The $600 boost to weekly unemployment benefits will likely end in a matter of days.
That will slash household income for millions, potentially jeopardizing their ability to pay for bills like rent and groceries.
In May, the average American got $321 a week in unemployment aid, according to U.S. Labor Department data. (That’s without the $600 weekly federal subsidy.)
That subsidy will effectively lapse after this weekend if lawmakers can’t pass an extension or replacement. A new policy may amount to less than half the amount of current aid.
There are several ways families can make up for an income shortfall, according to financial experts. However, many come with trade-offs.
“People are really going to have to get creative,” said certified financial planner Ivory Johnson, founder of Delancey Wealth Management in Washington, D.C. “I don’t think there are a lot of good options.”
Savings
The approaches generally boil down to two general ideas: trimming expenses or turning existing assets into income, according to Jeffrey Levine, CFP, director of advanced planning at Buckingham Wealth Partners in Long Island, New York.
An emergency fund is the first place to look in a cash crunch. This may be a no-brainer: This is a pot of money earmarked for financial emergencies.
This often takes the form of cash in a checking or savings account. Financial advisors typically recommend having three to six months’ worth of living expenses.
But not everybody has an emergency fund. Many who do may have depleted most or all of it earlier in the economic crisis.
Budget
Revisiting your budget, by making a list of necessary expenses (e.g., rent, health care and food) and unnecessary costs, could help free up cash flow, said Karen Wallace, the director of investor education at Morningstar.
That may involve making tough choices and sacrifices, Johnson said. For example, find a roommate to lower rent payments or get rid of one or more cars (and their associated monthly costs), he said.
“Some things have to go,” he said. “If you’re paying $2,000 a month in rent, maybe you move in with somebody.”
It’s also “critical” that consumers proactively contact their creditors and ask for relief, said Jack Gillis, executive director of the Consumer Federation of America, an advocacy group.
“Utility companies, landlords, auto loan and mortgage companies respond much better to requests for forbearance than simply failing to pay your monthly bills,” Gillis said.
If you get relief, you’ll still eventually owe the amounts in question. Outright failure to pay your bills may jeopardize your credit score.
Local and state programs
Gillis also recommended checking with local charities, churches and some schools for food distribution programs. There may be lines for aid, but it’s ultimately worthwhile to keep food on the table, he said.
Some families experiencing a loss of income may be newly eligible for certain federal and state social assistance programs.
They include Medicaid; the Children’s Health Insurance Program; food stamps (formally the Supplemental Nutrition Assistance Program); the Low-Income Home Energy Assistance Program; and welfare (formally called Temporary Assistance for Needy Families).
There may also be state-specific aid available. Pennsylvania, for example, has an Emergency Assistance Program offering eligible families one-time grants for several hundred dollars. (A family of three could get about $806, for example, according to the state’s Department of Human Services.) The state also offers assistance for home energy bills and a food program for children.
Investments and retirement savings
Cash-strapped Americans can also pull from certain investment accounts. There are caveats, like a potential tax hit or handicapping of long-term retirement plans.
This strategy may make more sense now than early in the pandemic when the stock market cratered. The S&P 500 index has recovered most of its losses and is nearly at break-even this year.
One source is a taxable brokerage account. They don’t come with early withdrawal penalties like a typical retirement account, but investors will owe capital gains taxes on their investment growth.
Investors can also pull out contributions they made to Roth individual retirement accounts tax-free. But they may be giving up future investment gains.
Federal coronavirus relief law also allows investors negatively impacted by Covid-19 (financially or physically) to withdraw up to $100,000 from a retirement account — an IRA, 401(k) plan or 403(b) plan, for example — without penalty, Levine said.
They would owe income tax on withdrawals from pre-tax accounts. But those under 59½ years old would avoid the typical early withdrawal penalty.
Investors could spread their income-tax hit over a three-year period, or pay some or all of the money back to reduce or eliminate the tax burden, Levine said.
Life insurance
Those who own certain life insurance, like whole life or universal life, may be able to withdraw money from cash values that have accrued in their policies, according to an article by Christine Benz, director of personal finance at Morningstar.
This money can be withdrawn outright — tax-free, depending on the amount withdrawn— and deducted from the face value of the policy, Benz said. This would leave less insurance money for your heirs, however.
This route isn’t to be confused with another, less-attractive option whereby consumers borrow from the policy’s cash value. Consumers would owe interest on these loans.
Debt
It may be relatively cheap to access certain forms of debt like a home-equity loan given current low interest rates, Levine said.
“I would rather tap a home equity loan with a 2.5% to 3% interest rate that I believe I’ll exceed in long-term growth in a Roth IRA,” he said.
However, a new loan might be tough to access for those who are out of work.
Consumers should also avoid high-interest debt like credit cards or payday loans at all costs, Wallace said.
Borrowers should ideally have a forward-looking plan to pay the money back, she said.
“When you’re borrowing money, the calculus you have to do is, how much interest am I paying for this loan, and are there alternatives?” she said. “It can happen really quickly that you’re several thousand dollars in debt, and at a 17% interest rate it accrues quickly and is hard to pay off.”
New jobs
New jobs are hard to come by right now. There are currently about 14 million more unemployed workers than job openings, according to the Economic Policy Institute.
And a lot of the side hustles Americans used to turn to for extra cash — a gig-economy job driving for Uber, or a second retail job — aren’t there anymore, Johnson said.
That said, there are jobs to be had. Many states — like Kansas, Ohio and New Jersey — have job boards for people who’ve lost a job or had their hours reduced because of Covid-19.
These job boards aggregate job posting across several employers.