My father had a saying that came up whenever there was a decision to be made:
“Just because you can doesn’t mean you should.”
He was letting me make my own choices, but reminding me to use my best judgment, typically because there was a difference between the easy selection and the ideal one. Ultimately, the difference often wound up being consequences, lingering unpleasant reminders that the easy option was not the best one.
I find myself channeling my dad every time I hear about the ways consumers can get “assistance” for making it through the COVID-19 shelter-at-home days.
The coronavirus relief bill that lawmakers recently passed, for example, allows cash-strapped savers to tap their retirement accounts for up to $100,000 without incurring the standard 10 percent penalty that generally applies to withdrawals made before age 59 ½.
While it’s your money and a real potential resource, hitting up the retirement account should be a last resort, and should not be considered a “normal” thing. Americans have enough trouble getting together savings for emergencies and retirement; short-circuiting long-term savings now could turn a problem that will pass into something that will be experienced for a lifetime.
It’s worth noting that the way the bill is phrased – and there remain questions to be answered, so do not rush out to tap retirement accounts – savers can take hardship withdrawals that can be repaid over three years, or they can remove the money and pay income taxes due on that income. When the taxes would be repaid – and whether there will be loans with a longer repayment period – isn’t clear yet.
That said, the bill’s retirement-savings provisions apply to people who are unemployed. If you are still an active employee, you will need your company’s approval to tap your plan assets.
Moreover, while the retirement situation has garnered the headlines, some savers have other options; many banks are waiving early-withdrawal penalties on certificates of deposit, which could allow some savers to tap those assets rather than selling long-term market-based savings
In short, the devil here is in the details, as it seems to be with every option consumers might be facing right now.
Consider banks and lenders, and the ways in which they are “helping” customers.
Right now, it is mostly on a case-by-case basis. While the government could have put late fees on hold or taken other broad actions, it left those decisions to the institutions, which means that the rules vary from one bank to the next.
While almost every institution is coming up with ways to help, policies vary. You may be able to suspend payments, for example, though that may still trigger some fees or penalties; you may be able to defer payments or ignore minimums, but that might not help you avoid interest charges.
And no one seems quite sure how those activities might impact your credit score.
Likewise, some banks are waiving the fees for making transactions on out-of-network ATMs, hoping customers will drive less and maximize their efficiency to limit their time outside of the home. Other institutions have no such fee relief; worse, unless the ATM operator cuts its fees, you could think you are safe from the fees and still get dinged by the machine owner.
In short, know the rules for each account and every institution because that will determine the best course of action. Do not assume that the rules from one institution apply to another, or even that rules applying to one account carry over to everything you do with the same bank. You might have two credit cards from the same issuer, and terms – especially when it comes to debt relief – vary widely.
Check your bank’s crisis page – trust me, they have one somewhere on their web site – and look to see what resources they have.
While you are doing this, assess your own situation and look for ways to help yourself now, even if you don’t expect to need it.
The coronavirus relief bill will get most Americans a $1,200 check and there could be more if the situation continues, but those dollars are cold comfort for someone who has seen their work hours cut or eliminated.
A Seattle reader, for example, wrote me recently wondering if he should get a home equity line of credit “just in case.” He said he can afford to spend at least six weeks in shelter-at-home mode with reduced pay; after that, he could be looking at tapping credit resources or, perhaps, his retirement plan.
Assuming he can set up a line-of-credit without any fees, making it an option gives him choices. Doing it now – before his finances look impaired to any credit-scoring system – avoids potential trouble. If he then decides it is a lower-cost option than running up his credit-card bills, he might access the new credit line; the point is that consumers should be looking to maximize their options, trying to give themselves future options that might not be there if they wait until the situation gets super tight.
Do not jump into anything that promises debt relief right now. While the coronavirus has brought out a lot of the good in people, it hasn’t eliminated the bad, and there are credit scams and other issues that have picked up along with the spread of the virus, according to the Better Business Bureaus.
This is a critical, difficult time, but not a point where consumers can afford to sacrifice proper care and caution.
Take advantage of the help that is out there, get the assistance that you need, but do it with forethought and care, so that you can minimize the financial consequences and get your house and future past the virus economy.