Spending

Struggling to pay your credit card bill? 'It definitely pays to ask' about options, expert says

Twenty/20

All 50 states are at some stage of reopening their economies, and the U.S. stock market roared back to within 5% of its all-time high before dipping again. But for many Americans, the financial toll of the coronavirus pandemic is far from over.

The struggle is reflected in how Americans are relying on credit cards. Consumer revolving debt, which mostly encompasses outstanding credit card balances, fell nearly 65% in April after a decline of almost 29% in March on an annualized basis, according to figures from the Federal Reserve. Meanwhile, of the approximately 120 million U.S. adults who have credit card debt, 23% added to their balances as a result of the pandemic, according to a survey conducted by CreditCards.com. 

Figures like the above show the divide between the haves and the have nots, or a bit of "A Tale of Two Cities" dynamic, says Ted Rossman, an industry analyst at Bankrate. As some Americans are accumulating debt because they've had to use credit cards just to get by, others have aggressively paid off debt.

One silver lining of this pandemic, however, is that credit card companies are working with customers who are struggling with payments, he adds. These payment relief programs could help you to save money down the road and protect your credit score. Here are three steps you should take if you've fallen behind on bills.

1. Contact your credit card company

Yanely Espinal knows that tackling debt can be intimidating. The director of educational outreach for Next Gen Personal Finance and founder of the YouTube channel MissBeHelpful recalls feeling afraid to call credit card companies when she was struggling with her debt about five years ago.

"I thought they were coming after me, and that the lender is my enemy," Espinal recalls. "But the truth is they're willing to work with you, and the reality is they want you to pay some money over no money at all." 

Right now, credit card issuers have stepped up with "unprecedented" speed to help people who have been affected by the coronavirus pandemic, Rossman says. Some companies are allowing customers to skip payments without interest for up to four months, while others are offering payment deferrals for one month or are waiving late fees, he adds.

"It definitely pays to ask about your options," Rossman says. "Your mileage may vary in terms of what you get," but these Covid-19 payment assistance programs allow for some flexibility that will protect your credit score

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Rossman says that lenders require very little, or even no, documentation of how the pandemic has affected you, and typically the customer service representative who answers your call is equipped to deal with your request for help. 

While surveys suggest people are struggling to make ends meet, and more than 44 million Americans have lost their jobs in recent months, the percentage of accounts that have entered financial hardship status hasn't increased as much as Rossman expected. According to figures from TransUnion, only 3.2% of credit card accounts were had financial hardship status status as of April, which was lower than auto loans (3.5%), personal loans (3.6%), and mortgages (5%).

"I'm surprised how few people are taking advantage of these hardship programs," Rossman says. "These programs can save you money and save your credit score. Sometimes people are afraid to speak up because it may be seen as a sign of weakness, but these programs are meant to help you."

Sometimes people are afraid to speak up because it may be seen as a sign of weakness, but these programs are meant to help you.
Ted Rossman
credit card analyst at Bankrate

2. Know what you can and can't afford

Many of the current hardship programs have specific terms, but even during normal times, Espinal says many people don't realize they can work with their credit card company to come up with a solution for paying down debt

For example, when Espinal was tackling her debt, she found that the beginning of the month was her most stressful period financially because both her rent and credit card payment were due. She called her credit card company and found that it was "very flexible" and granted her request to move her payment date to the end of the month instead. 

"I didn't know credit card companies can be friendly with you," Espinal recalls. "Don't be afraid to ask."

While it may only take about 20 minutes to resolve your request, it helps if you're prepared with details about your debt and the help you need. To maximize your chances of success, Espinal recommends the following four tips: 

  • Start by identifying the problem that's making it difficult for you to keep up with payments, such as a job loss or reduced income during the pandemic
  • Tell the customer service representative what you can and can't afford to pay
  • If the customer service representative isn't helpful, call back and talk with someone else
  • Do call, even if there are long hold times. It's more effective than reaching out via text or live chatting

"There are so many possible ways to work with your lender," Espinal says. "It would be a shame for you to be at home and feel frustrated."

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3. Stick to the plan you make

It's important to get confirmation of whatever payment assistance you've agreed upon with your lender to ensure you don't run into any unexpected repercussions. Having permission to defer a payment is key so your credit score doesn't take a hit, but you're probably still on the hook for the interest that accrues, Rossman says.

"If you can skip a payment, but interest still accrues in the long term, you still have to pay the piper," he says. And while the average interest rate for credit cards has fallen in the past year to 16% currently, according to figures from CreditCards.com, this rate still is relatively high by historic standards and when compared to the amount of interest you will earn by saving the money instead. The average rate for a savings account currently is just 0.1%, according to Bankrate.

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That rate will be important down the road, especially if you're struggling to pay your bills in full right now. It took Espinal about 18 months to pay off her credit card debt, and she used online calculators to figure out a payment plan that made sense — and then increased the amount she paid over time by supplementing her income with side hustles like babysitting.

It may also make sense to shop around for a credit card with a lower — or even promotional 0% — interest rate, Espinal advises, adding that you'll want to be mindful of the associated terms to make sure you don't lose that rate.

Finally, set up auto payment on your credit card if you haven't already.

"It's one less headache, especially if you know that your interest rate is at 0%," Espinal says. "Those are really amazing things to help people sleep better at night."

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