COVID19 Relief - Credit Card Hardship : Forbearance vs Deferment

Credit card hardship has been magnified by the pandemic as has a wide range of financial challenges, leaving millions of people burdened with the weight of debt and fear for the future. This pandemic is still with is, causing much emotional pain on top of their finances.

We survived 2020 and now we hold our breath in 2021, wondering about what the future may bring to us. There have been incredible challenges faced by people all over the world that have changed the way people live, work, and interact. Specifically, the COVID-19 pandemic, which began impacting the United States toward the beginning of the calendar year, has impacted every aspect of society, from health care to business to the way people celebrate birthdays and go to school.

Credit Card Hardship

When learning about COVID-19, there is an emphasis on the health aspects of the pandemic, including mental and social health. However, the impact on businesses and personal finance simply can’t be ignored. Due to the way the pandemic has changed business operations and people’s ability to work, many people are facing financial hardships that seem to have no real end in sight. The instability of people’s income means that, even when the pandemic passes and people return to work, they will have debt that must be repaid for years to come. Even families who were once comfortable are now at risk of experiencing financial hardship for a long time to come.

Credit card debt is one area in which people are struggling to make payments and achieve stability. Some people are using credit cards to pay household bills since they aren’t working, which is resulting in greater personal and family debt to contend with. The purpose of this article is to examine the impact of COVID-19 on businesses and individuals, how it includes credit card debt, and what people can do to get relief during this difficult time.

The COVID-19 Pandemic

While society has faced events that have impacted businesses and individuals, the COVID-19 pandemic is unlike anything that has been experienced in the United States to date. Along with the serious impact on individuals’ health, the American economy has seen major changes and will likely be recovering from this experience for years after the pandemic passes.

All over the world, people are facing the significant impact of COVID-19 and the pandemic that has come from it. Across the globe, millions of people are ill because of this virus, and it seems to show no signs of slowing down, particularly in the United States. Many people are drawing parallels between the COVID-19 pandemic and the Spanish flu pandemic that occurred in the early 1900s. While there are some notable differences between the two, there are also many similarities. One important similarity is that, like the Spanish flu, the COVID-19 pandemic should be taken very seriously.

The pandemic has emerged because of the virus itself, how it is spread, and the lack of treatment currently available. Even with precautions in place, the lack of treatment and/or vaccine means that it can still be spread. For example, even taking short trips to the grocery store for necessary supplies can result in spreading the virus. Understanding this pandemic can help you understand why credit card hardship has become a major issue in recent months.

What is COVID-19?

COVID-19, also referred to as coronavirus, is a virus that can be spread person-to-person. The well-known symptoms of the virus include dry cough, high fever, body aches, and fatigue. Some people have additional symptoms, while others experience few, if any symptoms. The severity of the virus, including whether hospitalization is needed, depends highly on the individual, any risk factors, and overall health.

Some risk factors include age (those over 65 are more vulnerable), pre-existing heart and/or lung conditions, and a weakened immune system. While the virus can affect anyone of any age or health level, people with these risk factors are more likely to contract the virus and, if they do, may be more likely to experience it much more severely.

COVID-19 is a new strain of a virus, which means there are no existing treatments or vaccines for it. As a result, when people contract the virus, they must simply go through it, with care providers addressing symptoms rather than treating the root cause. In addition, the virus is highly contagious because people are typically asymptomatic when they are contagious, meaning they don’t know they are sick and could spread the illness.

Since people can spread COVID-19 without realizing they’re sick, this has been a big factor in creating the pandemic. People contracted the illness and spread it before they were symptomatic, tested, and quarantined. By the time the reality of the illness was known, it had already spread to pandemic levels. Some of the lack of information is due to leaders not sharing information to reduce panic, while some of the lack of information is due to the virus being new. That is, scientists are still learning about it in order to develop a treatment and vaccine.

Along with treating patients who contract moderate to severe symptoms, those who become sick are advised to isolate themselves in order to reduce the risk of spreading the virus further. Even those who are not symptomatic are advised to use social distancing and protective measures to minimize their risk of contracting the illness or, if they are carrying it asymptomatically, spreading it to others.

Social distancing is a practice that asks individuals to maintain a distance of approximately six feet in public. This distance between people reduces the likelihood that the virus is transmitted from one person to another. In addition, medical professionals recommend wearing a protective cloth mask over the mouth and nose to prevent spreading the virus through coughing, sneezing, talking, and breathing. Face masks are especially important when social distancing can’t be reasonably maintained.

