The average American pays more than $1,200 toward debts each month, and it’s going to be hard for borrowers to make these payments if they’ve been laid off and aren’t making an income. Unemployment benefits and the Economic Impact Payment (the $1,200 per person stimulus check) will only go so far when you have bills to pay.
When you can’t pay all your bills, prioritize them. Generally, it’s most important that you pay secured debts and court-ordered debts before all else. If you fail to pay your auto loan or mortgage for multiple months, your assets could be seized by the bank. Plus, failing to pay court-ordered debt may result in wage garnishments, and even jail time.
It’s also important to pay your utilities, like water and energy bills, every month to avoid them being cut off. While many utility providers and state legislators have stopped shut-offs during the coronavirus pandemic, there’s been no official moratorium to stop utility shut-offs in any federal coronavirus relief bills so far.
Unsecured loans and credit cards are lower-priority debts. Since they are unsecured, you don’t risk losing an asset. However, you will risk your financial institution reporting you to the credit bureaus, which will lower your credit score. If you can, try to make the minimum payments on your credit cards to avoid late fees and a ding on your credit report.
Tip: In response to COVID-19, the three credit bureaus (Experian, Equifax and Transunion) are offering free weekly credit reports to all Americans on www.AnnualCreditReport.com through April 20, 2021.
Beware: Your stimulus check could be seized by the bank
Economic Impact Payments, released as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act, are an emergency measure to keep Americans’ finances afloat. But the people who need the payment the most ー borrowers who already owe debts and can’t make those payments ー may have their stimulus checks garnished by debt collectors.
Some states, including New York, have blocked debt collectors from being able to garnish stimulus checks. For a full list of states, cities and counties that have put a ban on impact payment garnishment, visit the National Consumer Law Center’s (NCLC) resource center.