The mailbag is full of notes from people with all-too-common financial dilemmas these days.
I’ll try to help some of the letter writers in the hope that the answers help you too.
Question from David H. in Short Pump, Virginia: When I lost my job early in the pandemic, there seemed to be a lot of help out there from banks and credit-card companies for people who were unemployed. But we didn’t need help then, because my wife was working for [a major airline].
She was part of the layoffs they just announced. I’m making money working on some projects, but it’s not enough. I don’t want to fall behind on the mortgage and the bills. But what can I say to my lenders now, so far into the pandemic, that would persuade them to help me, and why would they help me anyway if we have almost no income and don’t know when that will change?
Answer: Don’t worry about optics; push on.
Mortgage forbearance on federally backed mortgages was part of the CARES Act, the initial coronavirus stimulus package, and you should be able to pause mortgage payments for up to 12 months, in 180-day chunks, by contacting the lender about a COVID hardship.
Generally speaking, lenders have shown a willingness to hold off on missed mortgage payments by adding them to the back end of the loan. Let’s say you have 12 years remaining on the loan, meaning it would be paid off in October 2032 if you don’t hit the brakes; if you pause payments for six months, you will still owe 12 years of payments and you will pay things off in the spring of 2033. That’s effectively like accessing your home equity to get you through trouble.
That said, terms and conditions can vary, and you want to check out all of your available options before agreeing to anything, but don’t shy away from doing it because you worry that your lender won’t want to work with you. They have a responsibility to make an effort.
If your loan is not backed by Freddie Mac, Fannie Mae or the federal government, you can still get forbearance; some of the rules and conditions may be different.
Says Greg McBride, chief analyst at Bankrate.com: “If you are able to make your mortgage payments now, continue doing so and wait until you’re actually in need before seeking the forbearance. You don’t want to be using up the 12-month clock until you really need to.”
The Consumer Financial Protection Bureau has fabulous resources to prep you for the process, online at consumerfinance.gov. ook for their coronavirus alerts).
On consumer loans, credit cards and other debts, payment-relief options vary, but it’s never too late to apply. Lenders read the headlines; they won’t be surprised that some workers are feeling the pinch now, months after the initial crush. Contact them to have a conversation.
Forbearance for these other loans varies from lender to lender; don’t expect 12 months of help, for example, and make sure you know what charges may still be accruing even as you are allowed to put off payments.”
Question from Jeanne in Baton Rouge, Louisiana: I’m ready to start holiday shopping and I’m on an especially tight budget this year. Does it make sense to get credit cards from my favorite stores for savings and some breathing room on payments?
Answer: Maybe, but be careful.
A new CreditCards.com study shows that the average interest rate on a store-only credit card is nearly 26%, with seven retailers [Big Lots, Discount Tire, Jared The Galleria of Jewelry, Kay Jewelers, Piercing Pagoda, Sterling Family of Jewelers, and Zales] charging a high of 29.9 percent.
Stores and card issuers offer discounts on purchases when you take the card — nearly seven in 10 American adults have applied impulsively for credit at checkout — but those bargains fade if you can’t pay the bill immediately.
There’s a trap that sometimes comes with “Take 10 percent off now.” It’s triggered if you don’t pay the bill off fast.
Says Ted Rossman, industry analyst at CreditCards.com: “A lot of times, it’s not worth it; you would be better off with another payment method.”
Accessing new credit can hurt your credit score, especially if it comes with a low limit that barely exceeds your purchase, which often happens when a card is approved at checkout.
Likewise, same-as-cash deals lasting 90 days or six months can help you manage payments, but can leave you on the hook for months of interest if you don’t pay them off completely by the end of the promotional period.4
Remember, no one who truly loves you wants you to go into debt to buy their holiday gifts; these are unusual times and if setting up a store card would be your go-to move in these trying times, maybe a talk with the family about appropriate holiday expectations will save you more than money this year.
Question from Ron in Seattle: My son is a high school senior and I have been saving for his college tuition since he was born. Should I be looking at cashing out investments I made this year in case Joe Biden wins the election and the capital gains tax goes up?
Answer: The headline has been that Biden — currently leading in the polls — wants to raise the capital-gains tax rate from 20% (plus the 3.8% net investment income tax, for an effective rate of 23.8%) to 39.6%.
The fine print is that would apply only to people making at least $1 million.
If your income is that high and you need to empty a brokerage account to pay tuition, selling sooner rather than later makes sense, but waiting until the election is official, the balance of power is clear and there’s news about the actual implementation of policy changes is the right move. There will likely be time to make your moves once the votes are in and before tax changes go into effect.