The coronavirus has devastated our lives, be it physically or financially. On October 5, 2020, about 426 new coronavirus deaths and 42,223 new cases were reported in our country.
On the other hand, a CNBC report reveals that almost 9 out of 10 people in our country are financially stressed due to the COVID-19 pandemic.
Many people have lost their jobs due to the impact of the pandemic on the global economy. Eventually, they have filed for unemployment benefits and eligible people have received stimulus checks too. But the harsh fact is, these are not enough to maintain your livelihood especially if you have debts.
According to a recent survey by CreditCards.com, 62% of the people having credit card debts may miss payments.
So, if you are slogging with overwhelming credit card debt, then managing them can be difficult. Credit cards can be a real problem if you are not careful with them.
Here are some of the best possible ways to manage your credit card bills during this pandemic.
Let’s start one by one.
To opt for a debt management plan (DMP), you have to approach a credit counseling agency, preferably accredited by the National Foundation for Credit Counseling.
A reputable agency usually has a team of financial experts known as credit counselors. They will review your financial situation and try to negotiate with your creditors on your behalf to make your monthly payments affordable. Once your creditors agree, you can make single monthly payments for your multiple credit card debts.
This way, opting for a debt management plan can help you to manage your credit card debts efficiently. And if your counselor is successful in lowering your interest rates, you can save money on your interest payments.
Remember to make payments on your DMP always on time. If you miss any payments, your creditors might stop waiving off late fees and lowering interest rates.
And you may have to pay a monthly fee to the credit counseling agency for opting for their services. However, the maximum amount they can charge depends on your state regulations.
Well, credit card companies can tweak the credit terms, if needed. So, if you are on the verge of missing payments, you should let your creditors know about your financial hardship. Things could be a bit easier if you share your financial situation with your creditors before missing the payment deadline.
Many credit card companies are offering relief to their customers who are going through financial hardship due to the COVID-19 outbreak.
For example, if you have an American Express credit card, you can enroll in their financial hardship program. Also, you can enroll in their short-term payment plan that provides relief for 12 months. And in the case of a long-term payment plan, you can get relief for about 36 to 60 months.
Whatever option you choose, you are likely to get reduced interest rates, lower minimum payments, waived off late payment fees, and annual fees.
So, I would suggest you talk to your creditors at the earliest and enroll in a credit card hardship program. Besides, make sure to keep calm while explaining your financial situation to your creditors. Because they might not agree to change the credit terms in the first instance.
If you are trapped with multiple credit card debts, managing them can be a cumbersome process. Besides, the incessantly high annual percentage rates (APRs) of credit cards are an added burden.
So, you can consolidate credit card debts by taking out a personal loan. By doing so, you can repay your debts through a single monthly payment every month. And save money on interest payments too as the APR of the personal loan is likely to be less than that of credit cards.
Eventually, you may become debt-free faster as you can dedicate more funds towards your principal amount.
However, you need to have a decent credit score to take out a consolidation loan at a preferable interest rate. Besides, some lenders may charge you an origination fee ranging from about 1% to 8% of the loan amount to cover the cost of underwriting the loan.
Yes, 0% APR cards are a good option to manage your credit bills during this pandemic. You can transfer your existing credit card balances to a new card with a 0% APR. Then, you will have to make single payments for that new card instead of multiple payments like before. And the best part is, you won’t have to shell out money on interest payments. So, it can help you to get rid of credit card debts sooner too.
However, the fact is, balance transfer cards usually offer 0% for an introductory period ranging from about 18 to 24 months. After that period ends, they will levy a variable APR depending on the card you are opting for.
For example, Citi Double Cash Card offers a 0% APR on balance transfer for 18 months. After that, you will have to pay a variable APR from about 13.99% to 23.99%.
So, while taking out a balance transfer card, read the terms and conditions carefully, especially about the introductory period. And I would recommend repaying your credit card debts within this introductory period to brace yourself from the hefty interest payments.
Lastly, if possible, don’t use the new card for any other purchases. You can rack up more debt when you are already repaying your old credit card bills. Because the creditors will levy regular APR for using the balance transfer card for making purchases. So, you’ll have to repay your new purchase at a higher rate of interest. Moreover, your payments will go towards paying off the transferred balance amount. Once you repay it entirely, you can start making payments for reducing your new outstanding balance amount (that you racked up for making purchases). Till then, you will have to continue making the interest payments.
The debt avalanche method is one of the repayment strategies that can help you to manage your credit card bills during this pandemic.
In this method, you have to target the debt with the highest interest rate. And at the same time, you need to make minimum payments on your other credit cards. Once the debt with the highest APR is paid off, you have to target the debt with the second-highest APR and so on.
Read: Debt stacking - Best way to eliminate debt
The biggest advantage of the debt avalanche method is that you can save money in the long run as you are paying off the debt with the highest APR first. So, you will have to shell out less money on your interest payments every month.
However, at times, it becomes difficult to stay motivated during the debt repayment period. The reason being, it might take much longer to cross the milestone of paying off debts with the highest APR.
During this pandemic, you might be going through a tough time regarding your finances. So, you need to chalk out which debt to pay off first during COVID-19 and act accordingly.
For example, if you don’t pay your mortgage or rent, you may lose your shelter. So, check with your mortgage lender or landlord whether or not they are offering you any relief during this pandemic. If yes, you can dedicate more funds to your credit card bill payments.
In short, you have to take a balanced approach to decide which payments are a priority during this pandemic.
So, the bottom line is, you have to stop worrying about managing your credit card bills during this pandemic. Rather, you should take care of your health and find strategic ways to get rid of credit card debt with ease. I hope the above tips will help you to manage your credit card bills efficiently. And you will be able to lead a debt-free life soon!