As we battle the Coronavirus pandemic, the government has issued stimulus packages to eligible people.
By April 2021, the pandemic has affected more than 31 million people, according to an Investopedia report. The US also saw an unemployment rate increase of 14.8% in April 2020. But, the rate fell to 6% in March 2021. Because of the pandemic, many people have lost jobs and several others face job cuts.
By providing stimulus payments, our federal government aims to help people overcome this crisis.
The first stimulus package (Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020) gave adults a maximum of $1,200.
Qualified individuals received a maximum of $600 from the second stimulus package, the Families First Coronavirus Response Act (FFCRA).
The third stimulus package, the CARES (Coronavirus Aid, Relief, and Economic Security) Act, paid taxpayers a onetime payment up to $1,400 for an eligible adult and couples up to $2,800. A family of four with a household income under $150,000 should get $5,600.
A fourth stimulus payment is on its way. It is designed to give more money through direct checks to people below a certain income level or out of a job. This package also has a possibility of recurring payments.
How People are Using Stimulus Payments
How people are using stimulus money
Yahoo Finance reports, “Most people used their recent $1,400 checks for essentials including food and bills, according to a new analysis of census data from the nonprofit Economic Security Project.”
However, this is not universally true. According to an Oak View Law Group survey, some people admit to using stimulus money for purposes other than basic needs.
Heather Connoly says that he is financially secure. He had no need to use the money to pay off debt or pay for necessities. He split the money with his son, who lives with him, every time he received a payment.
Anne Gray Edgar from Ann Arbor, Michigan, says that he used the money to buy a car and furniture for his new house.
However, Robin Sutton from Helena, Montana, says he used the stimulus money to build an indoor porch. Since he likes to stay home, it created a space to suit his lifestyle.
Sara Koopa, however, used the money to pay off debt.
Not all people used the money to meet necessities and pay debt. In addition, debt forgiveness may make people addicted to the government’s payments. Also, choosing not to pay off debts may make it difficult for them to repay them when it’s time.
Let us discuss these in detail.
Student Loan Forgiveness
According to the CARES Act, 0% interest is being charged on several federal student loans through the end of the COVID-19 emergency relief period. The pause on federal student loan payments is planned through September 30, 2021. It is a relief affecting about 42 million Americans.
Some experts worry that borrowers may not resume payments even after this period is over. And borrowers with the ability to meet their daily needs can use the stimulus money for other purposes instead of making loan payments.
If they don’t save the stimulus money, they may face difficulty resuming student loan payments when they are due after the crisis.
Credit Card Debt Repayment Assistance
Many credit card issuers are offering assistance to help borrowers. For example, Bank of America is allowing payment deferrals and has refunded or waived late fees.
So, people can defer making payments to credit card companies, even if they have the means to pay the bill. The credit card issuers will also not report non-payment to the credit bureaus. In fact, people can use the stimulus amount to satisfy their needs. In the end, it will increase their credit card debt burden.
As part of the CARES Act, lenders can’t report mortgage forgiveness because of COVID-19, negatively to the credit bureaus. Mortgage forgiveness has helped millions of homeowners during the pandemic.
The Biden Administration has extended COVID-19 forgiveness and foreclosure protection for homeowners through June 30, 2021.
To qualify, borrowers will have to submit a request through their mortgage company. And, after the period is over, you don’t have to pay the amount back in a lump sum. You can work out an affordable payment plan.
To simplify the process, borrowers don’t have to show proof of hardship in federally backed loans.
So, people can opt for mortgage forgiveness even if they don’t need it. They can stop making home loan payments, delaying their mortgage repayment for the time being. However, if mortgage rates increase, it will be difficult to repay the loan when the time comes.
It’s best for people able to meet their necessities to use stimulus payments to repay debts. Otherwise, they may lose their home if they can’t make their payments after the forgiveness period.
The government has not restricted its protective measures to loans. Even renters can sign the CDC Declaration and send it to their landlords. It can help them stay in their rented apartments and avoid eviction, even if they cannot pay their rent on time.
Some people can get addicted to the government’s stimulus payments when they are taken advantage of. Often this includes using stimulus payments to improve lifestyle, rather than focusing on basic needs. This can lead them to an overburden of debt in the future.
About the Author:
Lyle David Solomon is a licensed attorney in California. He has been affiliated with the law firms in California, Nevada, and Arizona since 1991. As the principal attorney of Oak View Law Group, he gives advice and writes articles to help people solve their debt problems.