HELP! Navigating Loans During COVID-19
If your salary, and/ or your spouse’s salary has been reduced or cut completely, how will you continue to service your loans while paying your bills, and putting food on the table? These are real concerns for many persons and can leave you nervous about having loans, thereby tempting you to pay out these loans and just be debt-free. However, in times of prolonged uncertainty, cash is king, and so the key is to preserve as much of it, for as long as you can.
Here are some tips to help you do this:
1. If you have low–interest loans, focus on cash flow management, before paying off debt: No one knows how long you may be unemployed or have a reduction in your family’s income. Therefore, in order to preserve your cash, for as long as possible, maintain the monthly payments, rather than trying to pay out the low-interest loans all at once. This will allow you to meet your financial obligations while you get yourself ‘back on your feet,’ by finding a new job or creating one.
For example, if David has a loan for J$500,000 and the monthly repayment (principal and interest) is J$15,000, even if he is unemployed for two years, his expenditure would be J$360,000 ($15,000 x 24 months) still leaving him with J$140,000 at the end of two years. If, however, he had paid off the loan immediately, the long period of unemployment may have him scraping for cash and /or forced into high-interest debt, like reliance on a credit card with interest rates averaging 50% per annum.
2. If you have high-interest loans, consolidate your loans: Debt consolidation allows you to use one loan to pay-out several smaller loans. The intention is to get the new loan at a lower weighted average interest rate than the old loans combined. This will allow you to reduce the amount of money paid on a monthly basis. This is a great solution for persons who may have high-interest debt, like a credit card or a same-day loan, with interest rates above 40% per annum.
Depending on the tenure of your debt consolidation loan, you could end up paying more in the long-term if you keep the loan to maturity. However, when you are in a better financial situation, you can explore paying down the loan faster than the scheduled time, if there are no penalties for early repayment. At JMMB Bank we do not charge you for early repayment.
3. If you have any major change in your financial situation, defer payments: JMMB understands that COVID-19 has changed the financial lives of so many people. As your financial partner, let us know if you have any potential difficulties in paying your loans BEFORE you start experiencing repayment issues. If your account is up-to-date, and you and/or you spouse has/have lost your job/s or are experiencing a significant reduction in income, you may apply for deferral options, whereby you 1) defer payment of interest and principal for up to 3 months; or 2) pay the interest each month but defer payment of the principal for up to 6 months. If, you are still having a challenge after the initial period has expired, let us know so that we can explore the best option for you based on your unique situation.
Do you need help in sorting through your debt issues? JMMB wants to help, so email or telephone your representative so that we can navigate this crisis together. You can also get additional information at, https://bit.ly/JMMBDebt
Written by: Michelle Sinclair-Doyley
Manager, Group Financial Partnership Support & Financial Education, JMMB Group