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The economic impact of the coronavirus outbreak may have you thinking about — and let’s be real, losing sleep over — your finances now more than ever. With bills, investments and mortgage payments to consider, as well as looming fears about a recession, you may need an expert opinion to cut through the noise and calm your anxieties.
At a recent NerdWallet companywide discussion, four of our experts weighed in on what consumers can do during this time. Holden Lewis, Sara Rathner, Arielle O’Shea and Kimberly Palmer — NerdWallet writers and spokespeople across mortgages, credit cards and travel, investing, and personal finance, respectively — shared tips on the financial topics that are currently on everyone’s minds.
We’re sharing their responses to 10 of the biggest financial questions being asked right now. The answers have been lightly edited for clarity and length.
What should I do as a long-term investor?
Arielle O’Shea: The stock market is inciting a lot of fear right now. If you are a long-term investor — you’re not investing for a goal that is less than five years away, like a down payment for a house you want to buy in a few years — ride it out. The best reaction to these market moves is no reaction at all. People say that the stock market is the only market where people flee the store when things go on sale, but it’s important not to flee the store right now.
Takeaway: When it comes to the stock market, playing the long game is the smartest money move. The best reaction is no reaction at all.
What should I do if I’m close to retirement?
O’Shea: If you’re near retirement, it’s a bit of a different story, but not totally. You don’t stop investing on the day you retire. You need your money to last 20, maybe 30 years, so you should still think of yourself as a long-term investor. Many financial planners recommend having a pot of “safe money,” or cash available in savings or safer investments [such as bonds or target-date funds] that can cover you for at least the first few years of retirement. Take less risk as you approach retirement.
Takeaway: You still have a long time to invest, even if you’re close to retirement, but have some “safe” money in cash or other investments — enough to last a few years — and rebalance your portfolio so that you’re minimizing risk.
How can I take control during a time of market volatility?
O’Shea: Control what you can control. See if you can lock in a high-interest rate with a certificate of deposit before rates fall further, shop around to find a high-yield savings account, increase your 401(k) contributions, max out an IRA or consider investing more in a 529 plan.
Takeaway: Don’t feel stuck. You can still open a CD, explore a high-yield savings account and max out your IRA, among other things.
How should I budget during these times?
Kimberly Palmer: Make sure you have an emergency fund. In general, we recommend saving three to six months’ worth of expenses. It’s also important to apply the 50/30/20 budget — 50% of your take-home pay goes toward needs, like groceries and mortgage or rent, 30% to wants and 20% to debt payments and savings.
It’s the 30% wants that we have the ability to cut back on quickly if we need to. A lot of that cutting back is happening because we don’t have a choice — commuting expenses and restaurant spending are going down naturally. Of course, other expenses are possibly going up as people are spending more on at-home activities for children and online exercise.
Takeaway: In addition to setting up an emergency fund, try the 50/30/20 budget as a way to manage your spending during this time.
How should I prioritize different expenses in an emergency?
Palmer: We recommend paying your most important bills, like mortgage or rent, on time to protect your credit score. Some companies are being more flexible, so if you just can’t make a certain payment, the first call can be to that company. Some credit card issuers and banks have announced leniency programs and are waiving payments and interest.
Takeaway: Don’t let your most important bills fall through the cracks — and ask your credit card issuers and banks for help or extensions on other bills if you need to.
What does this mean for me as a homeowner?
Holden Lewis: Know that this recession has a different cause than the last one, which had a direct link to the housing market. Fannie Mae, Freddie Mac, FHA and the VA are already directing servicers to offer relief to borrowers who suffer cuts and interruptions in income. Using a HELOC — a home equity line of credit — should be a last resort. You could lose your home if you don’t make the payments. If you want to have a HELOC to have that pool of money available, apply for it while you still have income.
We’re in a refinancing boom, but don’t rush into one just because everyone is doing it. Know your goal — to get the lowest possible monthly payment, get rid of FHA mortgage insurance or shorten your term — and you’ll get a better deal.
Takeaway: Look into mortgage relief options, and make a HELOC your last resort. And while refinancing could be a good step to take, make sure you’ve thought about your goal for doing so.
What do I do if I’m planning to buy a home this year?
Lewis: Know what you can comfortably afford and stay in that range. Save two to six months’ worth of mortgage payments and have them stashed away the minute you close on a loan — that way you can afford an emergency repair or emergency income, and your lender may even require you to have that saved.
Takeaway: It’s more important than ever to have enough savings and a realistic price range for a home if you plan to buy one in the near future.
What if I have credit card debt?
Sara Rathner: Credit card interest rates have dropped a little, but it’s still a higher interest rate than other forms of loans. To free up cash flow, one option is a balance transfer card. These often require good or excellent credit in order to qualify and many charge a 3%-5% fee of the transferred balance, so that’s something to budget for. If you have any debt remaining on your card once the promotional period is over, you’ll have interest on that remaining debt, so time payments accordingly.
Personal loans are another option for debt repayment. These consolidate multiple debts into one payment that typically have a lower interest rate than what credit cards charge.
Finally, there are various debt repayment methods, including the debt avalanche method, where you list debts in order from the highest to lowest interest rate and make minimum payments on every single one. This helps avoid late fees and credit score dings. Regardless, it’s always better to do something rather than nothing.
Takeaway: There are multiple strategies to consider if you have credit card debt, including a balance transfer card, personal loan and debt repayment methods.
What if I have travel booked for the near future?
Rathner: You might not have to do anything — the airline may cancel your flight and work with you to rebook or refund the unused value of your ticket. If you do need to rebook, try doing it online to save time. If that’s not working for you, wait about 72 hours before your flight. Airlines have such high call volume right now.
Takeaway: If your airline hasn’t already canceled your upcoming flight, wait about 72 hours before your flight to contact it.
Can I book travel right now?
Rathner: If you need to book travel, wait as long as you possibly can. Everything is changing so quickly. If you must book, have a credit card that offers travel protections and use that card to make the booking. For expensive trips, consider travel insurance. “Cancel for any reason” coverage exists; it’s an expensive add-on to an existing policy, but if you’re already spending thousands or tens of thousands on a trip, it might be worth it.
Takeaway: Wait as long as possible to book any travel. If you must book, use a credit card with travel protections.