Expanded unemployment benefits to expire: 4 steps to take now
More than 43 million Americans have filed new unemployment claims since mid-March, and many of these people have been eligible for expanded unemployment benefits – but what happens when that extra cash flow runs out?
Under the CARES Act, eligible Americans who are out of work entirely or underemployed because of reasons related to coronavirus can receive an additional $600 a week for up to four months.
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The package is fairly generous.
Benefits for 68 percent of workers are likely exceeding what they would have earned if they were still working, and the median replacement rate for about 20 percent of people is 134 percent.
But the boost in benefits has helped to stimulate the U.S. economy, Credit Karma’s founder and CEO Ken Lin told FOX Business.
“I think the CARES Act specifically has helped buoy the economy in the sense that, when you look at the economy, when you look at late payments … It’s not as bad as the unemployment rate [would lead you to believe],” Lin said.
The real question, Lin added, is what will happen to the people who are really “just treading water” as soon as the policy ends.
Lawmakers are debating whether to extend the expanded benefits, which are currently scheduled to expire on July 31.
While Democrats are in favor of the policy, Republicans and the Trump administration have expressed dismay over the perception that it may discourage some people from going out and seeking new employment. The administration has backed what it calls a “back to work bonus” as an alternative, which would provide an incentive for individuals to reenter the marketplace.
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It remains to be seen what will happen on Capitol Hill, but here are some tips to help unemployed people prepare for the inevitable end of the unemployment expansion.
Plan for the worst
Because there is so much uncertainty regarding the economic recovery, and how the virus will behave throughout the coming months and into next year, Lin says people should plan for the worst.
There are a number of variables that cannot be predicted, including how people will act once their economies reopen and if a second outbreak will occur in the fall. The labor market may also look different, and the jobs people had before the pandemic may not come back right away, for example.
Therefore, Lin advises, it is best to be prepared.
Have cash available
The first step in readying your finances for a worst-case scenario is to have cash available.
Typically, Lin advises people to have a cushion of about six months.
However, in this case, he bumped that number up to nine months’ worth of monthly savings.
Make payments
“Pay down your debt, high-interest loans and certainly modulate your spending,” Lin advised.
He noted that people struggling with financial hardship can often get caught in “downward cycles,” whereby they miss a payment, which causes their credit scores to drop. And then they become ineligible for more loans, which leads to delinquency on more debt.
To help stay afloat, he says people should make their minimum payments.
And instead of prioritizing payments if you are unable to make them all, Lin said individuals experiencing financial hardship should contact all of their creditors and communicate their troubles.
Cut costs
Interest rates are at an all-time low, so many experts have been advising people to refinance their mortgage loans as a means to save some extra cash each month.
Lin also said people can revamp their auto loans.
But some households may also need to think about cutting other expenses, like entertainment, until they can get back on their feet. That may mean revisiting recurring subscription costs, like cable television.
“What do you really need and what is really just a want?” Lin asked. “The reality is you need to go figure those things out.”