Stress can affect your budget. But it shouldn’t – here’s how to make calmer, more positive financial decisions in a time of crisis.
Panic is a part of our everyday life, it seems. Ever since the World Health Organization declared the global COVID-19 outbreak a pandemic in March 2020, we’ve faced a deluge of bad news, misinformation and heated, high-profile debate.
For healthcare workers on the frontline of coronavirus disease, that noise is especially damaging. How are you managing that anxiety? There is no such thing as a perfect emotional response at a time like this, but it is important that you continue to make sound and sustainable decisions, even during a crisis, that help ensure this pandemic doesn’t leave a lasting mark on the rest of your life.
Global markets crashed as the world responded to COVID-19 with historic national lockdowns, and are still recovering. In response, banks have offered their customers a range of cash flow relief solutions. If you are anxious about the future and your vital role in fighting the spread of this disease, these may seem tempting. But do you understand your options?
“Many banks are offering cash flow relief, where they offer to cover your long-term debt installments on your car or home, for three months – but there are long-term implications to consider,” explains Grant Rossiter, a wealth manager at PSG Wealth. “By paying your installments for three months, the banks are converting those amounts into a long-term loan, and you will still need to pay that off once the relief period is over,” he says.
Another solution is marketed as a payment holiday. “This releases you from the obligation of paying an amount right now, but it is then capitalised, including the interest. So if you’ve just started paying off your home loan, for example, you will now be paying interest on interest, and ultimately owing a larger amount. In some cases, that can add months to the back-end of your mortgage.”
The first prize, says Rossiter, is credit life insurance. This is a form of insurance that includes cover payable in the event of your death, disability, terminal illness, unemployment, or other insurable risk that is likely to impair your ability to earn an income or meet your obligations under a credit agreement.
“If you are able to claim this insurance, per the terms of your loan agreement, this should have no financial impact on your agreement, as the policy is covering what you will not be able to pay,” explains Rossiter. “Speak to your bank or broker about this. If you don’t have this cover, cash flow relief may be your next best option, while a payment holiday is really a last resort.”
As panicked as our measures to curb the spread of COVID-19 may feel now, this will pass, says Rossiter. “The markets collapsed and many industries all over the world took a hit. That is a fact – but they are already recovering. These things are transitory; we will get through this period. The key is ensuring that when you emerge on the other side, your savings are intact. Are you now facing an extended repayment period? Are you better or worse off, or the same? Making calm and clear-headed decisions now will help you face your new normal knowing your financial future is stable.”
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