similar situation, talk to your landlord about it. Most property owners will be willing to work out a payment plan with you as long as you approach them with honesty and urgency. If you wait until the day before rent is due to speak with them, they may not be so willing to work with you. 

If your landlord is unwilling to compromise or consider a payment plan, try to pay as much of your rent as possible. Plus, your landlord might waive late fees if you pay a partial amount. While skipping one payment may not result in eviction, missing several could eventually trigger action, even in states that temporarily halted the process in March. 

2. Reach Out to Utility Companies 

Many utility companies may also be willing to cut renters some slack during the pandemic. While some are waiving late fees, others are easing shutoffs to accommodate those who don’t have money to pay their bills right now. However, you must call them first with a request. Otherwise, they’ll expect you to pay in full by the due date. 

Additionally, some companies are offering free services to those struggling to pay their utilities. This way, people still have internet access, running water, gas and electricity even if their providers shut off services. Comcast, AT&T, Pacific Gas and Electric Company, and Georgia Power are just a few companies giving renters a break in some form or another. 

3. Cut Nonessential Costs

As you take stock of bills you must pay and others that may be able to wait, examine your budget as a whole. Are there any costs that you could cut temporarily? Doing so may make it easier to buy groceries and pay essential bills. 

Review your recent credit card statements to see how much you actually spend throughout the month. Odds are you could cut ordering out, an online subscription or two, or a membership you’re not using at the moment. Considering your spending habits will help you save so you can pay your bills. 

4. Use Emergency Savings 

If you’ve exhausted the above options and still cannot find the money to pay bills or buy essentials, you may have to dip into your emergency savings. While using your savings to survive a pandemic may not be how you envisioned spending your money, this is an emergency, after all.

Financial advisors often recommend you have enough money in your emergency fund to pay for six months of living expenses. However, this isn’t an option for everyone. Therefore, it’s best to assess your budget, costs and savings and create a plan that works for you. Even a few hundred dollars may be enough to keep you on your feet until this blows over and people can return to work. 

5. Seek Financial Assistance 

More than 26 million Americans have filed for unemployment over the last few months. By now, you may have done the same if you are currently unemployed due to the pandemic. In most cases, you can receive unemployment benefits up to half of your wages. However, each state sets its own criteria and benefit levels.

If you aren’t eligible for unemployment and are still struggling financially, you might seek assistance from friends and family or from a personal loan. This may help you pay for essentials or keep your housing and utilities running during the crisis. However, it’s recommended you speak with a certified counselor to sort through your options and make guided financial decisions that won’t hurt you in the long run.

Plan Ahead for Financial Uncertainty

Unexpected emergencies like this are why it’s so important to plan ahead and save. As you recover, be sure to create an emergency fund or build yours back up so you’re ready if disaster strikes again.

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The Importance of Checking Your Credit Report During the COVID-19 Pandemic

The COVID-19 crisis has forced many of us to shift priorities. People are focused on taking care of their families, following social distancing measures, and making ends meet. That said, it is important to keep track on your financial situation, too. We have already discussed how to budget during COVID-19, but there’s another basic financial indicator you should be monitoring: your credit report. During a situation like the current national crisis it is easy to overlook your credit, and it is also a prime opportunity for scammers and identity thieves to prey on unsuspecting victims. You might not think you need great credit right now if you’re hunkering down and not making a big purchase like a house or car. But, you don’t want a small mistake now to haunt you later. Here is a closer look at how COVID-19 can impact your credit, and what you can do about it.

Why Your Credit Matters     

As a quick refresher, your credit report matters for a number of reasons. The most important reason is that your credit score is based on the data contained in your credit report. Therefore, keeping a good and accurate credit report will lead to a higher credit score than a credit report containing negative or inaccurate information.

