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Debt Management

Taking financial control amid a global pandemic

Here’s how these consumers took control of their finances in the pandemic – and how you can, too

Summary

The coronavirus pandemic has affected millions of Americans. But a few have been able to turn a tragedy into financial success. Here’s what they did.

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There is no doubt that COVID-19 has affected the financial security of millions of Americans.

A September 2020 NPR poll found that nearly half of U.S. households experienced job loss or pay cuts during the pandemic. Fifty-four percent with annual incomes below $100,000 suffered the most serious financial problems.

However, as the situation deteriorated for many, a subset of individuals assumed newfound control over their economic well-being. The pandemic became their trigger to make powerful changes with the way they handled money, credit, income and savings.

Here’s how just a few people refused to let severe and unexpected pandemic-related conditions get them down.

Improved charging habits

According to an October Money and Morning Consult survey, 29% of credit card holders have been charging more than they had been before the pandemic, particularly on food and self-care items.

For some, like Raul Mercado from Austin, Texas, a freelance digital marketing professional, that didn’t mean acquiring high balances, but using the cards more effectively than ever before.

Mercado’s partner has been furloughed from both of her jobs, and his pay was cut by a third in the span of one month. In response, they changed the way they had been charging. The couple decided to make their cards work for, rather than against, them.

“My partner purchased an online course called ‘Credit Cards 101,’ and we learned the best way to use credit cards,” says Mercado. “We started using credit cards that included airline miles or cash back bonuses for all purchases so we could get additional resources from spending the same amount of money. Of course, we pay back our credit cards every week so we don’t go into debt. And because of all the closures around town, we are able to save significant amounts from not going out on date nights or expensive vacations.”

Now the couple is looking forward to using the rewards when travel is once again an option. They’ll stick with their new card strategy, though, since it allows them to profit from the process.

Repaid debt

A positive aspect of the pandemic is that it made many people reevaluate how they’re handing their existing financial obligations. In fact, Experian reported an unprecedented consumer debt reduction in 2020. Outstanding credit card balances dropped by 9% from 2019, representing over $73 billion in repaid balances.

Steve Morrow, a Phoenix-based CPA and founder of the kayaking blog Paddle About, and his wife slashed their liabilities over the past 10 months. They had a combination of obligations, including a car loan, home equity loan and credit card debt.

“The pandemic has forced our hand in a couple of good ways,” says Morrow. “With limited opportunities to travel and eating out a whole lot less, we hunkered down and focused on paying off debt. We used the stimulus money to help! It felt like the right thing to do. It’s been an absolute relief to have those monsters out of our life.”

Morrow is now planning for what may come next. If there is another round of stimulus checks, he will apply it to their emergency fund. In the meantime, he’s also using this time to educate their children.

“We have two teenagers and we’ve been having a lot of conversations with them about finances,” says Morrow. “In fact, one of my sons is taking a personal finance class in high school, and it’s been great to talk to him about our experiences with credit cards.”

See related: Financial bias starts early: How to talk to your daughter about finances

Starting over after job loss

Before COVID struck, Justin Duke had been driving and delivering for such companies as Uber and Instacart. “Then it all basically stopped,” says Duke. “I lost the main source of income that I had and didn’t know if or when it would be safe to do the gig work again, or what would happen with the stimulus. I had to pivot and find a new income.”

So, Duke and his wife, who live in a rural community outside Roanoke, Virginia, turned their attention to the business of raising goats and chickens. At the start of the pandemic, selling the animals and eggs via MrAnimal Farm generated a little side cash. Today, along with working a few other e-commerce and review sites, the couple is earning three times what they had been before.

“We have a safe way to make money that we have more control over,” says Duke. “We’re financially stable and are in control! Our holiday spending this year won’t change, but the goal for 2021 is to be able to purchase a second house with the online income.”

Duke is hardly alone in his quest for earnings independence. In October, the Census Bureau reported that applications for federal employer identification numbers had surged – by July, they were up an astonishing 91%, compared to the same time frame in 2019.

Building a better budget

Insecure salaries inspired other people to reevaluate how much money was going out each month, and then make powerful changes to ensure that there was enough to meet essentials. Such was the case for Jonathan Sanchez, an Omaha, Nebraska-based personal finance blogger for Parent Portfolio, a wealth building website for families.

“Due to the economic stress caused by the pandemic, I was furloughed from my full-time job,” says Sanchez. “This put the weight of supplying for our family solely on my wife. Initially, it was depressing for me not to be able to work as well and was hard for my wife.”

Eventually, though, he decided to use this opportunity to assess their cash flow plan to get them closer to financial independence.

“We updated our budget and became more intentional with our money,” says Sanchez. “Before, what we were doing was not budgeting but spending and thinking we should have enough until the next paycheck. We never set limits – now we do. ‘Only this much for groceries, this much for dining’ kind of thing. It helped us become more mindful. For a whole summer, I stayed home with my daughter who was in daycare, so we didn’t have that expense either, so that was like a mortgage payment!”

The couple refinanced their primary residence to reduce those payments, then purchased a house as an investment property to generate passive income. They then deleted a large portion of their student loan debt and are working toward building up a sizable savings fund.

“Now that we have a budget in place, we’re not worried about money anymore,” says Sanchez. “My wife actively looks at our budget three times a week. It’s a habit we will continue on forever!”

See related: How to stop overspending during the coronavirus pandemic

Increased saving and investing

And then there are people who have found a way to increase their net worth, despite recent economic hardship. Christen Thomas, a personal finance expert and founder of the travel advice website TravelWanderGrow, has managed to create wealth.

Thomas has always been budget-savvy, but the pandemic prompted her to take a harder look at the way she had been preparing for her financial future that extends far beyond the next 12 months.

“It’s the year I’ve moved beyond the budget,” says Thomas. “I’ve started doing much more focused research into the FIRE (financial independence, retire early) movement, and have adjusted my long-term investment strategy accordingly. This has led me to move from investing around 10% of my income to 20%. I plan to grow this rate to 50% over the next few years as I pay down my student loans more aggressively and cut certain expenses.”

Thomas says her plan is impacting all of her spending decisions because she’s putting extra thought into everything she buys.

“For example, I typically shop for Christmas gifts the week before the holiday, but I’ve started much earlier this year,” she says.

She has also dedicated energy into selling more digital products through her blog, and is exploring methods to replace the money spent on the holidays so that her savings rate doesn’t decrease during the shopping season.

“What I’ve learned about myself is that I find peace in having all my finances organized,” says Thomas. “In a time where so many things are uncertain, knowing that I’ll be OK financially if anything changes with my job situation is very comforting.”

Bottom line

According to Paul Miller, a CPA and managing partner at Miller & Company, LLP, the pandemic switched something crucial but latent in many people. They’ve found ways to thrive, when it hadn’t been necessary before. People discovered their inner strength and knowledge that they can perservere under extremely difficult conditions. Many fought to budget their money for the first time.

“The pandemic grounded a lot of people,” says Miller. “It helped them develop character. Americans are resolved to figure it out. Ultimately, it taught millions of us how to rescue ourselves, and that even in the bad times, there is good.”

Certainly not everybody has been able to regroup and overcome financial adversity in 2020, but it’s worth taking inspiration from those who have.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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