How the COVID-19 Pandemic Helps Us Pay Off Debt 8 Months Sooner (2024)

YES, the title is correct. Despite all the craziness happening, after doing some calculations, my husband and I realized that we could pay off our debt 8 months sooner (EIGHT long months sooner!). This happens thanks to several circ*mstances following the COVID-19 outbreak in the U.S., which I will explain in this post.

And NO, we did not and will not take any evil advantage of the pandemic. We neither sell any products nor offer any services that exploit the current public health situation. In fact, COVID-19 hits us HARD.

Anxiety vs. Reality: a silver lining

As millions of working Americans, our world has been shaken due to the coronavirus outbreak. My husband, a server, lost his job mid-March as restaurants were ordered to close in our state. I am fortunate enough to be able to keep my job and work from home. However, my request for a raise was inevitably rejected due to budget cuts. My child’s daycare has also been closed since mid-March, creating a little chaos in our schedule.

I had to admit that when my husband was laid off due to COVID, we were deeply concerned. For almost two years, we have thrown almost everything extra we earned to $80,000 student loan debt. Despite having low income and no side hustle, we paid off the first $40,000 in 18 months. Just a few days before my husband’s layoff, I threw all of our tax refund and part of our savings, amounted to $5,000, to debt. With $35,000 left in debt but only one income stream and a lot of uncertainty, we were not sure what our finances would look like in April.

HOWEVER, after getting to our senses, we sat down together, calmly went through our numbers. And (BANG!) we realized that not only could we still pay off debt but also finish faster than expected. It was a silver lining that brought in a huge relief us as we continue embracing the new normal and uncertainty amid the crisis.

Our Story/Case Study

I feel compelled to write this post because I know many people out there are in debt, stressed, and scared. I want to let them know that something positive can come out of this situation. Don’t give up!

Although certain circ*mstances discussed below may be unique to our family, I believe our story (or “case study” shall you say) can serve as a source of inspiration, support, and positivity for others.

Below is exactly WHY and HOW the COVID-19 pandemic helps us pay off debt 8 months sooner:

1. No Daycare = Save Money

Everyone in the U.S. who has kids(s) in daycare knows how bloody expensive daycare tuition is.

My son just started going to daycare 2 days/week, but it has already made a dent in our budget: $600/month. Right before the pandemic, we had planned to enroll him in a new daycare with 3-5 days schedule (around $800-1200/month) so that my husband can work more hours. Actually, the day that we were supposed to come in and sign the paperwork, the daycare was forced to close due to COVID. My son has been home since (good-bye “me time, ” hello daily tantrums!).

However, out of this awful situation of school shutdown, we found some silver linings. First, since we haven’t signed the paperwork, we were not obligated to pay for the rest of the month. This alone saved us at least $600. Second, without daycare expenses, we had more room in our budget. I was so happy to see the daycare budget for April moved from $1,000 to $0. This means more money towards debt.

2. The Stimulus Check

As a family of three (husband, wife, and one child) making less than $75,000/year, we received a total of $2,900 from the federal stimulus check.

This may be a small amount for some, but it is a huge deal for us. Bottom line is, no one turns away from free money, right? $2,900 goes straight to debt payments.

3. The Unemployment Compensation

When my husband just lost his job, the thought of filling for unemployment did not even cross our minds. We have never filed for unemployment before and didn’t even know such an option exists.

However, I happened to be on Facebook one day and saw a post from our Governor’s Office. It stated that if individuals lost their jobs or were forced to reduce their hours due to COVID-19, they were eligible for unemployment compensations. It was a brand new initiate at that time. I believe our state was among the first ones offering this benefit.

I told my husband about it and he filed for unemployment immediately. And thank God he did so quickly because just a few days later, the system became incredibly overwhelmed with tens of thousands of people filing at the same time.

Initially, we thought that his unemployment compensations would be next to nothing. My husband didn’t make a whole lot to begin with and only worked part-time for most of 2019. So with my state’s unemployment compensation rate of 40-50% regular income, we thought he might get just a little to cover groceries. Surprisingly and fortunately, our state calculates unemployment payment based on the highest income of the quarter. So, they used my husband’s fulltime, high-earning salary as a reference.

With that, he ended up receiving over $1000/month in unemployment compensation, which is exactly how much he made before being laid off. This means that my husband’s loss of job didn’t reduce his earnings that we have been accustomed to. In other words, our budget won’t be hit as hard as it could have been without unemployment compensations.

4. The Extended Unemployment Compensation

Then, the federal stimulus package was passed by Congress, offering an additional payment of $600/week on top of regular unemployment compensations for 4 months (from April to July 2020).

This means that if my husband remains unemployed until July (which is highly likely given the nature of his job), we will get a total of $9,600.00 ($600*4*4). This amount will go straight to debt, bringing a huge relief for us.

5. Stay Home = More Money Saved

By staying at home, our demands for excessive spending have reduced significantly.

Personally, I don’t feel the need to spend on clothing, make-up, skincare, or hair care products as much as I used to. For the past month of working from home, I only put on my face three products: serum, moisturizer, and sunscreen. In the morning, I style my hair in a neat low bun and call it a day (which surprisingly turns out very nice on Zoom!).

