- Each relief package offers short-lived measures to help you get through the pandemic.
- Too much reliance on pandemic relief measures could lead to a future financial crisis.
- When the aid ends, you must be prepared to cover your bills on your current income.
COVID-19 dominated headlines for the past 12 months. Overnight, the world economy came to a stop as government orders shuttered businesses. The measures taken in 2020 to stem the disease’s spread caused economic havoc, leaving millions without the means to pay bills. Unemployment claims reached heights not seen since the Great Depression.
Six major bills passed in a 12-month timeframe, providing 5.3 trillion dollars in stimulus relief. Help for individuals ranged from direct checks, enhanced unemployment, zero percent interest rate on federal student loans, and paused student loan payments. Moratoriums on utility shut-offs, rent evictions, and foreclosures kept people in their homes with the lights on, even if they could not pay the bills.
Small businesses saw support through forgivable Paycheck Protection Loans, tax breaks, and incentives to keep workers on the payroll. Available aid touched nearly every family in America as they embraced a year of change.
How Stimulus Impact Family Finances
The stimulus money helped many families stay afloat during a time of crisis. It prevented foreclosures and evictions, allowed homeowners to receive forbearances on mortgages for up to 18 months. The legislation increased unemployment payouts to near (and sometimes over) 100% of earned income for nearly 18 months.
The pandemic also affected spending. Stay at home orders meant lower transportation and employment costs. Those who worked at home spent less on gas, parking, trains, and even clothes. Travel and entertainment spending also ground to a halt, as going anyplace other than home became a challenge. Available entertainment tended to be trips to the park, biking your local greenway, or walking the neighborhood.
While the savings did not make up for a job loss, with the supplemental government assistance, families were able to pay for essentials and even pay down debt in the midst of a recession. In 2020, consumers paid down credit card debt by 9% or reducing outstanding balances by 73 billion dollars, despite the high employment and mass closures.
Preparing for the End of Stimulus Help?
It is easy to overspend between government aid and widespread payment holidays when comparing it to your pre-pandemic budget. Increased government help and artificially lower expenses can develop spending habits that could cause a financial crisis when all your bills resume, especially if income does not fully recover.
For example, if you have a mortgage in forbearance, using stimulus money to pay off debt, settle debt, or otherwise lower living costs is a better use for the funds than buying more things, eating out, or taking a long-awaited vacation.
Here are five things you can do today to fend off a financial crisis when the stimulus payments come to an end:
- Build a budget based on current income but align expenses to pre-pandemic levels and track your spending to that point.
- Cut costs now to give you room in the budget for regular expenses you experience in transportation and housing.
- Monitor payment holidays and make sure you are on track to restart payments without letting an account go delinquent.
- Get help from state agencies to catch up on rent or utilities before moratoriums end.
- Understand the consequences of forbearances and have a plan to make your payments when they stop.
Will Congress pass more stimulus packages?
Over the past 12 months, many families have received three direct checks in addition to other assistance. As the economy improves, the likelihood of additional stimulus monies will decline.
How long can I get a forbearance on my mortgage?
In some cases, you can skip payments for up to 18 months. The CARES ACT granted payment relief for up to 12 months on government-backed mortgages. The latest stimulus package extended that six more months for qualified loans.
What help is available to pay back rent and utilities?
Missed rent and utility payments are not forgiven. Creditors may give you up to 12 months to catch up on the account, but that could still mean paying thousands of dollars to keep your home or power. State agencies have funds to help consumers who face challenges with late rent and utility payments.