Options for Extra Income from CARES Act
It can be hard not to panic when you are out of work. We depend on our paychecks to provide food and shelter for ourselves and our families. Hopefully, you have built an emergency fund for a situation like this. Dave Ramsey recommends setting aside six months of salary as an emergency fund. If you’re struggling financially and need ways to have extra income you might be able to make some changes so you can survive this furlough.
Unemployment Benefit
If you have been furloughed or laid off recently the first thing you should do is apply for unemployment. Even if you are working part-time you could still qualify for partial unemployment benefit. If you have questions you should start by reaching out to your human resources department and state unemployment department. It will not cover the full salary of a PA, but anything helps when you don’t have an income.
Student Loans Deferment
You can also defer student loan payments to have extra income. The CARES Act waves the accrual of interest on all federal student loans during the Coronavirus lockdown. Your federal student loan payments can be deferred during this public health crisis as well. For recent PA graduates that can be a large amount, as the average PA student borrows $100,000 to get through PA school.
Unfortunately, this does not apply to private student loans and this does not mean that any of your loans will be forgiven or canceled. The amount that you owe will remain the same. You just don’t make payments on it during this time, and it won’t be accruing interest.
If your student loans are from a private lender and not the government you might be able to refinance. Interest rates have been very low recently and by refinancing to lower interest rates, you could save money. Since the benefits from the CARES Act only applies to federal student loans, you might want to hold off on refinancing until you are making payments on them again.
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Mortgage Forbearance
The CARES Act put into place the option for forbearance of your mortgage. If you have a financial hardship due to the COVID-19 emergency and need extra income that is normally used on a monthly mortgage payment, you could contact your loan servicer about suspending payments. Similar to deferring your student loans, a forbearance on your mortgage does not mean that your debt is canceled. You will still have to pay back that debt in the future. In the short term, it can provide extra cash flow to purchase the necessities.
401k Early Withdrawl or Loan
If you still need extra money to get by, you can take an early withdraw from your 401K, penalty-free. The CARES Act allows you to withdraw up to $100,000 without the 10% early withdrawal free. However, you’ll still be taxed on it as income. This could help for a brief time but should be used as a last resort, as it could change your long-term financial goals. If possible the best thing to do with your 401k is to continue your normal investing strategy and forget about it.
Being furloughed or laid off can be very stressful and can cause a lot of financial anxiety. Fortunately, the CARES Act has given a few options to help in the short-term while you don’t have a paycheck.
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