The pandemic has put even more pressure on Americans’ personal finances with millions of jobs lost and many people forced to take pay cuts or reduced hours.
The recovery is complicated by the limited government support available now. Still, this may be an opportune time to review your current household balance sheet and find ways to improve it.
While many may have to deal with new debt, drained savings, and uncertainty of income, three experts shared their advice on how to recover from this financial hit and start rebuilding your finances.
‘Find out exactly where your money is being spent’
The first step to recovery is to evaluate the state of your spending. To do that, you’ll have to determine where you are overspending and find where you can make the cuts to slowly start rebuilding your budget and savings.
“Start by categorizing your spending for the last 30 days. Find out exactly where your money is being spent,” said Linda Jacob, a financial counselor based in Des Moines, Iowa. “Usually, there is one category that you had absolutely no idea you were spending that much.”
After you see where your money is going, make sure you minimize discretionary expenses. This could be anything from streaming video services, gym memberships, to frequent coffee shop visits, according to Joshua Hargrove, a financial counselor based in Plano, Texas.
“It will be tough, but remember it's only temporary until you get back on track,” he said. “Find ways to shrink your budget for a few months.”
Try to reduce bills and shop smart
If rent is one of your biggest monthly payments, rebuilding your budget may need to include a way to reduce it. You can try renegotiating your lease, finding a more affordable apartment, or getting a roommate, according to Tom Balcom, a financial counselor based in Lauderdale-by-the-Sea, Florida.
“While roommates are seldom an ideal option, if it makes financial sense, it should be investigated,” Balcom said.
After trying to reduce the big monthly bills, work on shopping smarter. One way to do that is to use coupons, price shops, and buy generic products, according to Hargrove.
“Get cheap. Like real cheap,” he said. “Delay any non-essential purchases, use coupons, and if you need to buy something that can’t wait, shop around for the best deal. “
‘Stop the bleeding’
You may have accrued new debt or still struggling to pay off your pre-pandemic debt; either way, make a plan on how to pay it off. One thing you can do is contact a nonprofit credit counseling agency that can help you with a debt management plan to pay off your debt, according to Jacob.
“They will get the interest rates and your monthly payment lowered without harming your credit score,” she said. “You will make one monthly payment to the agency, who in turn pays each of your creditors.”
When choosing a debt management plan, be careful not to confuse it with a debt settlement plan.
While rebuilding your finances, you have to avoid accruing more debt and instead eliminate each debt one at a time. Begin with the highest interest cards, while making minimum payments on everything else, according to Hargrove.
“Stop the bleeding,” he said. “Quickly pay off any consumer debt, especially targeting higher interest accounts like credit cards.”
Read more information and tips in our Planning section