What Comes Next?

Submitted by Guy Williams on May 8, 2020

We now know that the national and regional shutdown will end soon. Texas has already begun to gradually unwind their stay at home restrictions. The Louisiana plan has not yet been announced, but it is imminent.

During the national shutdown everyone was affected, some by the tragic loss of a friend or relative, some by business failure or job loss, and everyone by the stress of a new and unexpected way to interact with the world.

Banks have been stressed dealing with our customer’s issues and by the press of payroll protection program loan applications. We are also distressed as we see some of our customers and friends make mistakes with long-term negative consequences because of this horrible, but ultimately short-term problem.

The challenge that many of our customers face is how to deal with the financial losses caused by the virus.

Our suggestion is to look at how long your cash flow problems are likely to last and to consider ways to minimize the harm that you will suffer.

Begin by defining the scope of the problem. When do you expect to restart your cash flow and during that time period, how much cash will you need if you don’t change your budget? How much of that shortage can be met by your cash in the bank and savings?

Once you know how deep the expected hole is, you can look at ways to solve the problem.

We recommend beginning with the essentials – a place to live, utilities, food and medical insurance.

Fortunately, most mortgage lenders are willing to defer payments for three to twelve months. When you talk to your lender, ask for a loan modification which means adding the missed payments to the back of the loan. This will delay the ultimate payoff for a few months but will not significantly increase your monthly payment. What you don’t want, unless you are expecting a cash windfall, is a deferment that calls for the missed payments to be made up in one lump sum.

The same thing applies to rent. You cannot be evicted during the crisis. After the crisis, if you are not on good terms with your landlord, you may be evicted if you can’t make up any past due rent. A better plan is to call your landlord and ask for reduced rent with a schedule to make up the difference over a reasonable time period. Landlords don’t want vacant units, but they also can’t afford to operate with no income.

Utilities just need to be paid. Use your unemployment check if necessary, but don’t put yourself in position of having the utilities cut off as soon as the crisis is over. If absolutely necessary, call the utility company and negotiate a payment plan.

For most people, the new higher unemployment checks will be about $800 per week. This combined with the $1,200 stimulus check should allow you to keep the essential bills paid. If you do have a little left over after taking these steps, by all means save it for what could be an extended slow recovery.

We don’t know how this crisis will end, but we do know that almost everyone will be poorer when this is over. Make plans to conserve cash and please don’t allow a temporary problem to ruin your credit.