With the economy suffering as the Coronavirus Pandemic circles the globe, and many people looking for work, it’s no surprise that millions of families across America are having trouble making their monthly credit card, student loan, and mortgage payments.
If you find yourself in this situation, there are options available to manage your debts, many specific to coronavirus, that you should be aware of.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed earlier this year, including specific relief for homeowners who might find themselves unable to keep up with the monthly mortgage payments.
With the passage of the new law, lenders currently cannot begin foreclosure proceedings on any federally backed mortgage for 60 days after March 18, 2020. Additionally, homeowners with federally backed mortgages can request to suspend their mortgage payments for up to one year with no penalties.
Homeowners who don’t have a federally backed mortgage may still be eligible for coronavirus debt relief from either their state or the lender. Some lenders are offering mortgage customers the option to delay payments with no charges or penalties.
Another option is a mortgage refinance, which would reduce the interest rate charged on the outstanding balance. It also might allow a homeowner to remove the private-mortgage insurance (PMI) from their monthly loan payment. Refinancing to a lower rate and removing PMI would reduce the monthly payment for the borrower.
Student Loan Relief
The CARES Act also provides debt relief for borrowers that might find themselves struggling to make their monthly student loan payment. For borrowers that currently have Department of Education-backed federal student loans, the CARES Act affords the option for borrowers to stop making any loan payments until September 30, 2020. It also stipulates that there is zero percent interest on these types of loans until September 30, 2020 as well.
This means that any payments made toward these loans will be applied solely to the principal. This is great news – if your current payment is $500 a month, the full $500 will go towards the principal balance (while normally, a portion of the loan payment will go towards interest). This will help to speed up the paydown process to plow through those pesky student loans. It can't hurt to check to see if your state has any type of student loan relief for which you might be eligible – every little bit helps!
Credit Card Debt Relief
Many credit card companies are offering unprecedented support to their customers, such as the option to increase your credit limit during the pandemic or by offering an option to defer monthly payments.
Another viable option is the traditional balance transfer, which can help to move high interest debt to a lower interest rate to slow the interest that is compounding each month. These options help make credit card debt repayment more manageable. At a minimum, borrowers should reach out to their lender sooner rather than later to see what options are available. Also, consider asking for the credit card company to reduce your interest rate on the credit card – they will likely agree to this.
Personal Loan Relief
Most lenders are offering similar forms of coronavirus debt relief to loan customers as well. If you check with your lender, you might be eligible to defer payments or some other type of relief. Another option would be refinancing the debt to a lower interest rate, which would reduce the monthly payment. If you have financed a vehicle and feel you can no longer afford the payments, consider turning the vehicle back in or trading down in the vehicle. This will not only help to reduce the monthly payment, but also reduce costs for insurance, maintenance and fuel consumption.
For many, the breathing room afforded by the CARES Act to allow families to rebound and adjust their finances still might not be enough. If a borrower’s debt is too high and there is not enough relief, they should consider using a debt settlement service. Debt settlement companies work on a borrower’s behalf to negotiate debt repayment terms with creditors. Oftentimes, these companies can negotiate agreements that reduce an individual’s debt balances with creditors by a considerable amount, which in turn, helps the borrower to become debt-free and eliminate the monthly payment. For instance, if you have an outstanding medical bill for a procedure completed for $1,000 and cannot afford to pay the amount in full, but you can afford to pay $750, the debt settlement service company will work to arrange an offer with the creditor to settle the outstanding obligation for less than originally owed. (Also, oftentimes, late fees and penalties and interest have compounded on the original balance as well, so the debt settlement company will work to settle those amounts for less than what is being charged.)
Another avenue for debt relief could be a debt consolidation service, which takes all of your miscellaneous debts and combines them into one lump sum, oftentimes reducing the number of bills each month and outgoing payments being made.
From an administrative standpoint, debt consolidation is much less of a headache since you are only dealing with one lender now versus a handful.
Debt consolidation might also be helpful if you have high interest debt that you want to consolidate down to a lower interest rate, or if you just feel overwhelmed by the volume of statements and bills being delivered to your inbox on a monthly basis.