A related reason for why you should check your credit report frequently is that many credit reports contain errors. An error could be minor, or it could affect your credit score. In a major 2012 study, the FTC determined that one in four consumers found errors in their reports that could affect their credit scores. In addition to finding simple errors, checking the report may reveal unauthorized credit use by someone pretending to be you. Therefore, checking your report could provide the opportunity to locate incorrect information and potentially increase your score—and it can even be a way to catch or prevent identity theft.

Checking the report can also be a way of tracking when certain negative marks will fall off the report, and ensuring that they fall off on time. This can be helpful when you are planning ahead for credit applications, such as before you buy a house. A periodic check of your credit is simply a smart financial move that will give you a better understanding of your financial situation.

How COVID-19 Can Affect Your Credit

Some commentators have compared COVID-19 to a natural disaster, and it poses similar threats to your credit. Just like if you were recovering from a major storm or were forced to relocate from a natural disaster, COVID-19 has probably forced you to shift priorities. Essentially, you’re focused on the things that matter most, like keeping your family safe. At best, this scenario makes it easy to let your guard down and become a little less organized. This could cause you to miss a payment to creditors, which could damage your score. Or, maybe you’ve been hit even harder by COVID-19, and have lost a job or experienced reduced hours and income at work. If so, you are not just facing a shift in priorities, but a shift in your ability to pay creditors. Again, this could impact your credit score.

If you have opted for a forbearance or deferment program, whether it is on student loans, rent or mortgage payments, or directly through another creditor, you need to check your credit report to make sure the agreement is properly reported. If a creditor reports a late payment in the midst of an agreed upon deferment, that would be a red flag and an error to dispute immediately. You will want to watch all accounts, but keep a particularly close eye on any accounts that you have made special arrangements for during COVID-19. Also, familiarize yourself with this guidance from the CFPB about how these accommodations are supposed to be reported by creditors.

Also, fraudsters are taking advantage of COVID-19. There has been an increase in scams, including fake websites, communications disguised as being from government agencies (especially related to “stimulus checks”), and fake job postings. You should be vigilant and take precautions not to fall for these tricks. One of your best defenses is to keep track of your credit report to ensure you catch any unauthorized activity right away.

Where to Check Your Report

One of the best places to get a free credit report has long been annualcreditreport.com. Normally, consumers have been able to access one free report from each major reporting agency—Equifax, Experian, and TransUnion—every 12 months. However, the reporting agencies are now offering free weekly credit reports online through April 2021. This impressive benefit makes it easy to check where you stand and get updates quickly. So, be sure to keep a close eye on your reports moving forward, especially if you have entered into any alternative payment arrangements.

If you would like further help understanding your credit report or making a plan for your debt during COVID-19, contact a credit counselor.

The post The Importance of Checking Your Credit Report During the COVID-19 Pandemic appeared first on NFCC.

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Should You Access Your Retirement Funds Early Due to COVID-19?

One of the long-standing rules of personal finance has been that you should not take funds out of your retirement account early except as a last resort. The question now is whether the COVID-19 crisis has created a “last resort.” In other words, does it make sense to dip into retirement savings now? The CARES Act has temporarily changed the rules about accessing these funds, making it more favorable to do so before you are of retirement age. Let’s take a closer look at the changes and the considerations that should go into any decision about accessing retirement funds early.

Normal Rules for Distributions and Loans

There are generally two ways to access retirements funds early. You can take the money out of the account (a distribution) or you can borrow money from your account (a loan). Normally, if you take a distribution from a retirement account before you are 59 ½, then you will pay income tax on the distribution and be subject to a 10 percent penalty (or a 25 percent penalty in the case of distributions from a SIMPLE IRA within the first two years of participation). However, note that there are exceptions to this rule.

