When you're living paycheck to paycheck, missing one pay period because of a work furlough can derail plans for your budget and overall financial health.
In the case of the current partial government shutdown, many financial institutions are scrambling to give the federal workers affected a chance to bridge financial gaps with short-term low-interest loans and loan relief. Here's a look at what's available.
Why Lenders Are Offering Assistance During the Government Shutdown
About 800,000 workers -- whether out of work or working without pay -- are affected by the shutdown, plus millions of federal contractors. The shutdown comes at a sensitive time of year when many employees may have credit card bills coming in from the holiday season on top of regular expenses.
But many lenders are "looking to do the right thing," says Pete Klipa, senior vice president of creditor relations for the National Foundation for Credit Counseling. "They want to do right by their customers because the customers are in unforeseen circumstances."
Large and small lenders alike are providing personal loan payment relief. For example, lenders may:
-- Defer loan payments for a month with no interest charges.
-- Waive late fees on loans.
-- Agree to not send negative reports to credit bureaus for missed or delayed payments.
-- Offer a three-month hardship plan for loan payments.
-- Waive fees for early CD withdrawal.
-- Waive credit card payments.
Some financial institutions are offering low-interest loans to affected workers. These may include:
-- Loan amounts of up to $5,000.
-- Loan terms of 24 months.
-- A repayment period of 60 days, plus an additional 30 days if needed.
-- A maximum lending amount that's dependent on your previous paychecks.
-- No payments for 90 days.
-- Zero percent terms for the first three months.
-- Modifications that allow for lower payments.
Loan Options for Employees Affected by the Partial Government Shutdown
Lenders are typically offering affected workers two primary borrowing options: regular personal loans, some with hardship options, and loans that are based on a regular paycheck.
If a worker needs to get a loan to temporarily cover debts and everyday expenses, he or she should look for "a better deal than what they can normally get," Klipa says. "Be suspicious if the rates don't look like they're special rates."
Paycheck-based loans, advances based on your expected paycheck, are ideal as a financial bridge, as they can prevent borrowers from taking on more debt than needed. More conventional personal loans could work well if the interest rate is advantageous, such as zero percent for 90 days or while the furlough continues. But there could be a temptation to take on more debt than needed, which would make it tougher to pay off if any balance remains when the interest rate increases.
Home equity loans or lines of credit are likely not an ideal option because of timing -- they can take a few weeks to close. However, tapping into an already active credit line could be a good way to address immediate debts, as long as you have a clear plan of how you'll pay back the loan when your paychecks resume.
Zero percent interest credit cards are an option for some consumers, but again, this is only a good choice if borrowers have a plan to pay back the debts before the cards start charging interest.
Lenders Offering Debt and Relief Programs for Federal Workers
Many lenders, including some of the largest multinational banks, have publicly pledged to help federal workers deal with the financial difficulty of the government shutdown. These financial institutions have encouraged clients who are affected to reach out to them for help:
-- Wells Fargo
Be aware, however, that many institutions emphasize that assistance is on a case-by-case basis. Also, some programs target only full-time federal workers, not contractors.
Financial institutions that are offering low-interest loan deals to qualifying furloughed workers or those who are working without pay include:
Alpine Bank: The bank is offering ready reserve lines of credit of up to each borrower's one-month net salary. No interest will accrue for six months after the shutdown ends, and borrowers can pay the loan off during that time.
Andrews Federal Credit Union: Borrowers aren't required to make loan payments for 90 days, and they aren't charged interest during that period. Loans can be for up to $5,000.
FedChoice Federal Credit Union: Loans can be for periods of six to 36 months for interest rates as low as 2.5 percent.
JetStream Federal Credit Union: Loans are available for up to $5,000, with no interest or payments for 60 days.
JSC Federal Credit Union: JSC Federal Credit Union is offering current members a furlough loan of up to $6,000, based on missed paychecks, with no APR.
NASA Federal Credit Union: Members can access a furlough loan of as much as $10,000 for up to a 60-month term, with no interest or payments for 60 days.
Navy Federal Credit Union: Its paycheck-based loan gives members zero percent APR advances based on the most recent direct deposit, up to a maximum loan amount of $6,000. Once paycheck direct deposits resume, the amount credited to the account will be deducted as a payment. "This partial shutdown has affected more than 100,000 out of our 8 million total members," says Tynika Wilson, senior vice president of debit cards and fund services for Navy Federal Credit Union. "To date, approximately 15,000 members have enrolled in our assistance program."
U.S. Bank: Qualifying U.S. Bank customers -- including those with mortgages, auto loans and credit cards -- can apply for a loan of up to $6,000 with an APR of 0.01 percent.
Do your research to find the furlough loan that works for you.
How Workers Affected by the Shutdown Can Manage Payments
The first step furloughed workers and those working without pay should take is to figure out their financial need, based on upcoming expenses, debt, savings and current family income.
"They really need to understand their financial situation honestly and completely," Klipa says. "Once they do that, they'll be in a lot better position. This requires organization, and understanding where they might have other sources of income they can tap, such as a short-term-type of loan from a bank or creditor. It could also involve talking to family members about what they might be able to do as part of that process."
For most, the priority is on managing essential expenses including mortgage and car loans, utilities, groceries, and day care, if applicable. But staying on top of debt payments as much as possible can be important for long-term financial wellness.
"At the absolute minimum, people should make at least their minimum payments," says John Ulzheimer, a credit expert who formerly worked for FICO and Equifax. "That will protect their credit reports from late payment credit reporting, which remain for up to seven years." Although he acknowledges that this might take some creativity if you are living paycheck to paycheck.
"Worst-case scenario, you may need to reallocate the money you do have towards the secured loans, like auto and mortgages," Ulzheimer says. "You certainly don't want to lose your home or car during the furlough. It's easier to work with credit card issuers and perhaps ask them for deferment or no-payment options while you're not working."
How to Deal With Creditors During the Shutdown
If there isn't enough money to go around for even minimum payments, talk to your lenders to let them know you're affected by the shutdown before the loans become delinquent so you can learn what options you might have, Ulzheimer says.
"Many lenders are already communicating with their borrowers about this issue," Ulzheimer says. "But, if you don't ever contact your lenders, they'll have no idea you've been furloughed or are otherwise working for free."
In addition to working with creditors directly, consider contacting a credit counseling agency to make a plan for the short term. It also might help to create a long-term budget plan if you're continually living paycheck to paycheck. "A credit counseling resource can help people with normal budget scenarios but also during crisis periods," Klipa says.
To find an NFCC-accredited agency in your area, call 800-388-2227, or visit its website.
"If borrowers cannot or chose to not make their payments, they may very well end up with late payments on their credit reports for the subsequent seven years, as allowed under federal law," Ulzheimer says.
Post-Shutdown Financial Tips
Once federal employees are back to work, they need to keep in mind that some of the special loan and payment arrangements that were made with lenders and other creditors might end. That's why it's important to keep track of changing payment dates and amounts and stay in touch with creditors.
For example, watch for:
-- Deferred payments: If you're able to forego payment until work resumes, lenders might expect payment immediately when you return.
-- Changing interest rates: Some loans maintain zero percent rates for a few months then switch to more conventional market rates.
-- Delayed back pay: If back pay is granted, hopefully it will arrive quickly. Otherwise, you could return to work with deferred and current payments due at the same time.
Also, keep an eye on your credit score to be sure that lenders who might have promised not to send negative reports to the credit reporting agencies actually follow through.
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