Quarantine Credit Card Debt? Five Ways To Manage It Effectively

Credit card debt is nothing new to the majority of Americans.  According to Nerdwallet, the average household was carrying over $6500 in credit card debt in 2019. Fast forward to coronavirus circa 2020 and people have piled up even more debt.  Even though you may have had debt carried over from the previous year, getting your credit card debt to a manageable place will help you more easily recover once the pandemic has passed.

Here are five ways to effectively manage your credit card debt

Make a list

The first thing to do when it comes to your debt is to organize all of it.  Start off by making a complete list of every debt in order of the most important to the least. Now when we say debt, we are not talking only about credit card debt.  We also mean your mortgage (which would be the most important) down to your credit cards (which may be further down on that list).  Once you have everything listed out, it is time to get to work on the next step.

Contact your creditors 

When it comes to the big loans like your mortgage, The CARES Act  is allowing borrowers of government-backed mortgage loans to delay their payments for up to 12 months. People are certainly taking advantage of this too.   In addition to this, many banks are offering relief for credit card payments.  You need to contact the credit card issuer directly and be honest about your situation.  You can expect anything from lowered interest rates, waived late fees, deferred payments and more.  Just don’t expect the credit card companies to come knocking on your door to offer up credit card relief.  You must reach out to them.

When dealing with creditors, always make sure to get all the details behind the relief.  The last thing you want to do is agree to something that may hurt you financially down the road.

Here are just some of the questions you want to ask:

  • Ask for an outline of what they are offering people who are experiencing financial hardship due to the coronavirus pandemic.
  • What are the financial consequences of entering into a hardship program?
  • How much will you wind up owing overall?
  • Will your credit limit be affected?
  • How will your credit report be affected?
  • If at the end of the hardship program you are still having financial difficulties, what will be your options at that time?

Balance transfers for credit card debt

During normal times, transferring credit card debt from a high interest card to a 0% interest credit card is the way to go and can be in reach for most people with decent credit.  Right now, you can expect approvals to be tighter since this is unsecured debt and credit card payments are the first to go to the way side when bills start to go unpaid.  Right now, you are probably going to need a 700 credit score in order to be approved for a good balance transfer card.  You will also probably need to show that you are earning a steady income.

Keep the cash from your stimulus check on hand

You are going to need cash on hand, so when you receive your coronavirus stimulus check , don’t rush to use it to pay down your credit card debt or any other debts. Unless you have quite a large sum built up in your emergency savings fund, you will want to save this cash. It would be better to contact the credit card company and see what their relief options are.  Even if you don’t get anything, it would be better to continue to carry some credit card debt in this scenario.

Credit counseling is an option

Credit counseling is another option many people consider as they can help you lower your rates as well as help you come up with a plan for consolidating your payments. If you have new debt, you might be better off trying to work out something on your own.

Credit counselors are a non-profit so there is not a fee for basic services and they can help you out in the following ways.  

  • They offer a free budget analysis to help you see where you need to adjust your expenses.
  • They will help you understand your options when it comes to hardship programs offered by lenders.  This is especially helpful if you have a lot of different accounts.
  • If necessary, they can get you enrolled in a debt management plan. These programs will consolidate all your debt into one monthly payment that the agency will then make to the lenders over a set period of time. Most of your accounts will be closed and you will be given a reduced interest rate with a fixed repayment plan. You can expect a fee for this service and your credit may take a hit since you will be closing some accounts.  Make sure you understand all the aspects of the program you are entering into before moving forward.
  • They will help you explore bankruptcy to see if it is an option and what your next steps would be.

Watch out for scams

Scammers look to take advantage of consumers who are struggling.  If you are in touch with a program that seems too good to be true, it is probably a scam.  Here are some signs to look for:

  • They look to charge you fees before they have settled any of your debt.  Never go with any company that tries to collect fees upfront, unless you are entering into a debt management plan with a non-profit credit counseling program.
  • They talk about helping you take advantage of so called  “new government programs”.
  • “Bait and switch” sales tactics where a “loan program” requires you to enroll in a credit repair or debt settlement program first.
  • They guarantee that they can make all your debt go away
  • they won’t explain all the details of entering into one of their programs.

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