After almost two years of pandemic, Americans have added a whopping $660 billion in debt as they struggle to cope with the COVID-19 hardships. According to a recent analysis, the average American now has almost $54,000 of debt. Households have accumulated over $155,000 in consumer debt on average.
More often than not, the pandemic made the existing debt worse, affecting credit card, mortgage, car, and student loan debts. Many households needed to max out their credit cards at the start of the pandemic to cope with sudden income fluctuations. Unfortunately, they have not been able yet to pay it off. While credit cards make the bulk of the household debt, mortgage and auto loan feature also heavily in the list of unpaid expenses. In fact, car loans doubled during the pandemic, affecting younger generations dramatically.
How is the American debt divided between household incomes? Surprisingly, the pandemic debt affects all income strata, including the top 1%. Households in the top 10% but below the top 1% have the lowest amount of debt. Yet, the COVID-19 debt is seeping through financial layers with immediate and long-lasting consequences for all households. So, how can Americans pay off the pandemic debt?
Related Course: How to lead yourself and your business through crisis
Review your saving options
It’s time for American households to rethink their saving strategies. The typical approach to saving money consists in planning thrifty purchases. However, households need to go above and beyond standard strategies. It’s time to audit expenses with a critical eye. Many households indulge in feel-good expenses they don’t budget, such as takeaway food once a week or regular lottery tickets. Unfortunately, feel-good costs can be harmful in the context of pandemic debt.
American households also need to get more creative when it comes to accessing services or items they need. For example, bartering may seem uncomfortable, but some businesses are open to negotiations. An individual seeking a haircut ahead of a job interview could provide their services as a babysitter for the hairstylist. Similarly, considering thrift stores rather than high street fashion boutiques can make a big difference for your winter wardrobe. Ideally, Americans want to reuse their existing stuff, but a thrift and consignment shop can come up at a portion of the original price when replacement is necessary. For grocery shopping, it might be worth considering couponing or mid-week sales, which can add up to maximize savings for the household. Products close to sell-by dates can also come at a lower price. Many can be frozen whole or prepared ahead as part of cook batches.
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Combine all your debts in one
Saving money can make it easier to create some breathing room to manage repayments. However, households often have multiple debts, which means they struggle with different repayment options and interest rates. This can make it harder to manage debt and regain financial stability. That’s precisely why finance advisors often recommend debt consolidation processes. If you are not sure about it, you can see how debt consolidation works for your household. Ultimately, consolidation means combining all your debts underneath one umbrella repayment, which ensures it can be more manageable for loans and other interest-based debts. Typically, the debt consolidation loan has a lower interest rate, which makes it a more effective approach to canceling multiple debts.
It is important to understand that consolidating debts relies on the assumption that you will gain sufficient financial leverage to pay off debts. Therefore, it isn’t a practical approach if the household lacks income backing to face the mounting debts. Alternatively, the household could reach out to a credit counselor to help negotiate repayment options with each creditor. Some creditors are willing to negotiate new schedules or to cancel interest rates if it can guarantee payment. However, the negotiation process can be tricky, and there is no guarantee of success.
Consider renting out your spare room
American homeowners do not realize how valuable their property can be. They could turn the existing home into a real estate venture as a landlord. Indeed, becoming a landlord can be financially beneficial and provide long-term income security. Contrary to common belief, you don’t need to purchase a second property to become a landlord. You can consider existing unused rooms in your current household.
If you have unused garage space, for instance, you can rent out your garage. It can be a source of income for city homes as commuters can park their vehicles not far from their offices. If you wish to turn your garage into a storage facility, you might want to consider essential improvement works first. Indeed, the garage needs to be weatherproof and secure for all belongings that will be kept inside.
Alternatively, you can also rent out your basement or loft as a home office station for remote workers and startup companies. Ideally, an en-suite bathroom with a small kitchen area — with a fridge, a coffee machine, and a microwave — will make the space more appealing to tenants.
A spare bedroom can also become a source of monthly income for someone with low revenue, such as a student or an entry position employee.
Seek financial support
In March 2021, President Biden introduced the American Rescue Plan to support Americans struggling with pandemic hardships. The program arrived after one year of COVID-19 deprivation, financial challenges, and issues, as the previous government failed to recognize the pandemic consequences for the population. As of today, the American Rescue Plan has been responsible for managing over $1 trillion via the Treasury Department for financial support and assistance for households and businesses. The first 6 months of its implementation have shown tremendous improvements, providing immediate relief of up to $1,400 per person. However, many households still need support to recover from the debt. The Treasury has already delivered over $450 billion to households for food, childcare, and housing costs.
It goes without saying that there is still help available for those who need it. The American Rescue Plan still has a lot of work to help the financial recovery. For households that are still struggling with debt, it is essential to research the best options for assistance. There is no shame in asking. However, too many American households are worried about admitting their challenges.
A supplementary backyard
The rise in interest for supplementary gardening grew over the pandemic. Families transformed their backyards into vegetable gardens and orchards to face food stock issues and health concerns during the pandemic. While crop harvesting may not fully replace grocery shopping, families who have maintained their garden can supply most vegetable needs through home-grown produce. Depending on your location and dedication to farming, you might also have access to fresh eggs from hens and even milk for households who keep goats or cows.
Thinking of the garden as an income boost can help reduce costs during difficult periods.
Can going bankrupt remove all my debts?
When you can’t pay your debt, you need to consider canceling them. Debt freedom can come in many forms. Some creditors may agree to reduce repayment amounts to help the household catch up. However, when there is no income available, the household must consider declaring bankruptcy. Declaring bankruptcy is a unique process that enables debtors to free themselves from creditors. Creditors are no longer authorized to collect on debts as long as debts are dischargeable. Some debts can’t be exempt even through the bankruptcy process.
You can file for Chapter 7 or Chapter 13, which are two different approaches to handle bankruptcy. Chapter 7 is a liquidation process, which means that the individual will need to sell off their assets to cover their debts or a portion of their debts. Chapter 13, on the other hand, helps reorganize debts so they can be paid off over a number of years.
Can a new job help?
The easier way to tackle debts is to increase your income. Remote job opportunities make it easier for individuals to seek a better-paid role. However, remote positions also come at a high cost. Working from home can drive energy costs high in the typical energy vampire household. As a result, switching to a higher income job may not be sufficient to cover new costs related to home-office settings. In other words, the new job could increase debts if it doesn’t provide enough income increase to tackle the home office expenses.
The true cost of surviving COVID through medical treatment
At the early stages of the pandemic, many Americans enrolled in private health plans in the hope of waiving their potential COVID-19 hospitalization costs. Unfortunately, several insurers have been phasing out COVID-19 treatment cost waivers. Approximately 75% of the largest health plans do not provide cost-sharing waivers for COVID-19 treatments. For COVID patients, the results can be dramatic. A surviving patient could carry debilitating, long-term health consequences, such as fatigue, which can affect their return to work. At the same time, they are also faced with a high hospital bill.
Even if the patient didn’t survive, the family still needs to pay the bill, with the average COVID treatment bill ranging from $6,000 to $10,000.
In conclusion, the pandemic has transformed the status quo, affecting employment, economy, and healthcare. For the typical American household, repayment of the pandemic debt is an impossible and unachievable dream. The U.S. needs to radically change the system to face the long-lasting consequences of the pandemic hardships.