One of the biggest challenges posed by Coronavirus has been people losing their jobs. After months of being closed, some businesses just couldn’t survive, and their employees lost their jobs as a result. If you’ve been having trouble paying your bills due to job loss, you’re not alone. In this article, we are going to cover the impact of COVID-19 on not only jobs, but credit ratings and the finance world, and what this means for getting debt relief. From credit card debt consolidation programs to student loan repayment forgiveness, there’s likely a form of debt relief that’s perfect for your situation. Read on and discover what options you may have!
Impact of COVID-19 on Debt Relief
As the world scrambled to cope with the effects of COVID-19, federal and state governments began offering assistance for citizens who were financially affected by the pandemic. Fortunately, many businesses and financial institutions have also stepped up to provide relief for those who suddenly lost their income.
One example of this is the Coronavirus Aid, Relief and Economic Security (CARES) Act. This put into place rules for lenders that report data to credit bureaus so the information won’t hurt consumer credit scores. Experian, one of the major credit bureaus, is urging all consumers who are in financial distress as a result of COVID-19 to contact their lenders for accommodations.
Financial Institution Help
When the COVID-19 crisis began, the Federal Deposit Insurance Corporation (FDIC) recommended that financial institutions work with consumers to help them deal with any financial hardship resulting from the pandemic. As a result, many banks and lenders announced relief options for impacted consumers, including reduced monthly payments, waived late fees, temporarily reduced interest rates, and more.
Collectors still have to follow the same basic rules when they contact you. And, some states are limiting what collectors can do during this emergency. If a debt collector has sued a borrower, they might attempt to obtain a garnishment order to seize their stimulus payments when they arrive. Some states have temporarily made debt collection seizures such as these illegal. Check with your state’s attorney general to learn about what emergency limits on debt collection actions apply in your state.
Student Loan Assistance
During the Coronavirus emergency, the federal government and many state and local governments established programs to help people manage their student loan debt. The Department of Education temporarily stopped the collection of federally-owned student loans that are in default, for example.
During the pandemic, even if you weren’t in default on your federal student loans, you didn’t need to pay your monthly payments from March 13 through September 30, 2020. New interest charges were also suspended temporarily.
Is Self-Help Debt Relief Possible?
If your debt hasn’t gotten totally out of control, you might be able to implement a debt relief strategy yourself. The benefit of these tried and true methods is that they’ve been vetted by debt reduction experts like Dave Ramsey. Countless folks have been able to wipe their debts clean using these methods, so they’re a great place to start no matter what your circumstances are.
Debt Snowball Method
With the debt snowball method of debt relief, you pay down your debts one account at a time, beginning with the one with the lowest balance. This method is good for quickly boosting your credit score.
Debt Avalanche Method
The debt avalanche method is similar to the snowball method of paying down debts one account at a time, but instead you start with the accounts that have the highest balances first. This method takes longer but has the benefit of making more significant progress when you finally pay the accounts off one by one.
Debt Consolidation Programs
Debt consolidation programs can include consolidation loans and balance transfers. Credit card debt consolidation helps you reduce your debt by combining multiple balances into one loan or credit card. Keep in mind, debt consolidation programs don’t totally eliminate your debt—they just make it easier to get out of debt quickly.
Consolidation loans come with the added bonus of having simple interest rather than revolving interest, which means you aren’t charged interest on top of interest as with credit cards. Also, having one lower monthly payment helps prevent late or missed payments.
With a credit card balance transfer, your debt is transferred from other cards, sometimes for a minimal fee, but often at a reduced introductory rate. Be careful to check what the rate will be after the introductory period.
How Debt Relief Can Affect Credit Scores
Your credit utilization rate makes up around one-third of your overall credit score, so when you pay down debts, your credit score can improve dramatically. This rule of thumb holds especially true when it comes to revolving credit lines like credit cards and the balances are hovering near their limits. Because of this, it’s best to keep your utilization rate below 30% on revolving accounts to avoid negative impacts on your credit score.
Sometimes, reducing your debt can lower your credit score, for example, when paying off a multi-year loan and closing the account. Closing accounts can change your mix of credit, and that’s not always good.
Keep this in mind, because the type of debt relief program you choose can positively or negatively affect your credit score. One example is debt settlement, which may have a more negative effect than other types of debt relief programs like debt consolidation.
Where to Find Debt Relief Services
If you’ve been getting harassed by creditors as a result of the pandemic, Alleviate Financial is here to help. We’ve been helping clients that have dealt with financial hardship because of the pandemic, so we can find the debt relief program that’s best for you. Our team of debt relief experts always considers your entire financial picture, including your credit score over time.