How to manage credit card debt during COVID-19 outbreak

Posted by: Aiden white on

As per the New York Federal Reserve, U.S. credit cardholders paid down an amazing $82 billion credit card debt in the second quarter of 2020. It is quite astonishing that despite the U.S. unemployment rate skyrocketed at 10.2%, so many consumers have paid off their credit cards.
The entire world is facing so much financial uncertainty during the last few months. But still, credit cardholders are doing well to keep themselves together and follow the path to lower plastic debt during the pandemic.

If you are one of the consumers who faced difficulties while managing credit card debt, then you should also follow a few ways to pay off credit cards and keep your finances on track.

How to manage credit card debt if you’re affected by the COVID-19 outbreak

Due to COVID-19 outbreak, many people became unemployed and many had to close their business. If you can’t make your credit card payments, you might have to make a few difficult financial decisions for your family and your living. During such a critical time, several good options are there that you may choose to stay at your feet and be current on your credit card debt.
So, let’s check out those options that may help you to manage and pay off credit cards during COVID-19 crisis.

1) Try hard and make the minimum payment at least

This might be a difficult option for you if you have recently lost your job or having issues in your business. But this is the safest option that can make you current and keep the flow running on your credit card bills. You might get financial assistance from your credit card companies, but your interest will be added every month. So, making the minimum payment on time every month, until you get a decent job, will be helpful to tackle the tough situation. If you don’t pay at all, the interest builds up more debts on the last remaining balance every month. This way your credit card debts will rise to a level that you can’t reach.

2) Check your credit reports regularly

Many of us would check our credit reports for free, once a year. But it is important to review your credit report regularly, especially during such a horrible financial crisis. The three major credit reporting agencies – Experian, TransUnion, and Equifax are currently providing the option to the consumers that they can check their credit reports weekly for free.

3) Check your bills closely and look for errors

It won’t be possible for you to manage credit card debt if you do not check your monthly bills and analyze them to find any errors. You should look closely at your credit card statement, and if you find any error, dispute it by sending your credit card company a billing error notice.
Normally, credit card companies would respond within 30 days and confirm you that they have received your notice. They won’t take more than 90 days to look into the matter and send a reply to you.
However, due to the COVID-19 pandemic, many credit card providers are having issues to operate their business. This means that you might have to wait a bit to get a reply from your credit card company.

If you want to get out of debt with zero errors in your credit report, make sure you wait until the billing error resolves. If you have such credit card bill errors, and have an ongoing investigation, during that time the credit card company can’t ask you to do these things:

  • They can’t demand the amount in dispute
  • They can’t report to the credit reporting agencies that the amount in dispute is “unpaid”
  • They don’t have the authority to close your account because you filed a billing error notice

4) Sign up for a 0% balance transfer card

If possible, try to get a 0% balance transfer card because it will allow you to avoid interest for up to 21 months. Make sure you search for a card that also allows you a zero transfer fee. But remember, pay off the entire balance before the introductory period ends.

5) Know your right about debt collection practices

If you have a credit card debt in a collection or a debt collector is contacting you for collecting old credit debts, things might become very difficult to cope up during this financial crisis.
Once debt collectors call you, the first thing you should do is to verify their identity to make sure it’s a legitimate collector. Secondly, ask the collector to validate the debt before making any payment. A debt collector might try to collect a credit card debt that is not yours.
It is better to read your rights properly here about debt collection laws.

6) Try side hustles to make your income steady

If you have lost your job or have a business that is about to shut down, start earning again by doing side hustles. Apart from your 9 to 5 job or business, you can do a lot of things to earn additional money. Trust me, managing credit card debt will be easy if you can earn a few extra dollars by utilizing your spare time. Save money from side hustles and get out of debt faster.

7) Stick to your pre-pandemic budget and keep saving

As you might be running through a short budget, you should plan your purchases and save 5%-10% of your salary (if you have a steady job), and put it into an interest-bearing account. The interest that you gain can be used to pay off credit cards and get out of debts asap.

8) Try not to pay late

The worst thing about having a credit card is missing a payment or paying it late. The consequences of such an incident are severe and you might have to face high late fees or added interest. It also harms your credit score and itre can be down by a few points.

This is why it’s important to inform your credit card company asap if you have difficulties to pay off your credit card bill.

How to manage credit cards by seeking help from your credit card company

a) Inform your credit card company that you have been affected by the pandemic

First of all, inform the credit card company that you’ve been financially affected by the pandemic, lost your job, or had to close your business, etc. That’s why you need help from them.

Most credit card companies are helping their customers by offering programs that may support low-income individuals. Be prepared to provide proper documentation about your current financial situation. These programs are popularly known as “hardship” or “relief programs.” These programs will offer you to sign up for an agreement to:

  • Make a partial payment
  • Defer or pause one or more payments
  • Forbear delinquent amounts

b) Get all the information on the programs or credit card relief packages offered

The credit card companies are offering many options to help consumers. But being a consumer you should ask a few questions before accepting the program. You must prepare a list of questions before you proceed so that you can be comfortable with the terms & conditions offered by the credit card providers.

