If your income dropped during COVID-19 and you’re facing debt, you may be forced to make some tough financial choices until your salary recovers. Don’t worry, it’s a reality for many of us. And the good news is that there are some strategies you can use to keep yourself in the best financial position possible while you get through this time.

We spoke with Jennifer Raess, CFP®, a member of the Advice Practice Team at Northwestern Mutual, to find out how to manage your debt if you’ve lost income because of the pandemic.


You might have been making your debt payments each month, but how well do you know the details of your loan and credit card terms? Raess suggests making a spreadsheet that includes each debt you owe. List the kind of debt it is, the interest rates, minimum payment, and whether there are any charges or interest rate penalties for a late payment.

Examine your debt carefully, Raess adds, because once you know what you owe, you’ll have a better idea of which debts to prioritize and how much of your budget to dedicate to your debt payments each month.


Although you may be tempted to skip some payments, it’s important to continue making at least the minimum payment on all your accounts for the sake of your credit. Then, if you have extra money, a good strategy is to focus on making extra payments on the debt that has the highest interest rates first, which is typically bad debt that doesn’t provide any value back to you.

But when your income suddenly drops, you may have to change up your strategy to ensure you’re not missing any payments that could impact your credit score. For instance, if you have monthly loan payments that aren’t flexible, you may need to focus on making those payments in full while you pay only the minimums on your credit cards, Raess says. Or if you’re paying down multiple cards, you might want to focus on the credit card that will charge you a higher penalty interest rate if you miss a minimum payment.

Federal student loans can be deprioritized for now because President Joe Biden has extended loan forbearance through the end of September. If you have a private student loan, contact your lender to see if they can provide any flexible payment options.


While you’re at it, call all your lenders. They may be open to renegotiating terms and offering leniency to those who have lost income, particularly if you have a long history with them.

“With COVID, lenders have been more willing to work with individuals to find ways to help them,” Raess says. “Talk to them about reducing your interest rate. It's important because it affects the size of your payment every month and how much you're able to pay down on your principal, versus paying primarily interest. You’ll reduce the amount of your debt quicker.”

You might also try asking for an extended grace period if you need additional time to make a payment. Many lenders already offer a grace period, but because of the pandemic, they’ve been willing to extend it even further. “Other relief options may also be available, depending on what the lender is offering,” Raess adds.


You know that refinancing your debt to a lower interest rate might help you out, but that’s nearly impossible to do when you lose income, right? Not always — it depends on your situation.

“If you can, find a cosigner to help you refinance,” Raess says. You might also be able to get a home equity loan since that’s secured debt — just keep in mind that if you default on the loan, you could lose your home.

If you can show you have alternative sources of income, you might be able to get a line of credit at your bank or qualify for a zero-interest credit card that you can transfer some of your debt onto during the introductory period. If you do take advantage of a zero-interest offer, however, make sure you can make minimum payments — otherwise your interest rate may shoot up.


You may not be able to predict when your income will pick back up, so it’s a good idea to figure out where you can access cash if you need it to keep up with your debt payments.

An emergency fund was made for times like this, so check to see how much you have in your reserves. If you have a permanent life insurance policy, you could also see how much cash value you've accumulated, as you may be able to access it for liquidity in a pinch.

And finally, “as a last resort, you could look at your retirement account — but know that you’ll need to pay a penalty if you take money out early,” Raess says. Generally, the penalty is 10 percent plus whatever taxes you’ll pay on your early withdrawal. You could also take out a loan against your 401(k), but the amount you can borrow is limited and must be paid back within a specific timeframe.

If you haven’t yet lost your income but are worried about instability in your industry, take the time now while you have a steady paycheck to build up some savings, as well as other parts of your financial plan that can help protect your income. Talk to a financial advisor to help you figure out what options are available to you.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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