Distributions are available from any retirement account. However, loans are more limited. Loans are not available on any IRAs or IRA-based accounts. The IRS explains that loans are only available on “profit-sharing, money purchase, 401(k), 403(b) and 457(b) plans,” though not all plan administrators offer loans. Borrowing from a 401(k) or similar account is normally limited to $10,000 or 50% of the vested account balance, whichever is greater, with a cap of $50,000. You pay interest on a 401(k) loan, but the interest returns to your account. The biggest cons to using a 401(k) loan are that you may miss out on investment growth due to taking your money out of the market, and you may default on the loan, which could lead to the loan being treated as a distribution. For a good primer on these loans, read this article from Credit Karma.

Loans and distributions can both be disastrous to your retirement savings by triggering severe consequences in the form missed portfolio growth, increased tax liability, and penalties. That is why most financial experts warn against tapping into these funds early if you can help it.

Important Changes Under the CARES Act

These are not normal times. Anticipating that many Americans will be strapped for cash, the government changed the rules for early retirement distributions and 401(k) loans under the CARES Act. Here are some additional important details and further explanations about the law to keep in mind.

Early Distributions

Which retirement accounts are covered?

The option to take a distribution without paying a penalty applies to all retirement accounts.

Who can take a penalty-free distribution?

To avoid penalty, the distribution must be taken by a qualified individual. This covers someone who has tested positive for COVID-19 or who has a spouse or dependent who tested positive. It also covers someone “who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury (or the Secretary’s delegate).”

How big can the distribution be?

The limit for penalty-free distributions is $100,000 per individual across accounts.

What time period is covered?

To avoid penalty, the distribution must be taken between March 27, 2020 and December 31, 2020.

How much will you pay in tax? How can you limit your tax liability?

This will depend on your tax bracket. However, the act allows you to spread the tax payment over three years. It also allows you to repay the money to an eligible retirement plan to avoid the tax liability.


401(k) Loans*

How much can you borrow?

The CARES Act increases the cap from $50,000 to $100,000.

What time period is covered?

The increase in how much you can borrow is in effect until September 23, 2020.

How much tax or penalty will you pay on the loan?

There are no taxes or penalties on the loan, but you will pay interest, which is returned to your account.

Does the law change payment obligations?

The law allows affected individuals to delay repayments for up to one year.

*Be sure to consult with your plan administrator to understand fully the terms of a potential loan and the impact of the CARES Act on such a loan.

Should you take a distribution or loan?

The CARES Act provides a unique opportunity to access your retirement funds with less financial penalty than usual. However, these new rules do not address the other main disadvantage of early withdrawals: limiting your investment growth over time. Timing the market, or predicting when investments will hit their peaks or bottoms, is practically impossible. The initial market response to the COVID-19 crisis has been negative, and markets may still be in the midst of a downturn. This means that your portfolio may be quite a bit lower today than it was even just a month ago. Cashing out of your retirement now may mean you take a loss or miss out on upcoming market rebounds. It would strip your funds of their growth potential

Withdrawing or borrowing from your accounts is still a last resort. Do not borrow from your retirement just because you think it is a rare opportunity to do so. You should only take money out of your accounts if you need the money for a financial emergency. Even then, consider the following funding sources instead, and then only return to the idea of taking your retirement money if the other options are not feasible.


Stimulus Money and Tax Refund

Make sure you have taken the necessary action to get your stimulus check. That money may help you meet your goals and eliminate the need to borrow from your retirement. The same is true for a tax refund if you have not yet received yours.

Emergency Fund

You have this fund for a reason. Consider using it now if you are in a bind. Consider growing it too. Now is the time to cut extra expenses and put more toward your savings for future uncertainties.

Personal Loans

Personal loans often provide better terms and interest rates than credit cards, especially to people with good credit. If a small personal loan can hold you over in a pinch, it may be a better alternative.

Of course if you are struggling and are unsure where to start, a certified nonprofit credit counselor can help you sort through your options and provide financial guidance that can set you up for success, now and in the long-term.


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FAQ: Student Loans and COVID

The COVID stimulus package (CARES Act) has several new actions to offer relief for student loan borrowers. For most federal student loan borrowers, principal and interest payments on federally-held student loans have been suspended through September 30, 2020. During this time, interest will not accrue.  Here’s what you need to know.

