No matter where you live in the United States, there’s a good chance that the coronavirus pandemic has affected your finances somehow. According to an April 2020 study by the credit reporting agency TransUnion, 61% of U.S. consumers have been financially impacted by the global health crisis. The average affected consumer anticipates that he or she is just a little over six weeks away from being unable to pay bills or loans.
On a positive note, the federal and numerous state governments have taken steps to support those who have lost their jobs or are earning less during the pandemic. Many companies are also offering help to those who are struggling financially.
Read on to discover some strategies and resources that you may be able to use if you can’t afford to pay your bills due to the coronavirus crisis.
Reach Out to Your Utility Companies
If your income has been affected by the COVID-19 pandemic, one of the first steps you should take is to switch to a temporary crisis budget. An essentials-only budget will likely require spending cuts, even where your utility services are concerned. For example, you might consider canceling non-essential services (like cable or satellite) or lowering your current mobile phone plan to a cheaper option.
Certain utilities, however, fall under the essentials category. But paying for even the basics could be challenging if you have money problems. Thankfully, many utility providers and telecommunications companies offer temporary relief to customers impacted by the coronavirus crisis.
Special accommodations are mandatory in some states, including Indiana, Texas, and Connecticut. Elsewhere, companies may willingly offer aid and adjust policies independently. In either case, you’ll need to proactively reach your utility company to see if any hardship relief is available.
A few examples of well-known utility providers offering COVID-19 relief to customers include:
- Comcast, the internet and mobile services provider, is offering help to customers in several ways. First, the company will postpone the disconnection of service and waive late fees for customers who request hardship assistance. Xfinity customers can also take advantage of unlimited data for 60 days at no additional cost. Some customers may be eligible for 60 days of free internet service. Finally, the company offers free Xfinity WiFi hotspot access to the public, even non-Xfinity subscribers.
- Duke Energy, one of the nation’s largest electric power holding companies, has promised not to disconnect service for non-payment during the pandemic.
- Pacific Gas & Electric Company (PG&E), another large electricity provider, has placed a temporary hold on utility shut-offs for non-payment. The California-based company has also informed customers who have had their incomes affected by COVID-19 that they may be eligible for a reduction in their energy bill.
Remember that even if your utility provider offers you a period of reprieve, there may be a catch. Your bill likely won’t be forgiven. Therefore, paying as much as you can afford each month is wise. Doing so may help you avoid running up a high balance that you’ll have to deal with in the future.
Contact Your Creditors and Lenders
Aside from utility providers, other companies you owe money to monthly may also have special hardship programs available during the COVID-19 crisis. Again, some payment relief is mandated by federal and state governments, while other hardship options are offered voluntarily.
With federal student loans, for example, the federal government has given many borrowers an automatic six-month break from both payments and interest, valid until September 30, 2020. The CARES Act, which President Trump signed into law on March 27, 2020, also provides mortgage relief for borrowers with federally-backed home loans.
Your bank or credit union may offer forbearance, deferment or other forms of financial assistance on loans you have with the institution. Many credit card issuers have amended their policies or may be offering financial hardship assistance.
Even if you’re financially overwhelmed, don’t skip a payment without reaching out to your creditor or lender to see if it’s willing to help. You might be pleasantly surprised. In many cases, relief options may be available that could help you protect your credit score until you’re back on your feet financially.
Remember to get the full details of any relief options up front, including when the payment accommodation ends. Find out if you’ll need to make up missed payments immediately or over time. Ask how the creditor will report your account to the credit bureaus in the meantime. You should fully understand the terms and conditions and get them in writing before you agree to a special payment arrangement.
Consider a Low-Rate Consolidation Loan
Taking out a loan due to financial hardship can be a risky undertaking. You don’t want to add to your financial problems by taking on more debt. However, suppose you have a good credit score. In that case, you might be able to qualify for a debt consolidation loan that could lower your monthly payments and give you some immediate financial relief.
Imagine the following scenario. You currently owe $10,000 in credit card debt. According to the Federal Reserve, the interest rate on your credit cards is 17%, a little above the national average. Because you have good credit, you qualify for a 48-month debt consolidation loan with an interest rate of 8%.
Here’s a look at your potential savings.
As you can see, the amount of debt remained the same whether it was carried on credit cards or transferred to a new personal loan. But because of the lower interest rate on the new consolidation loan, the monthly payment dropped by $156 per month. You would also save over $3,500 in interest overall.
The example above is hypothetical. Yet the fact remains that if you can qualify for a personal loan with a lower interest rate than you’re paying on your current debt, you should be able to save money—overall and perhaps each month. A balance transfer credit card might offer you the same opportunity on a short-term basis.
If you’re having trouble paying your current bills, lowering your monthly payment obligations could be a big win for your budget. But there is a pitfall that you will need to avoid if you opt to consolidate your debt. Avoid running up new balances on your newly reduced credit cards. If you turn around and charge new debt on your credit cards, you risk digging a more significant financial hole that you’ll have to climb out of later.
Talk to a Credit Counselor
Depending on your situation, a debt consolidation loan or balance transfer card may not be a good fit. For example, when you have a poor credit rating, you might have trouble qualifying for a personal loan with a low enough interest rate for consolidation to be beneficial.
If consolidation isn’t an option and your creditors and utility providers don’t offer enough hardship relief to help you make ends meet, you may want to consider another approach. A non-profit credit counselor could potentially have options available to help you.
Credit counselors offer assistance in a variety of ways. They may be able to offer you advice on budgeting and credit management. In some cases, a credit counselor may be able to help you with a form of debt consolidation known as a debt management program or DMP.
Under a DMP, a credit counseling company can often help you lower your interest rates, pay fewer fees, and pay off certain debts faster (typically within three to five years). When you agree to a DMP, you make a single monthly payment to your credit counseling company each month. The company, in turn, breaks up that payment and distributes it to the creditors included in your DMP. This may lower your monthly payment obligation.
Despite the potential benefits of debt management plans, it’s essential also to consider their drawbacks. First, DMPs usually aren’t free. Many credit counseling companies (even the non-profit varieties) will charge up to $50 per month to manage a DMP on your behalf. Furthermore, you can only include certain types of unsecured debt in a DMP, such as credit cards. If you owe medical bills, have student loan debt, or have tax obligations, a DMP won’t help you in those areas.
If you think talking to a credit counselor may be a good fit, it’s best to do some research first. The Consumer Financial Protection Bureau recommends contacting one of the following organizations to locate a credit counseling company that may be able to help you:
Once you’ve found a credit counseling agency you would like to work with, the CFPB recommends reviewing the company’s standing with your state attorney general and state consumer protection agency before you proceed.
What’s Next?
The options above may provide some solutions to help you survive the immediate financial crisis. But if your health allows you to do so, your best bet will be to find ways to replace or boost your income as soon as possible.
Filing for expanded unemployment benefits may help you get by until you can get back to work. You can also plan to use your stimulus check wisely to get the most mileage out of those extra funds.