Finally, medical professionals recommend greater attention to personal hygiene, including hand-washing practices and the use of hand sanitizer. The CDC recommends that you wash your hands with warm water and soap, scrubbing for a minimum of twenty seconds, and avoid touching the tap with your hands to turn off the water afterward. Hand sanitizer can reduce germs on hands, but is not a substitute for recommended hand-washing practices. Rather, it’s an extra layer of protection.

It’s important to remember that the measures recommended are not just to prevent you from getting sick, but to prevent you from spreading the virus to others, as well. Since individuals are contagious while asymptomatic, you can be spreading the virus to others before knowing you have it. Social distancing and wearing cloth masks in public is intended to minimize the spread of the virus to help keep hospitals and other medical facilities from being overwhelmed by patients in need of intervention.

How is it impacting businesses?

Along with the serious impact of COVID-19 on individuals and families, it has resulted in a serious impact on businesses in society, as well. Most notably, the social distancing and stay-at-home orders issued in local areas by mayors and governors have resulted in business closures and reduced business for open businesses. Some businesses are unable to open because they aren’t considered essential businesses (such as grocery stores, gas stations, and medical facilities). This eliminates revenue for businesses that aren’t able to adapt to online sales. Businesses that are open are still impacted, as well. Companies are advised to encourage social distancing in their locations. To accomplish this, many businesses are limiting the number of customers in a location at a time. This means that they may have to turn away customers to prevent over-crowding, resulting in lost business.

In addition, many businesses are facing difficulties with staffing due to employees contracting COVID-19 or choosing to not work to protect themselves from contracting COVID-19. This is particularly true for essential businesses. Since these organizations had to stay open to provide essential services for the public, the employees were at high risk for contracting COVID-19. When that happened, the businesses were short-handed. Since the virus has not been effectively controlled, some people have decided it’s a safer decision to not work rather than be in high-risk environments. Employees who have risk factors or live with family members with risk factors are more likely to make this decision.

Overall, businesses are suffering because of the COVID-19 pandemic. Revenue is reduced, and until there is a vaccine and/or effective treatment for the virus, there is no way to know when things will return to normal in society. Unfortunately, this means that many business owners and leaders have needed to make difficult decisions about operations and staffing. Reducing staffing or getting employees to work from home or reduce hours may protect some aspects of business, but it can, unfortunately, compound problems faced by individuals going through the pandemic.

How is it impacting individuals?

One of the big reasons businesses are impacted by COVID-19 is because of the impact to individuals. This is seen both in individuals who contract the virus and those following recommendations to minimize time in public to reduce exposure and the spread of the virus.

Those who contract COVID-19 often experience symptoms severe enough to prevent them from being productive on a day-to-day basis. In addition, those diagnosed with COVID-19 are advised to isolate themselves for a minimum of fourteen days to prevent exposing others to the virus. Many people experience symptoms longer, which extends the need for isolation. Most people are unable to work during this time, which can have a profound impact on personal and family finances. Along with fears about medical expenses, individuals who contract the virus worry about how to pay their household expenses and other bills.

In addition, many businesses, such as non-essential businesses, are still closed in an attempt to minimize the spread of COVID-19. With so many businesses closed, and so many areas under stay-at-home orders, people are unable to work. Like those unable to work due to getting the virus themselves, those unable to work due to stay-at-home orders are experiencing financial insecurity, including fears about how to pay their household bills and other expenses.

For many people, the pandemic is simply adding to financial problems that were already there. People who are struggling financially have found themselves facing life without a reliable source of income and no ability to replace the missing job due to business closures throughout the nation. Even though paying bills with credit cards may seem like a good solution, particularly for the time being, it can contribute to the problem and even result in more serious financial troubles later on. This is especially true because there is no way of knowing how soon it will be until the pandemic is over and society can return to some form of normality, at least in the context of business and personal finance.

COVID-19 and Credit Card Debt

One aspect of society highlighted by the COVID-19 pandemic is the lack of savings most people have. Though financial experts recommend setting money aside in savings and for emergency funds, this is not practical for the majority of people. That means that, when the pandemic hit, most people had no savings to fill financial gaps when their employers closed and altered operations to adapt to CDC recommendations and statewide orders.

