Senate Cents: A Financial Wellness Blog

When you have a pile of bills and no paycheck, address the essentials first. That means the roof over your head, medicine, food, heat, electricity and — for those who still must report to jobs despite a government shutdown — getting to work.

What can wait? Almost everything else.

Communicating with creditors is key to surviving a federal government shutdown and recovering afterward. Here’s a guide to navigating the process if a furlough for federal workers has hit your household.

How to deal with creditors

Missing one payment on a credit account — such as a credit card, mortgage, auto loan or personal loan — can knock as much as 100 points off your credit score, and it can take up to three years to fully recover. Sometimes there’s no way to avoid that, but it’s worth asking lenders if they have programs to help you avoid credit score damage.

• First, visit each creditor’s website or call the customer service center to see if it has programs in place for furloughed government workers.
• Second, if a lender doesn’t have a specific furlough program, ask about policies to accommodate short-term disruptions.
• Finally, you may have to make strategic choices about which bills to pay. Make use of the social services safety net, too. Call 211 or visit 211.org to connect with local assistance programs.

Here’s what to know about specific types of accounts, plus some ways to cope with any income disruption:

Credit cards

If you are able to make your minimum payment, do so, even if it’s a bit late. You likely will be charged a late fee, but if you make the minimum within 30 days of the due date, your account won’t be reported as “delinquent” to credit bureaus. A delinquent payment damages your credit score — and so does making only a partial payment, not the full minimum.

If you can’t make a payment but are in good standing, call your card issuer to explain. Some may extend your due date, waive the late fee and continue to report a “current” payment status to credit bureaus.

If you’re already late on payments, ask if there’s a hardship plan that could lower your interest rate or reduce the minimum payment.

Auto loans

How or whether your lender will work with you depends on the lender, your situation and the status of your loan. Make contact before you miss a payment, to avoid damaging your credit and risking repossession. The lender may provide options like forbearance or extending your loan term to lower your monthly payment.

Additionally, some large banks and financing companies associated with carmakers have said they’re making arrangements to help federal employees, according to Automotive News. For instance, qualified customers of Toyota Financial Services, Ford Credit, Hyundai Capital, GM Financial and Mercedes Benz Financial Services may be able to defer payments or have late fees waived.

Student loans

Make a minimum monthly payment if you can. If not, ask your loan servicer or lender about options to lower or postpone payments.

If you have direct or PLUS federal student loans and can’t make a payment, contact your loan servicer to request forbearance. It will temporarily halt payments or reduce your payment amount.

Most private lenders offer postponement, temporary payment reduction or other flexible repayment options for borrowers experiencing economic hardship.

When you postpone payments for any reason, interest will typically continue to grow. If you can, make payments on the interest during this time.

When you’re getting paid again, contact your lender or servicer to cancel the rest of your forbearance so you avoid racking up more interest, suggests Betsy Mayotte, president and founder of The Institute of Student Loan Advisors.

The Department of Education and all federal loan servicers are still operating as usual during the shutdown. You can still complete the FAFSA; apply for or recertify an income-driven repayment plan; and submit employment certification for Public Service Loan Forgiveness.

Mortgages

Call your lender before you miss a payment or make a partial one. It may offer a forbearance plan or short-term loan.

If you’re buying a home, the shutdown may delay loan approvals or closing dates, especially if you’re taking out a government-backed loan. If that looks likely, work with your real estate agent or current landlord to seek flexibility on moving dates.

Personal loans

If you’ve covered your essentials and can still make the monthly payment on your personal loan, you should. Otherwise, call your lender to see if your account is eligible for relief.

Some lenders may offer a flexible payment schedule or hardship plan, or waive late fees. Lenders might also forgo reporting missed payments to the credit bureaus.

Small businesses

Loans backed by the U.S. Small Business Administration cannot be approved during the shutdown. If your business needs working capital, alternatives include non-SBA bank loans, business lines of credit and online loans, although rates are likely to be higher.

SBA disaster assistance is still available for businesses and homeowners seeking help as a result of federally declared disasters. You can also apply for small business grants through the government’s Grants.gov website.

Other ways to cope

Find a no- or low-interest loan

Many credit unions and some banks are offering furloughed federal workers no-interest or low-interest loans during the shutdown. Among them are California Credit Union, Navy Federal Credit Union, USAA and U.S. Employees Credit Union.

Eligibility and terms differ across credit unions, so make sure you understand what you’re applying for.

Especially during a time when your next payday is uncertain, resist the convenience of payday loans, which are typically due in two weeks and come with triple-digit interest rates.

Use your tax refund to catch up

The IRS will pay tax refunds despite the federal government shutdown, the White House has said. Income tax-filing season will begin Jan. 28, and you can begin preparing your return as soon as you receive all your tax documents. The IRS recommends filing electronically for a faster refund.

Boost your income to dig out

When bills pile up for any reason, taking on a side hustle can help you find breathing room. The gig economy makes it easier to find temporary earning opportunities.