As stimulus checks arrive, student loan forbearance kicks in, and unemployment benefits become easier to access, some Americans are feeling a little relief from the economic upheaval caused by the coronavirus pandemic. But many Americans are still struggling and they're using their credit as a safety net.
Some 23% of consumers, or about 28 million people, have added to their credit card debt as a direct result of the Covid-19 outbreak, according to a recent CreditCards.com survey of 2,552 adults. Overall, "nearly half of U.S. adults (47%) currently have credit card debt, up from 43% in a similar survey conducted in early March," the site reports.
Millennials have taken the hardest hit: Over 1 in 3 adults ages 24-39 who already have credit card debt have gone further into the red because of the pandemic, the survey found. And 58% of millennials surveyed said that their credit card debt is a source of stress.
Many people who have lost jobs or seen a reduction in income are using credit to bridge the gap until that next paycheck or unemployment check comes. "A lot of people view their credit cards as an emergency fund, especially in times like these. So it makes a lot of sense that people would ramp up their spending on their credit cards," says Matt Schulz, chief credit analyst at LendingTree.
"This is squeezing a lot of people, but I think especially millennials, those who are earlier in their careers, those who have young families," says Ted Rossman, industry analyst at Bankrate. They are finding they need to charge necessities such as groceries and medicine, because "there's just not a lot of wiggle room in the budget."
If you've racked up credit card debt as a result of the pandemic, here are four smart, helpful moves experts say you can make.
"I definitely recommend asking your card issuer for a break," says Rossman. "You can potentially skip a payment or two, sometimes even without interest, get a lower interest rate, get other fees waived, and protect your credit score. There's no risk — the worst that can happen is they say no, but most of the time they'll do you a favor."
The process of asking for relief is becoming more formalized, says Rossman, so you probably won't have to do too much "begging or explaining" to get a break, either.
Reach out to customer service over the phone or online, and ask for your issuer's hardship or customer service programs, says Rossman. The front line agents can usually help you with skipping a payment without interest or getting an annual fee or a late fee removed.
"I think if you have to carry debt for a time, it's OK, but ideally you can do it with a little bit of a break. Hardship programs help protect your credit score too, so if you do it with permission, it's OK," he says.
Experts generally recommend paying off your credit card balance on time and in full each month. But "if you can't pay it in full, at least get a 0% balance transfer card. Lenders are worried about risk, they're worried about people not paying them back," so you might find it harder to get one, says Rossman. Look for promotions or introductory offers to get that 0% interest rate, he suggests.
A balance transfer allows you to move your outstanding balance from one credit card to a new card with a low or even zero APR. These low APR offers generally last for a year or two, making a balance transfer a smart option if you can pay off debt by the time the promotional rate expires. Otherwise, your interest rate may skyrocket, and you may end up paying a lot in interest on your remaining balance.
"I think right now there's some people that need to carry debt, and I think that's OK in the broader picture. If you don't have a lot of savings, if you don't have a lot of money coming in, your individual hierarchy should be to prioritize money for expenses and emergency savings," says Rossman.
Video by Ian Wolsten
Another way to tackle credit card debt is by taking out a personal loan. Those require fixed monthly payments for a set number of months, usually 12 or 24. Interest rates for personal loans depend on your credit score and the amount you're borrowing, among other factors. The benefit of a personal loan is that "you get a lower interest rate than your normal card balance," explains Rossman.
A good place to start is by looking at promotions from your credit issuer, he says, since this has the "advantage of not requiring a fresh application." In addition to your existing credit issuer, you may be able to get a loan though a banking institution or credit union.
Personal loans can help you dig yourself out from credit card debt faster, but make sure you know what you're getting into, advises Schulz. "Don't just look at the monthly payment. Make sure know what fees come with the loan. Pay attention to the interest rate and the length of the loan," he says. "And of course, make sure to shop around to make sure the deal you've found is the best one for you."
If you're feeling overwhelmed or unsure of how to tackle your debt, ask for help, says Rossman.
"There's some really good nonprofit credit counselor," he says. "The NFCC [National Foundation for Credit Counseling] offers free initial consultations, and they can help you with good advice, consolidated payments, lower interest rates."
Video by David Fang
Managing debt also means making sure you're not adding new balance while paying down old ones. Creating a budget can help you figure out much you can put towards your existing balance without incurring new debt, say Schulz. It can also help you decide if you may need to "raise some extra income while you're job hunting or waiting for unemployment" by picking up a side hustle or selling something of value, he adds.
If your credit card debt is making you anxious, the best way to alleviate it, says Rossman, is to take action.
"I find that with money worries, people start to feel better when they have a plan," he says. "If you start by asking your card issuer for a break, right there, you might be able to skip a payment, or two, or maybe you can get a lower interest rate. Whatever it is, I think that can give you some short to medium-term relief."
For the long term, it can help to make a plan to chip away at your debt, whether you're using the avalanche or the snowball method. And it helps to look to the horizon, says Rossman: "Hopefully, before long, people are back at work."
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