Job losses and pay cuts caused by the pandemic have put a severe strain on the budgets of countless households. Your income may have plummeted, but the bills for everything from credit cards to student loans to utilities keep coming. Consumers who are up against it should contact their lenders and other creditors for at least temporary relief.
Q. I’m worried about paying my credit card bill. What should I do?
A. Most credit card companies are allowing cardholders to skip one or more payments. That means you can skip the “minimum payment due” on your monthly bill without a late fee, which can run as high as $39. But — and this is very important — you must ask for what’s often referred to as “forbearance” from your credit card company. I can’t imagine any banks refusing to grant it during these trying times. When I tested my credit card company by asking, the rep on the phone instantly said yes. The difficult part may be waiting on hold to get through to a customer service representative. But that may be easier than you think. My wait was about 10 minutes, after being advised by an automated voice that it would take twice as long. (I could not find a way to do it online.)
Q. Should I take advantage of the chance to skip a payment?
A. Only if you really need to, since the average interest rate on credit cards nationally is slightly more than 16 percent, with some nudging 30 percent. That means that a good chunk of the minimum monthly payment is going toward interest, not reducing your balance.
So if you skip even the minimum monthly payment you’ve done nothing to reduce the balance subject to those high interest rates.
Q. Will skipping payments hurt my credit score?
A. No. With approval, your “skipped” payment is not considered a “missed” one, for the purpose of credit ratings.
Q. Can I ask my credit card company to reduce my interest rate?
A. Yes, but be prepared to make a case for yourself. Factors that may help in negotiations: You have excellent (or very good) credit; you stay well within your credit limit; and you are willing to take your business elsewhere.
Q. Are there other ways to reduce the interest rate on my credit card?
A. You could transfer your credit card debt to a different company with a lower rate. Some credit card companies may entice you with introductory offers of zero percent for a certain amount of time. Look online. Websites like Credit Karma may help.
Q. What about my auto loan?
A. This may be a higher priority that credit card debt, because you could lose your car if you skip payments for 90 days. While missing credit card payments without approval could ding your credit score and lead to calls from debt collectors, if you don’t pay your car loan the vehicle could be repossessed.
Q. But what if I can’t pay my auto loan?
A. Same advice as for credit card debt: Talk to your lender. Ask for approval to skip payments. A slew of major banks and auto finance companies have committed to forbearance. Find your lender’s website and search for links to special notices on COVID-19. If you lease your vehicle, ask for the same thing.
Q. What about student debt?
A. The CARES Act signed into law March 27 includes administrative forbearance on federal student loans. That means borrowers are automatically allowed to temporarily stop making monthly loan payments. Unlike with credit cards and auto loans, no approval is required. You don’t have to do anything. Suspension of payments will last until at least Sept. 30. You can still make payments if you choose.
Q. Does this apply to all student loans?
A. No, only those federally backed, including direct loans, Perkins Loans, and Federal Family Education Loans owned by the US Department of Education. A loan you may have taken from a commercial lender to help pay for college is not covered. You should contact that lender if you anticipate missing payments.
Q. But will I incur interest charges while not making monthly payments?
A. No, unlike credit cards and auto loans, interest is being temporarily set at zero percent, but again, only on federal student loans. You will, however, have to make up the missed payments at the end of the term of the loan.
Q. How about utilities?
A. Two of the largest energy suppliers in Massachusetts, Eversource and National Grid, say they won’t shut off service for nonpayment during the crisis and will not charge late fees. Both utilities also offer payment programs for those who are struggling to pay their bills. Other utilities are likely taking the same position. State law also adds special protections against shut-off of utilities in the winter, and to people who are low-income and include a household member who is seriously ill or an infant, and for those age 65 and older.
Q. What about my Wi-Fi bill?
A. Like energy utilities, some Internet suppliers, including Comcast and Verizon, are promising not to disconnect Internet service or charge late fees for customers who say they can’t pay their bills, at least through May 13.
A. Much the same. AT&T and Verizon, for example, have pledged that they won’t terminate service and will waive late-payment fees.
Q. Bottom line?
A. Be upfront and ask for help.