Beware of Refinancing Your Debt during this COVID-19 Pandemic.

Posted by Wesley Scott on May 31, 2020 at 10:16 AM
Wesley Scott

NBankruptcy Lawyer Explaining What To Watch Out Forow is a pivotal time for most of us, full of uncertainty, and the decisions you make to deal with the coronavirus and related shut-down can have a huge impact on the rest of your life and business.

The main concern for most people, is that their income has been suddenly interrupted, but all their debt payments and expenses have remained the same. Perhaps your bank will allow you to skip a payment or give you a forbearance period for your loan, but now is the time to prioritize your budget, and I encourage everyone to practice caution when refinancing debt:

READ THE FINE PRINT:

Most of these forbearance agreements involving skipping your monthly payments still make the full balance due at the end of the period. Currently, you can request a 6 month forbearance period on a home mortgage if you have been impacted by COVID-19, but the full balance for those 6 months will still come due at the end of that period. Banks and creditors always protect themselves in the fine print, and you should read it. Another common method is the “cross-collateralization” of a line of credit with other secured loans you have at the bank. This means if you don’t pay, they can take your stuff.

SEEK GOVERNMENT ASSISTANCE:

The current stimulus is providing an extra $600 per month to Minnesotans on unemployment, and there are a lot of different programs for self-employed people and small businesses who need relief. I try to be optimistic that our federal, state, and local governments will bail us out, and this only works if people actually apply for relief through government programs. However, this relief is not predictable, subject to change, and I would not want to rely on government assistance alone, as often times this can be too little too late.

DO NOT REFINANCE, UNLESS YOU KNOW YOU CAN MAKE THE PAYMENTS:

If you have been furloughed, laid off, and are otherwise uncertain about your income stream(s) beyond the next six months, you should not sign any sort of agreement promising to make payments beyond that period. It can be tempting to take out a home equity loan or 401(k) loan to refinance higher-interest-rate debt and lower your payments in the mean-time. However, what happens when it is 6 months from now and your unemployment insurance has run out or you still cannot return to work? Now your creditors have a lien against your property or you may incur tax penalties for the withdrawal.

PRIORITIZE YOUR DEBTS AND BUDGET:

While the normal rule is to pay down higher-interest-rate debt first before lower interest debt, you may need to reconsider your priorities. Things like your mortgage/rent, insurance, vehicle payment, utility bills, and other necessary items need to be paid before credit cards, payday loans, and interest on other lines of credit.

Call Today For A Free Strategy Session With A MN Bankruptcy Lawyer From Kain & Scott

All of this may sound simple, but it is very tough to find independent financial advice today. Nearly anyone you talk to is incentivized to either issue you a loan, manage your investments, or otherwise make a fee off referring you. As a lawyer I naturally think of the worst case scenario, and especially during this COVID pandemic, you should too. Consider the bias of anyone who is helping you, and as always, feel free to reach out to me directly if you want free, confidential, and non-judgmental advice.

When ready, reach out to Kain & Scott at www.kainscott.com.

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