September 05, 2019
Hurricanes and tropical storms have been devastating for so many. And heart wrenching for all of us.
You know I have always said, People First. Then Money. Then Things. I realize the loss of so many things for so many of you is emotionally and financially difficult. I do not minimize that for one second. But I hope you can also find strength, support and love in recognizing that it is your family, your friends, your community that matters most.
After recent events I think we are all aware that disaster can strike any day. And it can impact any of us. To help you best navigate a very difficult time, here are my key Financial Do’s and Don’ts to follow if your life is ever upended by a disaster.
Do: Contact Your Credit Card Issuers. In the wake of Hurricane Dorian many card companies may step up and announce they are waiving payment deadlines and not charging late fees for a few weeks (or more) for impacted cardholders.
That’s helpful. But if you have a FICO credit score of at least 720 or higher, and you have an unpaid balance—or anticipate you will be charging more as you deal with the cleanup or living in a temporary home—I want you to ask for more help. Request that the interest rate on your card to be reduced. The average credit card interest rate right now is 14%. Yet it costs banks and financial institutions less than 1.5% to borrow money. Clearly, there is room for banks to reduce what they charge you in this challenging time. If they won’t budge, I think you should tell them you are going to take your business to another card issuer that offers zero percent interest on balance transfers, and better rates on new charges.
Do: Contact Your Mortgage Servicer ASAP. It often captures people by surprise that even when a home is destroyed or uninhabitable, the mortgage payments are still due. That said, many loan servicers are stepping up and suspending payments for a few months for homeowners in impacted areas. A three-month forbearance is common, but lenders have the ability to extend it for longer. But don’t just assume you don’t have to pay. You need written confirmation.
Don’t: Buy a Used Car Anywhere in the Country Without a Careful Check. You should always have an independent mechanic do a thorough inspection before you buy a used car. But this is incredibly important over the next few months as scamsters will buy up damaged cars in the disaster zones, give them a cursory clean up, and then try to sell them off as being totally okay. And the scamsters aren’t stupid. They often ship the damaged cars to other parts of the country. If you’re buying a used car in Salt Lake City you probably aren’t thinking that it was under six feet of water in Florida a few months ago. Paying for a full report of a car’s history, from services such as Carfax and AutoCheck will be money well spent. If the used car dealer offers a report, just check the date it was run, and confirm it was after the recent natural disasters.
Don’t: Raid Your Long-Term Savings, Unless You Have To. The IRS usually makes it easier for people in affected areas to take a hardship withdrawal from their 401(k). I will not sit here and insist you don’t do this. All I ask is that you very carefully consider the impact. You will owe income tax on the withdrawal. More importantly, you will have used money today to support your tomorrows. If you absolutely feel you have no other options, then maybe that is a hard tradeoff to consider. But I strongly urge everyone to make this the absolute last resort option. Leaving your retirement savings untouched right now will leave you in better financial shape down the line. I know it’s hard to think long-term when you have a disaster right in front of you. All I ask is that you take the time to think through the impact of every decision you make today on your future. That’s advice that will always serve you well.