Do I need to formally apply to get the remission?

There is no action required from your end. Your federal student loan will automatically be suspended for all interest and monthly payments due between March 13 and September 30, 2020. You will receive a written notification to the effect from your federal loan servicer around mid-April. Please ensure that your contact information is current with your servicer.

What happens if I continue to make my payments towards student loan during the suspension period?

If your financial situation allows you to continue making payments, any payment you make during the suspension period (March 13 – 30 September, 2020) will be applied to the principal. This will help repay the loan faster since the interest rates for the remission period are set to zero for all federal student loans.

Is interest and payments suspended on all student loans or does the remission rule only apply for certain selective type of student loans?

The suspension of payments applies to most of the student loans that are held by the federal government. It is estimated that about 92% of the total student loans are owned by the U.S. Department of Education. The benefits authorized by the CARES Act do not apply to

Federal student loans under the Federal Family Education Loan (FFEL) Program provided by commercial lenders
Perkins Loans held by the institution or school
Private (non-federal) student loans owned by banks, credit unions, or other private entities.

However, creditors of many non-eligible student loans under the CARES ACT are offering extended forbearance options. You’ll need to contact your loan servicer for details. If you are not sure who is your loan servicer, you may find out by using the tools provided at Federal Student Aid website. If you have a private loan you may check your credit report for the loan servicer details.

I have heard of student debt relief scams, what should I be wary about?

If you ever get a call asking for a fee to help you get remission on your student loan, be aware that this is a scam. The federal government does not ask for any fee for forbearance under the COVID stimulus package.

If my loan does not apply under the stimulus package relief what should I do?

For loans held by commercial banks, schools, or private creditors, please contact them directly and explore if they have any interest and(or) payment suspension options available.

Despite the support allowed under the stimulus package, given my current income the student loan debt will remain unmanageable moving forward beyond the stimulus package suspension period. What should I do?

If you have a federally owned student loan, the Income Driven Repayment (IDR) plans can help reduce your monthly payment amount. One of the following income-driven plans may be right for you:

Revised Pay As You Earn Repayment Plan (REPAYE)
Pay As You Earn Repayment Plan (PAYE)
Income-Based Repayment Plan (IBR)
Income-Contingent Repayment Plan (ICR Plan)

If you are facing hardship and are unable to meet your student loan repayment commitments, you should contact your loan servicer and ask if you are eligible for a 90-day forbearance for borrowers facing financial difficulties due to the pandemic. This will not affect your credit score. For Perkin loan borrowers, the schools can provide forbearance for up to 90 days. In addition, some of the private borrowers are waiving late fees and reduced payment options which are worth exploring.

Will I be eligible for Public Service Loan Forgiveness?

The PSLF Program forgives the remaining balance on your Direct Loans after you have made 120 qualifying monthly payments under a qualifying repayment plan while working full-time for a qualifying employer. The qualifying employers are Government organizations at any level (U.S. federal, state, local, or tribal) and Not-for-profit organizations that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code. You also have the option for loan consolidation of all your federal owned loans under PSLF. Check your eligibility here.

I am in default on my federal student loan, am I eligible for remission under the stimulus package?  

CARES Act has suspended all interest on student loans including those in default through September 30, 2020. Also, the collection of defaulted student loan payments has been ceased.  These provisions kick in automatically for federal loans. For private defaulted loans contact your loan servicer for options. You may also consider loan rehabilitation or loan consolidation for your federally held student loan. Learn more about these options here.

When do I need to contact a nonprofit financial counselor?

If you are having issues paying your student loan, the NFCC and its agencies can help you. You may speak to a nonprofit NFCC® Certified Student Loan Counselor about your options. You get a one-on-one, comprehensive review of your finances and a repayment plan that works best for your situation, especially while COVID-19 brings in additional uncertainties and the traditional approaches do not work.  Contact a student loan counselor now.

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