With more than 30 million people now unemployed as a result of COVID-19’s economic impact, individuals with credit card debt are placed in a precarious position, unable to pay their past-due or upcoming bills as their incomes shrink or dry up entirely.
About 59 percent of adults in the United States had credit card debt when the coronavirus pandemic began nearly three months ago, according to a survey conducted by CreditCards.com.
Worse yet, without a steady income, consumers are likely to continue using credit cards as a short-term solution to payments otherwise made with earnings, likely expanding existing debt. The same survey confirmed that more than a quarter of individuals with outstanding amounts due on their cards indicated that the bulk of their debt was from paying for day-to-day expenses with plastic.
Americans with credit card debt are therefore left with little recourse. They can’t pay back the amounts owed and are essentially forced to continue using credit to keep food on the table as they wait to go back to work or for unemployment benefits to process.
Such struggles come on the heels of news that the additional $600 in unemployment benefits allocated by the Coronavirus Aid, Relief, and Economic Security (CARES) Act has been delayed in many states across the nation, likely furthering credit card usage as the pandemic extends into its third month.
Steps to Get Credit Card Relief During the Coronavirus Pandemic
If you’re looking for some credit card relief during coronavirus and concerned about how to avoid getting in even deeper throughout the pandemic, there are a few steps you can take.
Your first action should be to contact your bank or credit card company to inform them of financial hardship.
“For those who need help with their credit card debt during COVID-19, you should consider negotiating with your credit card company,” says certified financial planner (CFP) Jeff Rose. “They can offer you a workout agreement, which means you will stop using your credit card, allowing you to eliminate some or all of the fees accrued if you’ve passed the card’s credit limit.”
“With this plan, you will still owe the balance, and will still need to pay it off, but the good news is that things won’t continue to get worse,” Rose adds.
In your approach to creditors and lenders, be honest. Spell out the degree of financial hardship you’re experiencing to best plead your case.
“Be truthful, and be straightforward,” CFP Ira Smith recommends. “Treat them with the understanding that they have their own expenses, too. They have the same similar issues. If they’re not getting paid by you, they’re going to have a shortfall on their end.”
“When reaching out, whether it’s to your creditor, to your landlord, or to your mortgage lender, understand they’re also a person like you who’s worrying about the same thing,” Smith says. “If you approach it from an empathetic perspective, you might have more success.”
What If I Still Need to Use My Credit Card?
If it’s necessary to continue using your card while in debt, you’ll likely have to employ some degree of household austerity to keep the amounts owed as low as possible. This includes re-evaluating your budget and boiling down your monthly expenses to only necessities.
“With so much financial uncertainty going on, it’s important not to spend unnecessarily,” Rose says. “Look at your credit card statement, look for things like subscriptions, patterns of needless spending, and other things of that nature.”
“Then eliminate those items,” Rose continues. “The best way to mitigate and manage any debt you take on is to limit what you’re spending right now. If you need to borrow money to pay for necessities, there’s absolutely no room in your budget for things you don’t need.”
“Your steps right now should involve, at the very least, not increasing your debt,” Smith adds. “It boils down to having as much of a positive effect on your cash flow as possible.”
Reducing your overhead and working with your lender can help mitigate the unprecedented effects of our current recession. Check out our COVID-19 page for additional tips and tricks for dealing with everything else.