After Megan Pearson’s job as a restaurant server was put on hold because of COVID-19-related stay-at-home orders, the single mom had to figure out how to come up with the rent for her apartment in Brooklyn, New York.
“I posted my frustration on Facebook with trying to get through to unemployment the first week,” Pearson says. “I probably made 200 phone calls before I got it all settled.”
Uncertain whether assistance would arrive on time or at all, Pearson took action, reluctantly creating a crowdfunding account at the encouragement of a friend who'd seen her social media post. This move bought Pearson some time and ultimately allowed her to stay in her apartment without having to take on expensive debt.
If you, too, are dealing with an emergency and scrambling to make rent, consider some of the following steps first before resorting to high-interest loans.
Explore free options first
Some states have issued eviction moratoriums during the COVID-19 crisis, but you’re still responsible for paying rent. So the first step is to reevaluate your budget and "find" money where you can.
Cut back on nonessential expenses, lower 401(k) contributions, reach out to creditors for assistance and seek low-income programs for food and utilities, suggests Jeffrey Arevalo, a financial wellness expert with GreenPath, a nonprofit credit counseling agency.
Here are some options that cost nothing or close to it:
Take the help you can get. Applying for unemployment or other assistance programs may take time, but it can certainly be worth it. Pearson expects she’ll cover future rent payments with unemployment and coronavirus stimulus money.
Talk to your landlord. Explain your situation and ask for more time until a check arrives. You could also request an installment plan or waived late fees. Your landlord might be willing to help, especially if you have a history of paying on time. "It's worth a shot," says Arevalo, who notes he's worked with clients who've had success with this step. Whatever terms are negotiated, get them in writing.
Call 211. Local nonprofits and religious organizations may offer rental assistance. United Way helps access those services upon calling 211. Note, however, that resources may be limited during national emergencies.
Apply for grants in your industry. Associations are raising money for people displaced from jobs in their industries due to COVID-19. Pearson applied for a grant from the Restaurant Strong Fund, which helps restaurant workers affected by COVID-19 closures, though she has not yet heard back.
Ask for help from family or friends. Loved ones — and strangers with steady income, for that matter — might be willing to help. Pearson raised $3,995 toward rent and essential expenses via the GoFundMe crowdfunding platform. "If you don’t ask, no one knows you need it,” Pearson says. If you're not comfortable with crowdfunding, you could also ask family members for a loan.
Modify living arrangements. If your lease permits, consider subletting your apartment or a room. Or move in with a loved one and help each other by divvying up rent costs. Of course, moving may come with its own expenses, and if you're under contract, you'll have to weigh the cost of breaking your lease. Again, talk to your landlord to see what’s negotiable.
Seek professional advice. A credit counselor can review your finances for potential savings toward rent. Currently, GreenPath Financial Wellness is offering free phone-based financial counseling during the pandemic.
Lean on investments
Typically, it isn't advisable to dip into money that's meant for your future, but these aren't typical times. When an emergency threatens to evict you — here and now, in the present — the normal "rules" don't always apply.
If you have a taxable brokerage account, you could consider selling stocks. Otherwise, the next potential option might be a withdrawal from a 401(k) or individual retirement account, says Andrew Rosen, financial advisor and partner at Diversified, a financial planning firm. Again, raiding your retirement funds is not ideal, but in a crisis it may be necessary — and you may be able to mitigate the financial repercussions.
Under the Coronavirus Aid, Relief and Economic Security Act, for example, those under age 59½ years impacted physically or financially by COVID-19 can withdraw up to $100,000 from an eligible 401(k) or IRA through Dec. 31, 2020, without the usual 10% early withdrawal penalty. The tax bill is spread over the next three years, and you can claim a tax refund if you pay it back before that time. If you’ve lost your job, roll over your 401(k) to an IRA and then make a withdrawal, Rosen suggests.
The CARES Act also lets qualifying 401(k) plan participants borrow 100% of their vested balance up to $100,000 as a loan. And in emergencies unrelated to COVID-19, a loan on a 401(k) — if available through your employer — avoids penalties, taxes and a credit check.
Still, think hard before going this route. If you are truly drowning in debt and rent is just one of many financial obligations you're unable to meet, you may want to consider other options.
“Most people don’t realize that generally speaking, your retirement accounts are protected in a bankruptcy,” Rosen says.
Choose the least expensive high-interest debt
You could look to finance some of your expenses to help cover rent by, say, opening up a low-interest credit card. But without sufficient income or good credit (typically a FICO score of at least 690), you may be left with only high-interest financing options. Consider the following, in order from least to most expensive:
Borrow against your existing credit card’s limit. Targeted offers like the Citi Flex Loan and My Chase Loan let you borrow against your card’s credit limit with a fixed interest rate and term. The money is deposited into a bank account without the need for a credit check or origination fee.
Pay rent with your credit card. Some services facilitate rent payments with a credit card, for a price. Plastiq, for instance, will let you charge your rent to your card and will then cut your landlord a check on your behalf, in exchange for a 2.85% processing fee. Weigh the costs of that fee before going this route, and be aware that if you can't pay it back in full within a billing cycle, you'll incur interest on the rent payment at whatever APR your card charges.
Among your last resorts, consider a cash advance. A cash advance can offer quick cash up to the amount of your available limit, but you'll pay dearly for it in the form of a steep fee and an interest rate that starts accruing the moment you pull the cash from your bank or ATM. Cash advances could also negatively impact your credit score by increasing your credit utilization, a key factor in credit scores. Still, it's a possibility if you need it, and it's likely cheaper than turning to a payday loan, which may not be an option anyway if you are no longer collecting a paycheck.