Who to Pay First: How to Decide Payment Priorities When Income Falls
The Washington Post headline reads, “A Record 3.3 million Americans filed for unemployment benefits as the coronavirus slams economy.” The statistic represents a single week of unemployment filings, and the Labor Department predicts job losses could exceed 40 million by April.
With such headlines gripping the nation, and mandatory business shutdowns and citywide quarantines continuing, millions of Americans must figure out how to pay their bills in the coming months.
How should families prioritize spending when it’s unclear whether extreme household budget cuts need to last a few weeks or months? When income declines, emergency measures make it necessary to prioritize what bills to pay, what bills to cancel, and where the little money received should go.
The first question for many out-of-work Americans, is, “Do I still have health insurance coverage?”
Given that the coronavirus is both a health crisis and an economic crisis, it is essential to maintain health insurance in the event of an infection. While many cases result in only mild symptoms that do not require treatment, those that do can require weeks of hospitalization.
The other challenge is that most employees rely on employer-sponsored health insurance, which could disappear as businesses close.
Verify that health insurance coverage remains intact.
If coverage remains, verify coverage levels. Most health insurance companies are waiving cost-sharing requirements for expenses associated with the diagnosis and testing of COVID-19. Some also have eliminated deductibles for treatment through in-network providers. However, all insurance companies offer multiple policies with a wide range of coverage levels. AHIP compiled a list of health insurance providers, along with their general policies with regard to COVID-19 coverage in the following blog. It is necessary to contact the insurance company directly to learn more about specific coverage.
Consumers who lose health insurance coverage have the following options:
COBRA allows employees to continue coverage with the employer-based plan after a job loss. The former employee becomes responsible for monthly premiums, and coverage levels remain the same.
Marketplace Insurance policies offer a special enrollment period for households that lost qualifying health coverage within the last 60 days. Coverage often includes subsidized payments, which can help lower the cost of premiums. Eleven states officially re-opened enrollment for Obamacare, allowing anyone to sign up for a new policy in the coming weeks.
Medicaid might be an option if the household meets the stringent income and asset tests. When qualifying for Medicaid, any unemployment received typically counts as income.
Along with maintaining insurance premiums, medications are an essential expense. Many insurance providers have waived prescription refill limits, allowing consumers to receive up to 90 days worth of medication. Those with lost wages who are struggling to meet the co-pays might qualify for payment assistance through the drug company, state programs, or nonprofit groups.
Term insurance uses age as the primary factor for rate quotes. Allowing coverage to lapse could result in significantly higher costs to re-enroll. As the deadly disease ravages the globe, life insurance is more of a necessity than a discretionary expense.
In some cases, whole life insurance can allow policy owners to forgo payments, although it could result in a policy lapse.
Mortgage or Rent Payments
Housing payments always top the list of payment priorities during troubled times. The recently passed CARES Act offers some relief to both homeowners and renters, including a moratorium on evictions and foreclosures. The new law also provides a forbearance to qualified borrowers and renters. Not all households qualify for relief, making it vital to contact the landlord or mortgage servicer for assistance.
Many states and cities have placed moratoriums on utility shutoffs for 60 to 90 days. However, balances continue to accrue, and the account holder is responsible for the full balance to avoid shut off after the moratorium ends. Most utility companies offer payment plans to assist.
Auto Loan Debt
Auto lenders want to help consumers keep their vehicles, and many are stepping up to help through payment deferrals. Credit Karma compiled a list of auto finance companies with details of the measures lenders are taking to help consumers struggling to make loan payments.
Unsecured Loans and Credit Card Debt
Personal loans and credit cards are most at risk of default because the lender cannot repossess or foreclose to recover the debt. On the other hand, consumers want to protect their credit during these uncertain times. Credit card issuers are offering payment deferments, fee waivers, and in some cases, lower interest rates and credit line extensions. Call each credit card’s service number and request help or find out what is available to you. Most likely they will not reach out to you, so proactively calling is the key to finding help.
When income becomes uncertain for the foreseeable future, it is necessary to make strategic decisions about what bills must be paid and which ones to defer. Due to the widespread nature of the coronavirus, and the economic shutdown that followed, industry leaders and lawmakers have stepped up to help consumers financially manage the crisis.
About The American Fair Credit Council
The American Fair Credit Council (AFCC) is a non-profit trade association representing consumer credit advocates who work on behalf consumers seeking to resolve their debts through the process of negotiation and settlement. AFCC Member Companies operate under a “No Advance Fee” model, and never charge a fee to consumers until a debt has been resolved. AFCC Members must also adhere to a strict “Code of Conduct”, ensuring they operate with the highest level of compliance, transparency and integrity. If you are currently experiencing a financial hardship, and having trouble making payments, you may locate a member company using our online search tool to learn more about programs to help you resolve your debt.