Creditors and lenders are not ignorant to the tighter budgets and limited cash flow many consumers are facing these days due to the COVID-10 pandemic. For this reason, many are willing to make exceptions to standard repayment rules.
Here’s what you can do to protect your credit and avoid additional debt while the world holds its breath and waits to come out the other side of this pandemic.
Call your credit card companies and ask if they’ll lower the APR on your current balance
More and more credit card companies are expanding their “hardship programs” to help consumers. They may provide higher credit limits, waived fees, pause payments, extended payment deadlines, and/or lower the annual percentage rate (APR), i.e. the interest charged on your card balance each month. Lowering your interest rate can help you by lowering the monthly minimum and lowering the overall amount you owe in the long term, although the credit card company may raise the rates once they feel the economy is recovering.
Some companies have offered to refund interest charges, waive or reimburse late fees, and reinstate rewards points. If you’re unable to pay the minimum monthly amount, they may postpone marking your account as past due and not report it to the credit bureaus.
Lenders may allow you to place loans in deferment or forbearance, during which time you don’t need to make loan payments and the lender won’t report late payments to the credit bureaus. However, interest will still accrue and add to your total balance owed.
Shop around for a card with lower or no interest
The Federal Reserve dramatically cut interest rates in March, which means eventually this rate change will trickle down to consumer credit cards and existing card balances. However, there will be a lag, possibly of up to three statement cycles. If you can’t wait that long for a lower minimum credit card bill, shop around for a zero percent or other low-rate balance-transfer card. It should reduce your required minimum payment and release you from paying interest charges for 12 to 21 months (depending on the card), which can free up cash now and help you pay off your debt faster.
Check your credit regularly.
“Especially now, making sure your credit reports are accurate is critical. This way, you can identify any potentially fraudulent activity and respond to it before it damages your credit. You should check your credit reports with all three credit bureaus (Experian, TransUnion and Equifax). You can get a free copy of your credit report from each bureau once every 12 months at AnnualCreditReport.com.
Seek financial assistance.
You always have the option of working with a certified credit counselor if you feel in over your head, even with the new options and exceptions offered by credit card companies. A counselor from a nonprofit can create a debt management plan for you, a budget, and sometimes help you contact creditors.
See if the CARES Act affects your student loan repayment
The CARES Act, also referred to as the “stimulus package,” includes provisions to help borrowers with federal student loans weather this turbulent and uncertain economy. Benefits include:
Private student loans aren't included in the stimulus package. If you're struggling to keep up with payments on your private loans, contact your lender to ask about forbearance and other options.
Only take out a 401(k) loan as a very last resort
If you have exhausted all other resources to trim your budget, reduce credit card and loan payment amounts, and negotiate other bills, taking out a loan against your 401(k) can be a last option. The stimulus plan relaxes the rules around retirement-plan loans, allowing you to borrow up to $100,000 from your 401(k) (double the amount you can usually take).