Covid-19: Five budgeting dilemmas amidst a cash crunch

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Updated: Jun 15, 2020 10:09 AM

Being judicious while making difficult choices during tough times can save us from bigger financial crises in the future.

Read on for some budgeting dilemmas you’re likely to encounter this year—and some possible solutions.

The prevailing Covid-19 situation has brought in acute financial hardships for countless people. That being said, being judicious while making difficult choices during tough times can save us from bigger financial crises in the future. Read on for some budgeting dilemmas you’re likely to encounter this year—and some possible solutions.

Should you stop insurance?

Absolutely not. An adequate insurance cover is perhaps the most important thing to secure at this time. While an adequate life insurance cover will protect the financial interests of your dependent family members after your demise, a medical insurance plan will prevent using up your precious savings if any of the insured members require hospitalisation. So, ensure your key insurance plans do not lapse due to non-payment of premiums. If you’re facing a cash crunch, consider digging into your emergency fund for timely payments of your insurance premiums.

Should you pay EMIs or go for loan moratorium?

The Reserve Bank of India extended the moratorium facility on all loans and credit card dues by three more months to August 31, 2020. So, if you’re under financial stress, this facility might provide some temporary relief. Do note interest will continue to get accrued during the moratorium period which might considerably increase your loan burden. If you opt for this facility, ensure you have a plan to repay the accrued interest, in addition to your EMIs, after the moratorium ends by making prepayments.

Should you invoke moratorium on credit card dues?

Ideally, no, since credit card dues carry 30-42% per annum interest rates because of which your dues can compound quickly. Hence, try to clear your existing dues on time and keep your credit card spends under control.

Should you invest or save?

You must save to build an emergency fund or boost your cash reserves by exercising cost-cutting measures. However, you should also invest for your critical life goals like buying a home and building a fund for your children’s future. Try to continue your investments if your current income flow isn’t much affected by the Covid-19 crisis. But if you’re under a tremendous cash crunch, you can consider pausing non-essential investments to free up funds for your more essential commitments like rent, EMIs, and insurance premiums. The same applies to making fresh investments at this point.

Should you take a new loan now?

If your finances are stable and you’re looking to borrow for an essential objective, this crisis shouldn’t deter you from taking a fresh loan. If your finances aren’t in great shape due to income instability, you may want to delay taking a new loan because an EMI could strain your liquidity further, compounding your financial woes. That said, there are Covid-19-specific loans on offer that may help you with your particular situation. However, be clear about how you will repay the loan.

(The author is CEO, BankBazaar.com)

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