Even though businesses closed and people weren’t working, the common expenses associated with daily living, like groceries, rent, and utilities, didn’t change. People who weren’t working were still expected to pay their bills. People who contracted COVID-19 were still expected to pay their bills. For people without savings, this left few options except to turn to alternative payments, such as credit cards.

In order to pay necessary expenses, some people may be relying on credit cards as a form of payment. Unfortunately, this can simply delay the inevitable. If you are unable to pay your household expenses due to the pandemic, it stands to reason that you will be unable to pay your credit card bill due to the pandemic. As a result, people’s credit card debt increases, including interest, and they are unable to catch up and achieve greater financial stability.

One of the problems with increasing credit card debt during the pandemic is that interest continues to accrue, even when minimal payments are made each month. Instead of chipping away at debt, people using credit cards to manage their expenses during the pandemic are only adding to it. Since there’s no way to know when people will be able to get back to work and make progress on their credit cards, there’s no way to know just how severe their credit card debt will become.

Options for dealing with credit card debt

If you are facing credit card debt in the midst of the pandemic, there are steps you can take to create greater financial stability for yourself. While you may not be able to simply erase your credit card debt, the credit card companies know that this is a difficult time for everyone, and they want to find way to make things as easy as possible until things return to normal.

If you can’t pay your credit card bill, even for one month, your best bet is to reach out to the company and explain your situation. They may have a program in place for temporary relief, such as delaying your payment or allowing you to skip one month’s payment without penalty. Depending on your situation, this may be enough for you to get back on track with your credit card payments. Even if you need more than just one month’s relief, it’s better to reach out to the credit card company rather than simply letting the bills and late fees pile up month after month.

When you talk to your credit card company, there are a few options to ask about:

Forbearance or deferment. A forbearance is a way to reduce or skip payments over a period of time without penalty. This can often be used for credit cards and loans, depending on the policies of the company. The length of time will depend on many factors, including the company and your payment history. You are still responsible for the amount of the payments skipped once the forbearance period is over, but this gives you a little time before you have to worry about paying your credit card bill again. Essentially, forbearance puts your bill on hold for a period of time without late fees involved. It’s likely that you’ll still accrue interest on your balance during this time.

In many cases, a forbearance will also look better for your credit report. Missed payments can have a negative effect on your credit report. But a forbearance brings your payment history current because of the relief period. That means you aren’t missing payments during this period. In some cases, a forbearance will also bring your account current, even if you’ve missed a few payments prior to getting approved for the forbearance.

A deferment is similar to a forbearance. The main difference is that, with a deferment, you are most likely not required to pay the interest that accrues during the relief period. This is obviously a more advantageous option for those who aren’t able to pay credit card bills due to COVID-19, but there’s no guarantee that your credit card company will be able to offer you a deferment instead of a forbearance. Most companies make these offers on a case-by-case basis. As with a forbearance, a deferment will not negatively impact your credit report. Instead, it will bring your account current rather than showing skipped payments during the deferment period.

Waiving late fees. Along with accrued interest, one of the big problems with credit card debt during the pandemic is the late fees that amass when you’re not able to make payments on time. These can add up quickly, and they only make the debt higher. If you have a good payment history with your credit card company, you may be able to ask for the company to waive or refund late fees that come from payments missed due to the pandemic. In some cases, late fees may only be waived on a minimum basis, such as for fees already accrued or for one or two upcoming payments. With this solution, the full amount of the balance will be owed, including any interest accrued.

Interest rate adjustment. When you can’t pay your credit card bill, the interest on the balance continues to accrue, which means your balance increases even if you don’t use the card. If you need assistance due to the pandemic, one area you may be able to get flexibility is in the interest rate on your card. Your company may be willing to reduce the interest rate on your card, even temporarily, to reduce the financial impact of the pandemic on your credit card bill. This can help you get caught up quicker since interest continues to accrue unless you get a deferment on your bill. With this solution, your credit card payment will still be due each month, and will likely still be subject to late fees, but can reduce your overall payment each month.

Payment plan adjustment. If you are not using your credit card, such as in the case of a maxed out credit card, you may be able to address your payment plan. Since credit card companies know this is a difficult time for so many people, you may be able to renegotiate your payment terms to something that works better for your finances. You’ll still need to repay what is owed, but you may be able to reduce the monthly payment, at least during the COVID-19 pandemic or while you’re not working due to the pandemic. Your credit card company likely has policies in place for payment plan adjustments, including for the pandemic. This solution is often based on your individual financial situation, such as your monthly income and other essential bills you have to pay.

