Plan B What Happens When Stimulus Checks Stop

Key Takeaways
  • Payment relief in the form of forbearance or suspensions will end by the fall of 2021.
  • Moratoriums that prevent the consequences of non-payment will end soon.
  • When payments resume and payment assistance stops, you could face a financial cliff.

The pandemic increased reliance on the government to pay bills but could create a financial crisis when the assistance ends. The government provided direct payments, enhanced unemployment, and moratoriums that prevented companies from shutting off the power or evicting you for not payment of rent.

Here are pandemic relief programs that are scheduled to end and how the change could impact your finances.

The End of Moratoriums

The moratorium on evictions and foreclosures is set to end on June 30, 2021. States regulate utility moratoriums on shut-offs and have varying end dates depending on where you live. When moratoriums end, you must catchup on the account or face shut-offs, eviction, or a home foreclosure.

Utilities tend to offer payment plans that require you to make your monthly payment plus extra to catch up with the account over no more than 12 months. Your utility payment could double if you are more than a few months behind.

Landlords can demand the total balance immediately or could work out a payment plan. Because most landlords have a mortgage, expenses, repairs, taxes, insurance, and other ownership costs, they may offer a limited time to pay the balance due.

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Mortgage servicers offer several options to help bring the account current. The most common include deferring payments to the end of the loan or modifying the loan through a streamlined process.

Local relief agencies received funding from the federal government to help families behind on rent, mortgage, or utility bills. Contacting them now could provide a way to avoid a financial crisis when the moratoriums end.

End of Enhanced Unemployment, Extended Unemployment, and Payments for the Self Employed

Federal stimulus packages turned unemployment rules in their head. Traditionally you might receive 21 to 55% of your working wages while on unemployment, which lasted no more than 26 weeks. The current program adds $300 to state wages, extends payments for up to 86 weeks, and provides coverage for the self-employed.

When Congress initially approved $600 in federal payments, on top of state benefits, the average person received $970 per week in unemployment, versus an average of $370 per week in pre-pandemic times. Economists estimate that 68% of the unemployed received more in benefits than they made while working. The latest stimulus measure even made up to $10,200 of the payments tax-free.

The current $300 federal supplement will end on September 6, 2021. Unless Congress extends both the federal payments and the length of time you can receive benefits, most unemployed workers will see a significant reduction in weekly income.

End of Interest Rate Freeze and Payment Deferral on Student Loans

Starting with the CARES Act, Congress set the interest rate on most federal student loans to zero and automatically deferred payments. Biden paused payments by executive order through October 2021. Currently, 42 million borrowers are not required to pay their loans and have no interest accrual for 18 months.

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Borrowers who can afford it could put 100% of payments toward balance reduction. You can expect to resume payments based on the current repayment plan once the deferral ends. There will be no accumulated balances to pay. However, if you are still struggling financially, the regular payment plan may no longer work. In this case, you can enroll in an income-based repayment plan that will base payments on your current income and offer a more affordable option. Understand that lower payments also mean it will take longer to repay the debt, and you pay more in interest over the life of the loan.

Credit Report Protections

The CARES Act prevents creditors from reporting accounts late or in default if you are in a forbearance or payment assistance program if you were current at the time of the forbearance. For example, if you received a mortgage forbearance, the lender must continue to report the account as current, even though you are not making payments.

You can also review your credit weekly until 120 days after the end of the national emergency. You can review your credit report frequently to ensure creditors report your account status correctly.