As a family, we no longer dine out or drive anywhere far. Hence, we save money on restaurants and gas. We put all of these extra savings toward groceries, which helps balance our budget during this quarantine time. (Read our April 2020 budget report)

6. Long-term Habit Change

This point was raised by my husband the other day and I think it is really fascinating.

As a stay-at-home dad, my husband often feels the urge to go out to get some fresh air and ease my toddler’s tantrums throughout the day. That’s why before COVID-19, he usually drove our son to grocery stores, parks, and shopping centers a few times per day. During the weekend when I was home, we also visited local grocery stores, Target, Walmart… multiple times. We tried not to spend money on excessive stuff during those trips but impulse purchases happened here and there. We also burned gas and put so many miles on our car.

However, following the stay-at-home order, we no longer venture out as much. Instead, we take our son to the backyard and community gardens near our house. And guess what? We love it! Since then, we have discovered so many beautiful little things in our neighborhood that we often overlook. We have enjoyed the open grass area in the back of our neighborhood apartment complex, as well as all the small birds, rabbits, and squirrels in our backyard that my son adores.

The COVID-19 situation, as horrible as it is, taught us an important lesson: We don’t need to spend money or drive far to feel good about ourselves; happiness is nearby and simple. This positive shift in our spending and outing habits will help us further in our journey to pay off debt and live our lives for years to come.

Our Numbers

To illustrate the points above, I will show you our calculation on the debt payment plan before and after COVID-19

Before COVID-19:

Remaining Debt: $35,000

Saving that can go to debt: $4,600

Monthly debt payment: $2,000

With this rate it would take us: (35,000 – 4,600)/2,000= 15.2 months to pay off debt. When interests are added to the equation, it would take up to 16 months to pay off our debt.

After COVID-19:

Remaining Debt: $35,000

Saving that can go to debt: $4,600

Money from the stimulus check: $2,900

Money from extended unemployment compensation: $9,600

Monthly debt payment: $2,500 (slightly increased thanks to lower living costs)

With this new rate, it would take us: (35,000-4,600-2,900-9,600)/2,500=7.16 months to pay off debt. When interests are added to the equation, it would take up to 8 months to pay off our debt.

In short, our timeline for debt payoff reduces from 16 months (1 year and 4 months) to only 8 months (less than 1 year).

Originally, we were set to be debt-free by the end of August 2021. But now we will likely be debt-free by December 2020. The thought of celebrating our first Christmas without debt makes me so happy that I want to cry. I feel truly blessed.

Important Notes

If you have read to this point, you may have some questions about our case and whether you could apply what we share here to your own situation. I will try to answer some questions that I would have, if I come across a post like this on the Internet.

What if something goes wrong? Sure. The numbers presented above were based on a calculation of our future earnings—an estimate. Many things could go wrong and life could take a completely different turn. That’s why—just to be extra careful—we will pile cash in our savings account for now (as Dave Ramsey said, to “wait for the storm to pass”). Then, when the situation becomes more stable, we will use those savings to pay off our debt. Don’t worry, I will give you updates along the way.

How’s about taxes? As you may have noticed, in the above calculation, we kept my husband’s unemployment compensations in full, pre-taxed amount. This is because we chose to not have the 10% federal tax withheld from his payments. During this challenging time when cash is precious, the thought of giving the government 10% upfront just doesn’t make sense to me. Of course, we expect to pay back the amount we owe next year when we file for taxes. However, our calculation shows that the Child Tax Credit, which we are qualified to receive, will cover most, if not all of the taxes we owe during this COVID-19 period.

Is this even fair? Well, as you see, we didn’t break any rules or do anything unethically. We only take what we’re qualified to receive and manage our money wisely. The only controversial aspect of this plan that I think of is the extended unemployment benefit ($600/week for 4 months). As many people have argued, this additional payment allows many low-income workers to make more on unemployment than they make on their regular jobs. This is true in my husband’s case, as I explained above. However, I don’t think it is unfair because this benefit is only effective for a short period; and the money goes to the hands of those who need it the most: low-income workers who just lost their jobs.

For our family, this additional amount is crucial because even when the restaurants are allowed to open for dining in and my husband has his serving job back, the business will likely be slow for a while. Until people are comfortable enough to regularly eat out (and tip well!), my husband’s income loss will continue. Therefore, having additional money now is very important for us to prepare for our future post-COVID.

I read online that some essential workers currently earn less than what they would otherwise make on unemployment compensation. I hope this not the case for all of the essential workers and that their companies compensate them with hazard payments and additional benefits. At the time of writing this post, lawmakers are proposing a new bill geared toward essential workers to fix this issue. I hope that the bill will get passed and essential workers will receive the financial relief that they deserve.

All in all,

I hope you don’t find this post as bragging or callous. By writing this, I just want to show you how a horrible situation could turn into a good opportunity. Despite what currently happens, we can still achieve our financial goals if we stay determined and focused. When COVID-19 started spreading in the U.S., costing lives and jobs, we were extremely scared and anxious. However, when we finally accept our situation, sat down, and worked out all the numbers, it brought clear senses to us and we felt incredibly relieved. I hope this post could make you feel the same way.

Be well,

C. J.

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