Financial assistance programs. Since the COVID-19 pandemic has had such a big impact on society, including personal and business finances, there are programs that have been developed to help deal with people’s financial needs. These programs can offer financial assistance to those who meet certain criteria and/or need. While they may not always be available to pay credit card bills, they can help reduce other expenses, such as food and rent, so that other household income can be reallocated to credit card debt.

The CARES Act. Put into place in March 2020, the CARES (Coronavirus Aid, Relief, and Ecnomic Securities) Act was designed to address the financial impact of the pandemic. For those dealing with credit card debt, the CARES Act has the biggest impact on your credit report. The law requires that, if you receive flexibility or accommodations for your credit card payments, such as a forbearance, the creditor is required to report to the credit bureau(s) that you are complying with your payment obligations.

Things to consider when dealing with credit card debt

When you’re dealing with credit card debt, especially in the midst of the COVID-19 pandemic, there are some things that are important to think about. These aren’t the only considerations, but they can help you navigate your credit card debt more effectively so you can get through the pandemic a little more easily.

Solutions depend on the company. Each credit card company has their own policies for handling bills and accommodations for hardship. The solution you work out will depend on the standard policies you agreed to when you got the credit card and any policies that the company has put in place to address the COVID-19 pandemic. Your credit card company may have sent you information about their hardship policies, particularly if they’ve been developed specifically for the pandemic. If you’re not sure, reach out to the company and ask what they have in place.

Solutions depend on your history. How much a credit card company is willing to work with you during hardship often depends on your payment history. If you have a history of paying your bill on time and in full, you may be more likely to get assistance or accommodations during the pandemic. However, even if you’ve struggled to pay your bills in the past, the pandemic is an unprecedented situation. You should still reach out to the company and see if you qualify for assistance.

Solutions depend on your spending. No matter what other steps you take to deal with your credit card debt during the pandemic, it’s a good idea to stop using the card. If you keep spending on the card, you’re going to keep accruing more debt, which will make it harder to address the problem. It can be hard to stop using your credit cards if they’re bridging the gap between your income and your household expenses. But, ultimately, the continued spending will just make the long-term consequences worse, even after the pandemic has passed. Along with curbing your credit card usage, it’s a good idea to take a look at your overall budget and spending. Minimize any non-essential spending to reduce your budget as much as possible so, even if you have to keep using your credit cards, the overall spending will be lower from month to month.

One additional point to remember is that, though you should stop spending on your credit cards, if possible, canceling the cards is not necessarily the best decision when dealing with debt during the pandemic. Canceling your cards when you have a balance doesn’t erase the debt, including from your credit report. Instead, you should keep the cards open and pay down the debt to improve your credit score. Once you pay off the balance, you can still cancel the card to avoid ending up in the same problem in the future, if you decide that’s the best decision for your budget.

Solutions depend on communication. No matter what else you do, your best course of action is to speak with the credit card company and come with a solution that works best for you as well as for them. If you don’t talk with the company, your debt will simply increase, and it will negatively impact your credit score. The more information you can provide your credit card company, the easier it will be for them to understand how best to help you with dealing with the debt. Staying in communication about changes to your situation, including positive changes, will also show the credit card company that you want to work with them to pay your credit card debt rather than simply skipping out on payments because you can’t or don’t want to find a solution.

Many people are facing financial hardships as a result of the COVID-19 pandemic ravaging the nation and the entire world. Whether your hours have been reduced to accommodate social distancing or your employer hasn’t reopened as a non-essential business, you may have been using your credit cards to bridge the gap between your income and your expenses. While this can be a temporary solution, the uncertainty of the pandemic’s timeline means there’s no way of knowing when your finances will return to normal.

Fortunately, there are ways you can ease the hardship of your credit card debt as a result of COVID-19 effects. Ultimately, the best solution will depend on what your credit card company has to offer and your history with the company. The good news is that companies know that this is a difficult time for everyone, so they may be more likely to work with you to find the best solution for everyone involved. If you need help with your credit card debt, especially if you’re unable to make your regular payments, the first step is to call your credit card company and see what they have to offer to help ease the hardship until business and society starts to return to normal.

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