The COVID-19 pandemic has affected nearly every aspect of our lives. And with so many people laid off or working reduced hours, many people’s personal finances have been thrown into complete disarray. In other words, the pandemic is changing the way people deal with money. While there is still a great deal of uncertainty ahead of us, financial planning should not take a backseat just because it’s become more difficult to forecast for the long-term. Regardless of your current financial situation, there are steps you can take to lessen the financial hardship of the Covid-19 pandemic and prepare for the future.
Reduce Your Debt Burden with Lower Interest Rates
With the increased volatility in the stock market, interest rates have taken a nosedive. If you have high-interest credit card debt, there is no time like the present to do something about it. Essentially, this is the perfect opportunity to secure lower interest rates from credit card companies through things like balance transfer offers. Furthermore, the government suspended most federal student loan payments through the end of September. So, if you still have student loans outstanding, now is the time to pay down other types of debt.
Refinance Your Mortgage
The Federal Reserve has reduced mortgage rates. As a result, fixed-rate mortgage averages are at all-time lows. This makes it an opportune time to refinance your home. One of the most important factors in a refinance, however, is the break-even time; this is the amount of time it would take for you to make up the total closing costs. For example, your refinance closing costs might be $5,000 for a mortgage that saves you an additional $200 per month. At this rate, it would take 25 months or just over two years to break even. It would not be worth refinancing, however, if you plan to move within two years. Since we all have different objectives, this would be a good topic to discuss with a financial planner.
You should also consider reducing the length of your loan. If you have 20 years left to pay off your home, try refinancing to a 15-year mortgage to pay it off sooner and save more money.
Save and Invest More
Since we have fewer opportunities to spend money traveling or dining out during COVID-19, some people are reaping a higher cashflow than normal. The important thing is to take advantage of the extra cash on hand to boost your savings and your retirement accounts. You can try increasing your 401k contributions or even opening a traditional or a Roth IRA or increasing your emergency savings. By reallocating your additional savings, you can put yourself in a much better position when things return to normal.
Don’t Allow COVID-19 to Divert You from Your Financial Goals
The difficulty of dealing with a global pandemic may cause you to put your financial goals on the back burner. Nevertheless, this is actually a good time to assess your long-term financial plans. If you have lost work or been saddled with a large medical expense, you now realize how important it is to have substantial emergency savings on hand. Even if the misfortunes of this year have delayed things like retirement plans, you can still use this time to meet with a financial planner and create a stronger blueprint for your financial future.
