- Even if you don’t have a financial safety net, there are steps you can take in an emergency
- Government and NEA programs are available to help support you through difficult times
- Cut expenses and build emergency funds now to better position yourself for the future
If life in the post-pandemic world has taught us anything, it’s that we should expect the unexpected.
Or, better yet, prepare for the unexpected, as COVID-19 has created a variety of circumstances which have impacted—sometimes dramatically—the financial stability of many Americans. As of mid-May, 2020, U.S. jobless claims reached 36.5 million since the outbreak. Those who are employed may have a spouse who’s now out of work.
And educators have faced the additional burden of adapting to online instruction with little notice along with the expenses of setting up a virtual classroom.
The following tips and resources—including programs that NEA Member Benefits offers to members—can help you navigate it all and find financial emergency assistance, whether you’re planning ahead or currently facing a hardship.
Responding to a sudden, unexpected emergency
Whether a job loss or furlough, a totaled car, a major repair or a significant healthcare expense, these financial emergencies tend to arrive at the worst times. And many find themselves in these situations with no savings and less-than-perfect credit. You may feel overwhelmed, but there are resources that can help you make it through.
If you will be experiencing an extended financial hardship
- See if you qualify for government assistance. If you and/or your spouse are out of work, USAGov (which is part of the U.S. General Services Administration, and was formerly known as the Federal Citizen Information Center) posts an abundance of resources. In addition to information about applying for unemployment benefits, extending health coverage and acquiring short and long-term disability coverage, it contains updates about the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provides unemployed workers an extra $600 a week for up to six months along with an additional 13 weeks of benefits beyond the number that a state currently allows.
- Utilize the NEA Member Assistance Program, which was created to help NEA members through involuntary layoffs, FEMA-declared natural disasters and more. You’ll find help with many NEA Member Benefits programs, along with how to contact the NEA Member Benefits Member Advocacy Center. Among the resources you’ll find: A hardship program from First National Bank of Omaha to support those impacted by COVID-19 in making their mortgage payments; the availability of an NEA Members Insurance Trust life insurance premium payment grace period for up to 90 days for those having difficulties paying due to COVID-19, and the waiving of premiums for NEA members who have been laid off.
- See if family can help. If you have a family member or loved one who could help out, you could set up low-interest emergency loan. Or gifts up to $15,000 are tax-free for the giver. But be aware of how this could affect family relationships. If you do accept a loan, make sure you have everything in writing. Documentation protects all parties and ensures terms are clearly understood.
- Borrow from your retirement plan. While it should be considered an absolutely “last resort” option, you can borrow from your 403(b) retirement plan, with the maximum amount being either the greater of $10,000 or 50% of your vested account balance, or $50,000, whichever is less. (For example, if you have an account balance of $40,000, you can take out a maximum loan of $20,000.) You must pay off the principal and interest within five years.
- Take a hardship distribution from your retirement plan. A hardship distribution from your 403(b) account presents another “last resort” option. You can qualify if you demonstrate “an immediate and heavy financial need” on the part of yourself or, in certain cases, your spouse or dependents. You can take this distribution for medical expenses, tuition, payments to avoid eviction or a mortgage foreclosure, funeral costs and damage to a residence. It’s possible that you could qualify to take a hardship distribution without paying the usual 10% penalty for early withdrawal, even if you’re younger than 59 1/2. You will likely have to document that you do not have other resources to fund for the need, and that you’ve exhausted any loans/distributions which are available from the plan. The amount of the hardship distribution cannot exceed what’s required to cover the hardship expense (as well as income taxes owed due to the withdrawal).
If you have a sudden, major expense
- Consider applying for an NEA Personal Loan. Through the NEA Personal Loan, you can apply for a loan ranging from $5,000 to $30,0001 to transfer and consolidate higher-interest debt or address major expenses. Fixed rates for a 36 to 72 month term range,2 with no collateral required, can help get you over a financial hurdle. NEA members receive preferred pricing and a 0.25% interest rate discount when they choose to enroll in autopay.
- Take out a home equity loan or line of credit. With a home equity loan, you receive a lump sum all at once. With a HELOC, you access a line of credit that you can withdraw from —typically up to 10 years—just like your bank checking account at an ATM. When you pass the withdrawal period, you start repaying the outstanding balance that you borrowed and interest owed, and this process could last up to 20 years. The HELOC interest rate is variable, but is often lower than other common loans and could be tax deductible if you’re using it for home repairs.
