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A recent snapshot taken by the US Census Bureau illustrates how difficult it has been for millions of Americans to keep up with the cost of living amid the coronavirus pandemic.

In a Dec. 9-21 survey by the Census Bureau, more than a third of U.S. adults (36%) said they found it somewhat or very difficult to meet current household expenses in the previous seven days. This includes paying the rent or mortgage and buying groceries. Even 18.1% of American adults with incomes between $ 100,000 and $ 149,999 said it was somewhat or very difficult to cover these expenses.

The same survey also sheds light on how millions of American adults are managing to make ends meet:

  • 28.3% had turned to credit cards or loans to cover their spending needs in the previous seven days.
  • 26.5% had turned to money from savings or asset sales to meet the spending needs of the previous seven days.
  • 13.8% had borrowed money from friends or family to cover their spending needs in the past seven days.

While these sources of money can make the difference between having a home or being homeless, they also come with risks. Here’s what you should consider before you swipe a credit card, take out a loan, dip into your savings, or borrow money from family or friends to meet your daily expenses.

Using credit cards

Joye Hehn, head of the Next Step financial education program at Regions Bank, warns against relying on credit cards to pay for daily expenses. For some reason, this can be an expensive way to cover household expenses. According to the Federal Reserve, the average APR (annual percentage rate) for an interest-bearing credit card was 16.28% in November 2020, compared to 9.65% for a 24-month personal loan.

Personal finance advisor and author Ric Edelman describes using credit cards to pay for household expenses as “a scary proposition with virtually no benefits.”

“If you turn to credit cards to pay your bills, you are perpetuating your financial crisis because the monthly payment is going to be new debt on top of all your other debt,” says Edelman.

Edelman points out that you have to “cut spending dramatically” before turning to credit cards as a financial cushion.

Hehn encourages people to cover their expenses with a credit card only when they are sure they can pay the entire credit card bill by the due date to avoid accruing interest charges. In 2020, the average credit card balance in the United States was $ 5,315, according to Experian, down 14% from the previous year.

“Credit card borrowing and impulse discretionary spending can be reduced by creating and committing to a monthly spending plan and an effective savings plan,” Hehn explains. “With intentional money management and discipline, your spending is more planned or proactive and less responsive. As a result, the use of credit cards to fund expenses is generally minimized. “

Tara Alderete, director of corporate learning at Money Management International, a nonprofit provider of financial advice and education, recommends that if you are using credit cards to cover household expenses, try to rely on those with low interest rates or zero rate promotional periods.

“Use them only for what you need and make a plan to pay off what you charge as soon as possible,” advises Alderete.

Take a loan

A Personal loan can be a good option if you’re struggling to raise money for rent or other household expenses. On the one hand, a personal loan can have an APR lower than that of a credit card. Second, a personal loan is unsecured, which means that you don’t have to provide collateral which could be foreclosed by the lender if you don’t repay the loan. Plus, you can usually use the money you borrow for just about any reason, as long as it’s allowed under the loan agreement.

A report from TransUnion shows that the average account balance for unsecured personal loans was $ 9,058 in November 2020, up slightly from $ 8,983 the previous year.

Before signing on the dotted line for a personal loan, determine if you will be able to pay the monthly payments and consider that you could damage your credit if you fall behind on your payments or skip payments altogether.

A personal loan is generally a better option than a payday loan, although. The quick access to cash offered by a short term payday loan can be appealing. However, the APR for a payday loan can exceed 390% if the borrower does not repay the loan before the lender starts charging interest. The loan is usually due on the first pay day after the loan is taken out.

Alderete suggests shop for a personal loan with a low interest rate and favorable repayment terms rather than jumping on the first loan offer you come across.

Withdraw savings or sell assets

Hehn says it’s reasonable to withdraw money from savings or sell assets when the need is urgent, like covering day-to-day expenses after a job loss, time off, or a pay cut. If you decide to tap into a cash reserve, consider a savings, verification Where money market account before selling assets in a retirement or investment account, she recommends. In part, this is because you might be required to pay taxes when you siphon funds from a retirement account or sell assets into an investment account.

Once your financial situation improves, go back to your monthly spending and savings plans, advises Hehn.

“If the circumstances are longer term or permanent, drastic financial adjustments may be necessary. This could include cutting housing spending and reducing other costly consumer debt, ”she said.

Alderete notes that selling small assets, such as unwanted items around the home, can be a great way to increase income and fill a financial vacuum in an emergency.

Borrow money from family or friends

Hehn recommends proceeding with caution when it comes to borrowing money from family or friends, something nearly half of American adults said they did in 2019.

“Few things can ruin a personal relationship faster than failing to repay a loan from a family member or close friend, so consider all of your other options before you go down that road. Even when repaying is carried out as promised, relations can be strained, ”Hehn says.

A survey commissioned in September 2020 by the National Endowment for Financial Education showed that 27% of Americans provided one-time or ongoing monetary assistance to family or friends during the coronavirus pandemic. Almost half (47%) of those who provided monetary support say it caused significant or moderate financial stress.

“I know people shy away from looking to savings or to family and friends, but you have to do it first before you turn to credit cards,” Edelman advises.

If you do borrow money from family or friends, treat it like you would any business transaction, Hehn says. Put details in writing, such as the repayment schedule, and ask the lender and borrower to sign the loan agreement.

“Remember, there’s a reason the dynamics of money and friendships are often compared to that of oil and water. They don’t usually go well together, ”she advises.