A Hawaii-based expert in consumer credit counseling said navigating the pandemic will require difficult decisions and sacrifices.
But it’s the only way to survive a recession that has resulted in about a quarter-million layoffs in the state and hundreds of closed businesses, according to Wendy Burkholder, former executive director of the Consumer Credit Counseling Service of Hawaii, a nonprofit that closed in 2016 due to lack of funding after more than 35 years in business.
“You’ve got to be fearless and can’t hide from yourself,” she said. “You’ve got to know what your strengths and your weaknesses are, and that’s the road map forward.”
Burkholder said households should have a clear picture of where they stand financially and need to establish a working budget, and then a crisis budget that eliminates anything that isn’t related to life, shelter and health.
“In a crisis budget you have to have a guideline of what you absolutely need to keep your family intact,” she said. “That’s always the first step. If you don’t have any idea what you’re spending, if you haven’t reined in your spending, you don’t have a starting point. You’ll just get lost. You’ll have to be very clear what those numbers are.”
Burkholder, who lives in Pukalani, Maui, worked for 27 years for the last local consumer credit counseling service in Hawaii. Nowadays, she said, all the consumer credit counseling services are based on the mainland.
“When economic times were good, we still saw a lot of families every year, and when the recession hit, that number tripled,” she said. “But resources like that don’t exist anymore. It comes down to funding, and the brick-and-mortar agencies all disappeared from Hawaii and left remote operations all based on the mainland.
“But they’re not that effective because they don’t live here and don’t have a reference to our cultural values. Hawaii is not diversified as an economy, so their understanding of no tourism and what it has done to our communities would be probably hard for mainland organizations to wrap their heads around.”
Burkholder said households need to take advantage of consumer programs that offer funding for those in need.
“On the income side, things are changing daily,” she said. “They’re rolling out programs daily, it seems — the rental assistance programs, the forbearance programs lenders may be offering on mortgages — these are all things that need to be followed up on as quickly as possible because sometimes those funding sources are finite, and sometimes windows close on opportunities.
“And then, of course, there’s the unemployment benefits. We know people are struggling (to get approved) on those things, but they have to keep at it. It’s in their best interest to do that. And from there, all you can really do is work with each of your lenders, your landlord, your mortgage company, to help them understand that you don’t have the ability at this point to pay according to contract and ask if there is anything they can do to help. And prioritize those commitments by what the impact would be to your family.”
Burkholder said people facing hardship and in need of a reduced interest rate need to drum up courage and make that call because from a lender’s perspective it’s not beneficial for a lender to have the borrower default.
“One of the first thing that happens when a person is struggling is they go dark because it’s embarrassing and it’s shameful when you can’t pay your bill,” Burkholder said. “It’s not a question of character, it’s a question of capacity. When you and your partner have both lost your jobs, your capacity has diminished in a huge way. So you have to have those tough conversations. You have to ask for any and all help that is available to you. It’s beneficial to everybody. It’s beneficial for you to get a forbearance or a reduced payment in these difficult times, and it’s beneficial to your lender because you’re not defaulting.”
Burkholder said those people in tough financial straits shouldn’t jump at filing for bankruptcy, because it might be premature.
“I know that when times are scary and, having gone through the recession, that can often be a knee-jerk reaction. I’m broke. I need to file bankruptcy,” she said. “In some cases, if the debt is overwhelming, it may be true. What I worry about is that we are in such a state of churn that people pull the trigger prematurely, and it’s a temporary problem and people could be back in work in five months when they could have established a workout plan with their lenders.”
She also said that she often encountered the myth that as long as a debtor paid $5 or $10 to a creditor, that would keep the creditor off the debtor’s back and keep the debtor out of court.
“That’s simply not true, but many people believe that if I’m paying something, I’m somehow protected,” Burkholder said. “If you’re not paying according to contract, you’re in default — period. I’d often seen people faithfully send $20 to a collection agency in the belief that it would protect them from further collection activity. It wasn’t true and probably not getting them anywhere, and they probably needed the $20 for food.”
Burkholder said she’s worried that when the programs that are keeping people afloat to one degree or another eventually end, things could get ugly.
“This is going to be such a long haul, such a tough road back, I think it takes an all-hands-on-deck approach to help people weather this,” she said. “I went through the recession years, and the fallout from the pandemic is going to make that look manini.”
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Tips for tackling the pandemic
>> Get a handle on where your money is going by creating a “crisis” budget. Identify any/all household income, monthly living expenses, then debts, giving priority to housing, food, transportation and medical/prescriptions. Eliminate or suspend all nonessential expenses — even small changes can improve your cash flow. This process provides clarity in times of chaos and gives you greater control.
>> If it is certain you will be unable to make your regular payments, communicate your difficulties clearly, and check in regularly with those you owe; they cannot help you if you avoid talking to them, and it’s in everyone’s best interest to work together. Seek payment deferment, hardship or forbearance arrangements from mortgage lenders, landlords, student loans, banks and credit unions. Reach out to utility companies to ask about making partial payments.
>> Avoid making rash decisions. Before liquidating or borrowing against assets such as your home equity, 401(k) or IRA, be sure you understand both benefits and consequences.
>> Apply to state and social services programs you might now qualify for, such as SNAP (food supplement), Health Insurance Marketplace or state medical coverage (QUEST), emergency rental and/or utility assistance. These programs exist to prevent dire situations from becoming catastrophic.
>> Predators flourish in uncertain economic times, targeting the financially distressed with false offers of hope. Don’t become a victim. Beware of unsolicited offers including consolidation loans, debt relief/loan forgiveness services or rental/mortgage rescue programs. If you need professional help, the best resources are nonprofit organizations that are HUD (Housing and Urban Development) certified or COA (Council on Accreditation) accredited.
>> Understand your consumer rights, responsibilities and protections under the Fair Debt Collection Practices Act (consumer.ftc.gov or consumerfinance.gov).
