After Megan Pearson’s job as a restaurant server was put on hold because of COVID-19 -related stay-at-home orders, the single mom had to figure out how to come up with the rent for her apartment in Brooklyn, New York.
“I posted my frustration on Facebook with trying to get through to unemployment the first week,” Pearson says. “I probably made 200 phone calls before I got it all settled.”
Uncertain whether assistance would arrive on time or at all, Pearson took action, reluctantly creating a crowdfunding account at the encouragement of a friend who’d seen her social media post. This move bought Pearson some time and ultimately allowed her to stay in her apartment without having to take on expensive debt.
If you, too, are dealing with an emergency and scrambling to make rent, consider some of the following steps first before resorting to high-interest loans.
Explore free options first
Some states have issued eviction moratoriums during the COVID-19 crisis, but you’re still responsible for paying rent. So the first step is to reevaluate your budget and “find” money where you can.
Cut back on nonessential expenses, lower 401(k) contributions, reach out to creditors for assistance and seek low-income programs for food and utilities, suggests Jeffrey Arevalo, a financial wellness expert with GreenPath, a nonprofit credit counseling agency.
Here are some options that cost nothing or close to it:
Lean on investments
Typically, it isn’t advisable to dip into money that’s meant for your future, but these aren’t typical times. When an emergency threatens to evict you — here and now, in the present — the normal “rules” don’t always apply.
If you have a taxable brokerage account, you could consider selling stocks. Otherwise, the next potential option might be a withdrawal from a 401(k) or individual retirement account, says Andrew Rosen, financial advisor and partner at Diversified, a financial planning firm. Again, raiding your retirement funds is not ideal, but in a crisis it may be necessary — and you may be able to mitigate the financial repercussions.
Under the Coronavirus Aid, Relief and Economic Security Act, for example, those under age 59½ years impacted physically or financially by COVID-19 can withdraw up to $100,000 from an eligible 401(k) or IRA through Dec. 31, 2020, without the usual 10% early withdrawal penalty. The tax bill is spread over the next three years, and you can claim a tax refund if you pay it back before that time. If you’ve lost your job, roll over your 401(k) to an IRA and then make a withdrawal, Rosen suggests.
The CARES Act also lets qualifying 401(k) plan participants borrow 100% of their vested balance up to $100,000 as a loan. And in emergencies unrelated to COVID-19, a loan on a 401(k) — if available through your employer — avoids penalties, taxes and a credit check.
Still, think hard before going this route. If you are truly drowning in debt and rent is just one of many financial obligations you’re unable to meet, you may want to consider other options.
“Most people don’t realize that generally speaking, your retirement accounts are protected in a bankruptcy,” Rosen says.
Choose the least expensive high-interest debt
You could look to finance some of your expenses to help cover rent by, say, opening up a low-interest credit card. But without sufficient income or good credit (typically a FICO score of at least 690), you may be left with only high-interest financing options. Consider the following, in order from least to most expensive:
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Melissa Lambarena is a writer at NerdWallet. Email: email@example.com. Twitter: @LissaLambarena.