- Contact a credit union for a loan. If you have a lower credit score, consider a loan from a credit union and avoid taking out payday or other risky types of loans. These not-for-profit organizations tend to look at your financial situation as a whole, according to Nerdwallet, and may be willing to lend to those that don’t qualify for other kinds of loans.
- Explore “zero interest” financing options, if you know you can repay. Many companies offer 0% interest rate financing for appliances, new roofing and the like, but be aware that the 0% window will last for a limited period such as 12 months. If you don’t pay it back within this time, then a hefty interest rate may kick in. Plus, you may owe back interest for the full price of the purchase from the date that you bought it.
- Pay over time. NEA members can take advantage of the NEA Easy Pay Program, powered by Square Deal Market. You can buy everything from a refrigerator to a laptop—get what you need quickly and pay for it over time with no interest charges or fees. Your spending limits are based on your income.
How to prepare now for future financial setbacks
You often know when a major expense is right around the corner—you’ve been putting off a medical procedure, your laptop has slowed to a crawl or your car is on its last legs. You realize you have some time to set aside money, but not an indefinite amount of it. The following tips can help find money to build a cash cushion as well as insure against potential hardships.
- Build a “rainy day” and an emergency fund. If there is any proven strategy for preparing yourself in advance for the unknown, it’s building your rainy day and emergency funds. The rainy day fund is the smaller of the two—aim to set aside $500 at first and then add to it as you can—so you can readily handle a car repair or appliance replacement. An emergency fund takes a longer-term view to account for a loss of income over an extended period. You should develop a plan to eventually set aside no less than three months of living expenses, and, over time, accumulate at least six months of living expenses.
- Revisit your household budget. There are many ways to cut back on spending such as making meals at home, avoiding impulse buys and cutting back on cable. In reviewing what you spend and what you can eliminate, try to distinguish “needs” (food, utilities) from “wants” (new clothes, electronics purchases) and cut back on the latter. Another tip: Conduct an inventory of all of your monthly subscriptions—you’d be surprised at how many you may hardly use at all!
- Earn extra cash by selling unwanted stuff. From old toys to discarded smartphones to books you’ve finished reading, you can make a nice chunk of change while decluttering your home by selling items on sites such as eBay, Amazon and Bonanza. You can also try Facebook Marketplace, where you sell stuff based upon your location to eliminate shipping logistics and costs. Make sure you take nice, inviting pictures of your products and write up a tidy but detailed summary which includes measurements, age and special features.
- Consider starting a part-time business. Many experts say we’re living in what’s called “the gig economy,” and that certainly benefits those seeking to set aside backup funding for whatever comes up. As a teacher, you’d qualify as a tutor—even if you’d be tutoring over Zoom for now! But you can also assess your interests and talents beyond the classroom—perhaps home improvement, computer repair, writing, coaching, graphic design, language translation, etc.—and apply them to actual, paying work. Here’s how a few of your fellow educators have made their pastimes pay.
- Insure what you can’t financially cover yourself. Evaluate your current policies to see if you have any insurance gaps. Take advantage of programs NEA Member Benefits offers specifically to educators, such as life insurance, auto and home coverage, and specialty vehicle insurance. If you want disability insurance to help you with your financial obligations due to covered sickness or injuries, consider the NEA Income Protection Program3 to help with your monthly expenses.
1 The NEA Personal Loan cannot be used to pay for postsecondary educational expenses or tuition or to consolidate postsecondary educational loans.
2 Your repayment terms will depend on your APR and loan term for which you qualify. Example: On a 9.99% Fixed APR loan you will have (1) 36 monthly payments of $32.26 per $1,000 borrowed; or (2) 48 monthly payments of $25.36 per $1,000 borrowed; or (3) 60 monthly payments of $21.24 per $1,000 borrowed; or (4) 72 monthly payments of $18.52 per $1,000 borrowed. Your APR will be in the range of 5.74% Fixed APR (if you are enrolled in AutoPay) to 15.99% Fixed APR, depending on your creditworthiness. See the Key Information on Your Loan for additional details.
Loans are made and serviced by First National Bank of Omaha.
3 The NEA Income Protection Program is disability income insurance underwritten by American Fidelity Assurance Company.