Paying Off Debt During Coronavirus Economic Downturn

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Dear Liz: I have about $ 40,000 in credit card debt and am considering a consolidation loan. I am up to date with my maps. My income is around $ 130,000 per year. Can you recommend a lender? Warnings?

Reply: As you probably know, this is a bad time to get into a lot of debt. But taking another loan may not be the solution.

Personal loans – the type of unsecured loan often used to consolidate other debt – work best when you can lower your debt rate, pay it off within three to five years, and avoid accumulating more debt while you do it.

Unfortunately, people who take out consolidation loans often do not or often cannot resolve the problem that caused the debt in the first place. If the debt comes from overspending, for example, they don’t cut spending to match their income and end up borrowing more. If the debt comes from medical bills, poor health can cause them to incur more medical debt.

Another problem is that of interest rates. Personal loans usually have fixed rates which is good as well as fixed payments so that you pay off the debt over time. This is in stark contrast to credit cards, which typically have variable rates and minimum payments that don’t pay back much of your principal.

Unless your credit is good and your income is secure, you may be paying a higher rate than you are now, assuming you can get a personal loan. Lenders have significantly tightened their standards in recent weeks due to the current and expected economic fallout from the pandemic.

Many people have an interest in paying off their debts on their own, making additional payments to get their card paid off at the highest rate first, and then switching to the next highest rate card, all while paying off. minimums for the rest. (Another approach is to pay the smallest balance first, to give yourself a psychological win that can motivate you to keep going.)
If you can’t pay more than the minimum, you are probably too much in debt to handle it on your own. Consider making an appointment with a credit counselor affiliated with the National Foundation for Credit Counseling and with a bankruptcy lawyer (the Assn. Consumer Bankruptcy Lawyers offers references) so that you can better understand your options.

Stimulus funds don’t count as income

Dear Liz: I have a power of attorney for my aunt, who is at a local nursing home. Medicaid pays most of its costs to stay there. His $ 1,200 dunning check was just deposited into his bank account at the end of last month. State Medicaid rules require that she have no more than $ 2,000 in assets. I try to keep her bank balance below this every month which can be a challenge. Do you have any idea how the state Medicaid will handle this additional income in its bank account? Will I have to pay the nursing home extra money or reimburse Medicaid? Or will she be allowed to keep the full amount? I want to be wise with her finances and not ruin her Medicaid eligibility (her biggest fear is being thrown on the streets).

Reply: Your aunt is lucky to have you, and luckily there is no need to worry. Payments are not considered income for Supplementary Security Income (SSI) recipients, according to a blog post by Social Security Commissioner Andrew Saul. State Medicaid programs are not allowed to impose more stringent eligibility requirements than SSI standards, according to ElderRightAnswers, a reference site for lawyers specializing in issues relating to seniors.

Liz Weston, Certified Financial Planner, is a Personal Finance Columnist for NerdWallet. Questions can be sent to him at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at AskLizWeston.com.

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