Three debt strategies for an unequal recovery

The past year has fractured our world in countless ways. Now, as people look to pick up the pieces, those managing debt need to account for their position in our uneven economic recovery.

In this so-called K-shaped recovery, one part of the population is rebounding quickly while another has a longer, slower path. For example, in January the unemployment rate for whites was 5.7%, compared to 8.6% for Hispanics and 9.2% for Black workers and 6.6% for

Asians, according to the Bureau of Labor Statistics.

Those who remain unemployed or underemployed might continue to rely on debt to get by. Meanwhile, those whose finances have held steady or improved may be primed to wipe out debt.

Some consumers have had no choice but to rack up debt — including unpaid rent or mortgage, credit card debt and overdue utility bills. If this is your situation, focus on basic needs and paying minimums to avoid collections.

PROTECT THE ESSENTIALS »

If you’re among the millions of Americans unable to cover your housing costs right now, take advantage of the eviction moratorium and mortgage relief programs now extended through June 30. Keep an eye out for additional benefits in the COVID-19 relief package being discussed in Washington and call 211 to get connected to local assistance for basic needs like food and shelter.

Add transportation, internet and cell phone to your priorities list, too, so you can stay connected to friends and family for help and to hunt for work.

“All creditors will make it sounds like they’re the most important ones to get paid,” says Amanda Christensen, a financial coach based in Morgan, Utah. “Housing and transportation have to come to the top of that list and take priority.”

IF NEEDED, LOOK FOR CHEAP CREDIT » If you need to add debt to cover your regular expenses, like groceries and utilities, financial coach Vineet Prasad of Fulton, California, suggests finding the cheapest options. “A revolving credit line on your home equity has a much lower APR than a credit card. Another option is a personal loan at a credit union.”

To qualify for a HELOC, you’ll generally need equity of at least 15% of your home’s value. And weigh the risks: HELOCs tend to have adjustable interest rates, which can make them more expensive over time, and your house is at risk of foreclosure if you can’t repay the debt.

FOCUS ON LONG-TERM RECOVERY » Once your situation stabilizes, focus on paying down debt and make savings a priority, too.