Money stress is high this year and many of us are in uncharted financial waters due to the pandemic. We caught up with BECU Financial Educator Stacey Black to answer some real-world personal finance questions from readers.

Q: Should I contact a creditor if I can’t pay a bill? What should I say?

— Avery from Tukwila, Washington 

Black: Tell creditors the truth. Some people feel embarrassed, but so many of us are struggling right now. There’s no need to feel ashamed or embarrassed. Many financial institutions and lenders are offering assistance, such as short-term, low-interest loans, payment forgiveness or deferred payment options. However, oftentimes you have to ask for help.

If you reach out, the worst they can say is no. But by contacting them directly, they’ll also understand your situation better and see that you’re trying. Leaving bills unpaid could damage your credit score and impact your other long-term financial goals.

Finally, remember to reach out to your financial institution first, as payday lenders and pawnshops can be costly in the long term. 

Q: Retail therapy is a real thing for me during the pandemic, but I don’t want to get out of control. What should I keep in mind when splurging?

Mona from Kenmore, Washington

Black: With many of us working from home during the pandemic, this is a common problem. It’s OK to buy things — you deserve it every once in a while. However, splurging can get out of control quickly, so it’s important to set spending boundaries with a budgeted amount.

I recommend the 50-30-20 rule: 50% of your income for needs, 30% for wants and 20% for savings. Personally, what I once budgeted for entertainment, I now put toward online shopping since I’m not going out like I used to.

Pre-pandemic, I liked to use the envelope method: dividing cash between envelopes to separate and limit your spending. Since we aren’t using cash as much now and there currently isn’t a limit to the number of transactions in a savings account, you can create a “digital envelope” by using multiple named savings accounts, such as one for online shopping and one for groceries or housing. The money set aside in those accounts can be used specifically for that category each month, which can help you avoid overspending. 

Q: I recently graduated from college and am thinking about getting my first apartment. What’s the maximum I should spend on rent?

— Isabelle from Fremont, Washington

Black: Housing prices are high in the Puget Sound region, and the maximum I recommend you spend on housing or rent is 30% of your monthly income. If you consider the budget we discussed in the last question, the 50% for needs includes 30% for rent. You might need to get a roommate or live with someone for a while to keep your budget on track.

Setting a financial goal can also help — maybe you want to buy a house in five years, or perhaps a new car? You’ll be more likely to stick to a budget if you have plan. You may even consider opening a separate savings account for your goal.   


Q: Which debt reduction strategy do you recommend — pay off the lowest debt first or go for the highest interest rates? Refinance everything into a personal loan?

— Kate from Poulsbo, Washington 

Black: There are three different strategies to pay off debt. It’s most important to identify what is going to motivate you to stick with it and pay off your debt.

First, the “debt cascade” strategy is for those without extra income to pay off debt. Pay the minimum balance on everything and as your credit cards or other lines of credit begin asking you for lower minimum payments, continue to send the amount you originally owed. That extra money you put toward your debt will take it to $0 faster. 

The second debt-reduction strategy, called the “debt snowball,” works best for me, personally. First focus on paying off the debt with the lowest balance by paying more than the minimum due. After that loan or credit card is paid off, tackle the next-largest debt using the extra funds you’d been putting toward the first debt’s payments. This strategy has motivated me to pay off my debt faster.

The last debt-reduction strategy is known as the “debt avalanche” and focuses on paying off the loan with the highest interest rate first (usually credit cards). Most people are encouraged by the lowest-balance approach, but if you have a credit card with 28% interest, you may be more motivated to pay it off first.

People often ask about refinancing your debt into a personal loan or getting a balance-transfer card. However, if you don’t address the underlying behavior that got you into debt in the first place, this isn’t an option I recommend. The majority of those taking out a debt consolidation loan usually end up with more debt within two years.

Q: What should I do with an unexpected windfall, such as a stimulus check, if I don’t need it immediately?

— Peter from Beacon Hill, Washington

Black: In most cases, I’m telling people to save, save, save for their rainy-day fund. This year of uncertainty has shown us how important it is to save for the unexpected. Usually, I recommend that you save at least six to nine months’ worth of expenses. Nine months is a good goal for getting back on track, although that can be a daunting goal. You can start with a small savings goal — such as $1,000. Once you hit that, increase the goal.

If you have a good emergency savings account, feel secure in your job and don’t think you’ll lose income, think about paying down debt or investing with your stimulus check, tax refund or pay raise

Q: I’ve been able to save some money during the pandemic, beyond my emergency savings. Would I be better off putting it in a retirement account or paying down my mortgage?

— Haley from Downtown Seattle

Black: The answer is very case-specific and depends on the person, their age, financial goals and plans. Even if you saved money during the pandemic and feel secure now, think about what might happen in a year if you lost your job or became ill. If you have an unexpected emergency and get into debt, it’s challenging to get back out of it.

Instead of doing anything drastic with your money right now, such as putting it all toward retirement or paying off debt, sit down with a financial planner to develop a strategy. For example, BECU members can take advantage of free consultations with trained specialists through its Financial Health Check program, which focus on making real-time decisions on financial goals around saving, budgeting and debt management. It’s important to find the perfect plan for you and map out future actions once you achieve your immediate goals.

As a member-owned credit union, BECU is focused on helping increase the financial well-being of its members and communities by returning profits in the form of better rates, fewer fees, community partnerships and financial education. BECU is federally insured by NCUA.