Covid-19 and your credit?

As the country faces an economic crisis, the coronavirus pandemic has left many citizens with a lot of questions. They believe that the effects of this pandemic will be felt for many years, even after the virus has been contained.

One thing that might be disturbing you is how your credit score will be affected by this pandemic. Here we discuss how you can safeguard your credit score and the steps the creditors and lender are taking to make things easier for borrowers.

Q: What are the steps you can take as a consumer to protect your credit score in the face of the coronavirus pandemic?

The following practices can help you minimize the negative effect of Covid-19 on your credit score:

  • Pay what you can afford: If you have a source of income, do not stop repaying your loans. Pay the little you can manage, depending on how you agree with your creditor or lender.
  • Seek help: Creditors and lenders are a bit understanding now. If you cannot make repayments on your loans, reach out to them and see if there’s any way they can help you.
  • Add consumer statement to credit reports: It is good to explain your situation by adding a brief statement to your credit reports.
  • Keep checking your credit reports: You can get your credit report for free from the credit bureaus. Checking these reports can help you know which areas need urgent attention.

Q: What steps can you take to prevent getting into a debt trap during this coronavirus pandemic?

The reasons to get into debt are plenty; pressing bills to settle, medical loans, and student loans are just a few of them. To mitigate the situation, observe the following:

  • Talk to your creditor and lenders: Don’t shy away from talking to your lenders. Some can agree to defer your payments, while others may offer you better loan terms like lowering the interest and extending the payment period.
  • Budget well: Keep your credits as low as possible. Budgeting means you only spend on what is necessary and also live within your means.
  • Keep repaying your loans: It is easier to negotiate with your lender if your repayment history is good. Failing to submit your monthly loan repayments can lead to higher interests and penalties, which will affect your credit score.

Q: What if I have been laid off or I am facing a temporary closure, or I have fallen into debt because of coronavirus?

If you are facing a financial hardship caused by the coronavirus, the first thing to do is to discuss with your creditors and lenders and see what they can do. Fortunately, these lenders and creditors already know that many people are in financial crisis and are already taking steps to help consumers face their financial burdens.

  • FHFA (The Federal Housing Finance Agency): Freddie Mac and Fannie Mae (both overseen by FHFA) recently directed mortgage servicers to set up a moratorium on all evictions and foreclosures for borrowers who are facing financial problems caused by Covid-19. If you have experienced a financial crisis, report to your lender and you can be relieved for some time. For more information, visit FreddieMac.com and FannieMae.com.
  • The education department: If you have a student loan, you can stop repaying it for a period no less than two months. For more information on this, visit ed.gov/coronavirus and StudentAid.gov/coronavirus.

Q: How are missed payment allowances, deferred payments, and other actions taken by issuers of credit cards reflected on your credit card reports?

It’s worth remembering that even a single missed or late payment will impact negatively your credit score. These missed and late payments will be reflected on your credit reports for 7 years.

It will take at least 30 days for late payments to reflect on your credit report. This means making payments within 30 days after the due date can stop the late payment from reflecting in your credit report. However, you will still have to be charged interest for the late payment.

What matters most is that when you are facing financial hardship due to coronavirus, is not hesitating to discuss with your lenders and creditors. They will definitely find ways to make things a little more bearable for you. They can even waive the interest for late payments or change your loan terms to make them friendlier.

How Medical Bills Contribute to Rising Debt

Millions of Americans have credit card debt. For many who struggle with chronic or unexpected medical problems, credit cards are an unfortunate last resort when bills begin to pile up. Even healthy Americans may accrue credit card debt simply trying to pay for medical premiums or deductibles for routine care. Learn how medical bills can lead to credit card debt.

6 Medical Expenses that Increase Credit Card Debt

Healthcare is supposed to keep you healthy, but the costs associated with having health insurance and actually using it quickly add up. Take a look at the most common types of medical expenses that contribute to high credit card debt.

Medical Premiums

Premiums for health insurance vary greatly. Higher premiums may be associated with choosing a PPO instead of an HMO. Also, purchasing health insurance yourself instead of through an employer-subsidized benefit program may lead to higher costs.

Health Plan Deductibles

Deductibles are the price you pay for medical and pharmacy services before your benefits actually begin. That means you may be responsible for thousands of dollars in medical costs even if you pay your health insurance premiums on time.

Cost Shares for Medical Services

After your deductible is paid, you will still be responsible for copayments and coinsurance for services received. If you were in the hospital or had a complex procedure, your share of the cost may be more than you can pay.

Uncovered Services

Health insurance covers a variety of services, but not everything. If you need a service that is not covered or your provider didn’t follow plan rules, like completing a prior authorization, you may be responsible for the full cost. Common services not covered by health plans include alternative therapies, acupuncture, and fitness programs.

Health Plan Changes

When changing jobs or moving from one plan year to another, you may experience a temporary lack of coverage or suddenly discover that previously covered services are no longer paid for under your new plan. These health plan changes lead to additional, unexpected out of pocket costs.

Prescription Drug Costs

Costs for prescription drugs are overwhelming as some drugs can be in the thousands per month. But without the drug, your health may suffer. Many people choose to pay for their prescriptions by adding to their credit card debt.

If you’re not financially prepared to pay for the above costs, paying with a credit card may seem like the only option.

Financial Hardship: 3 Reasons Medical Credit Card Debt Rises

In addition to the medical bills discussed above, credit card debt can begin to accrue rapidly after a significant medical event or during chronic illness. Consider the following examples:

  • Time away from work. When you’re unable to work due to a medical issue, you may suddenly need to pay for living expenses without having an income.
  • Medical supplies and durable medical equipment. Certain medical supplies and durable medical equipment may be required for your condition, but may not be covered by your plan.
  • Caring for family members. If you’re caring for a child or family member who has an illness, it’s tempting to cover basic expenses with your credit card while you’re unable to bring in extra income.

You Can Overcome Credit Card Debt

Whether you’re just starting to accrue medical debt on your credit cards or feel like you’re drowning in debt, it’s important to know there is a way out.

A solid financial plan, the development of a reasonable budget and credit counseling are all bankruptcy-free solutions that will get you out of debt over time.

The quicker you pay down your medical credit card debt, the less interest and fees you will pay in the long run which means you keep more of your hard-earned money.

Credit Card Debt

Credit cards are very common as they are easily accessible for secure purchases of goods and services. Credit card users enjoy many perks such as travel points, spread the cost of purchases, and reap discounts. However, the major challenge comes when managing credit debt. If card debts are not managed correctly, even the avid credit-card user can encounter a financial meltdown. Nonetheless, by learning the common mistakes that credit card holders make, you can develop ways to manage the debts better.

Continue reading “Credit Card Debt”