Here are the main questions that you should ask:

  • What financial relief program will be offered if you can’t pay off credit card bills due to the coronavirus pandemic?
  • What are the fees associated with these programs?
  • If you can somehow defer or lower monthly payments, will interest continue to build up during this relief program period?
  • When do you need to start making credit card bill payments?
  • What measures will be taken if your financial situation remains the same as before? Is there any alternate option?
  • What information will be sent to the three major credit bureaus?
  • Can you use your cards if you enroll in a program?

c) Ask for a written copy of the agreement

If you select a financial relief option provided by your credit card company, you need to understand every terms & condition applied to the offer. Make sure you have all the details written in an agreement. Once you sign in, get a copy of the agreement as soon as possible.
During the program or relief period, you should always check your statement each month. If you notice any inaccuracy or error, make sure to dispute it by referring back to the agreement.

What if your credit card company offer an agreement or accommodation with you as per the CARES act:

As per the Coronavirus Aid, Relief, and Economic Security (CARES) Act, creditors will need to fulfill special requirements, if they offer payment relief, and report your payment information to credit reporting agencies. This CARES Act requirement applies only to agreements made between January 31, 2020, and any of these two dates:

  • 120 days after March 27, 2020, or
  • 120 days after the national emergency concerning COVID–19 ends.

How your creditor reports your credit account to credit reporting agencies under the CARES Act may depend on your payment status. They will consider the fact that whether you are current or already delinquent at the time of signing the agreement. They need to report it only if you are making any payments as per the agreement.

  • If you are current and you make an agreement with them to make a partial payment or skip a payment, or other accommodation, then the credit card company will report to credit reporting companies that your account status is “current”.
  • If you are already delinquent and you make an agreement with the credit card company, then you will not be reported as more delinquent during the period of the agreement.
  • If you are already delinquent and going into an agreement, and after that you make payments to become current, the creditor must report you as “current” to the credit reporting agencies.

Top 10 credit card providers offered a variety of COVID-19 relief options


Credit card company Fee waiver Temporary Credit Limit Increases Temporary Suspension of Payments
Bank of America Not applicable No, but late fees can be refunded Yes
American Express Not applicable Yes No, but payments can be reduced
Capital One Contact Capital One for options Contact Capital One for options Contact Capital One for options
Barclays Yes, on a case-by-case basis Yes Yes
Citi Yes Yes Yes
Chase Not applicable Yes Yes
Not applicable Not applicable Yes Yes
Discover Contact Discover for options Contact Discover for options Contact Discover for options
Wells Fargo Not applicable Yes Yes
HSBC Not applicable Yes Yes

Data courtesy-investopedia.com

How much governments are offering credit card relief

On March 27, President Donald Trump signed a $2 trillion COVID-19 stimulus package for US citizens. As per the program, the majority of fellow Americans received direct payments, considering their income and number of kids. Other important benefits included in the package are expanded unemployment benefits, additional health care support for every individual who qualifies, and funding for dying organizations and small scale industries.

The relief was a big step taken by the government that helped jobless people to stand upon their feet. Weekly unemployed claims hit a record of 3.3 million until March 26. Apart from that, Federal and state governments have provided help to the citizens to stop foreclosures and evictions during the outbreak.

A majority of U.S. adults received $1,200 from the federal government, plus $500 per child. In the week of April 13, the IRS started to send 80 million stimulus payments to eligible citizens via direct deposit. The IRS has sent money to at least 160 million people so far in three different ways. The first recipients of that fund had filed federal tax returns for 2018 or 2019. In the tax return file, the information of direct money deposit by the IRS is added.

TheCARES Act also extended unemployment benefits for another 13 weeks and increased the payments by $600 per week for many jobless people. The CARES Act also provided many options to help Americans economically. One of these options offers relief from immediate payments to credit card bills. This option is popular as a credit card forbearance.

The main purpose of providing credit card forbearance:

  • If a consumer is unable to pay his/her credit card debt, then that person can look into his/her bank’s credit card forbearance program. So, an immediate option is provided to the consumers who are unaware of how to manage credit card debt.
  • Credit card forbearance is practically an agreement between a consumer and the creditor company. It will help a credit cardholder to get a temporary pause or lower the account payments for a specified amount of time.
  • Once a credit cardholder signs up for a credit card forbearance program, his/her credit score doesn’t drop. It is because the cardholder and his/her lender are under an agreement. The lender won’t report the account to the credit reporting agencies which eventually keeps their credit score safe.

Conclusion

People worldwide don’t know how much time we have to wait for this crisis to get past. So, for the time being, people have to keep their patience and work together to overcome the drastic economical situation.