Americans were already struggling with credit card debt before the spread of coronavirus affected the United States economy. In 2019, Americans collectively had nearly $14 trillion in consumer debt. The average credit card debt among borrowers is $8,398.
With many Americans living on less money, paying credit card bills may feel impossible. Already, an estimated 30 million Americans have filed for unemployment benefits to help cover monthly expenses like rent, utilities, and groceries. Some borrowers have even turned to their credit cards to help supplement their income.
If COVID-19 has exacerbated your financial struggles and you’re struggling to make your monthly credit card payments, you have options.
Consolidate your debt with a personal loan
High-interest rates on multiple credit cards can make it nearly impossible to keep up with credit card debt, much less pay it off. If you’re struggling with credit card debt and want to simplify your monthly expenses, a debt consolidation loan may be beneficial.
A debt consolidation loan is a type of personal loan that allows you to combine all (or most) of your debt payments into a single bill. In many cases, this type of loan lowers the total payment you make each month. If you can get a lower interest rate on your personal loan, you may even be able to save money on the total amount paid.
When you’re looking for a personal loan to consolidate your credit card payments, choose a lender that offers a lower interest rate and longer repayment terms. Lower interest rates are crucial if you’re struggling to maintain all your minimum payments right now. Use a tool like Credible to find a lender that offers the best terms for your financial situation.
Your credit score could go up once you consolidate your debt if you keep the cleared accounts open. However, you’ll want to resist the temptation to charge up your credit cards again, or you could find yourself in a more precarious financial situation.
Transfer your balance to a credit card with zero percent interest
Debt consolidation isn’t the only option. You may also benefit from transferring your credit card balance to a new card with a zero percent interest rate. Before you open a new credit card, do some research. Look for a card that has the most extended promotional terms. While many cards offer six months of no interest, you may be able to find a card that offers terms of 12 months or more.
Additionally, if the card you’re considering includes an annual fee, make sure any savings you’ll get from transferring are higher than the annual card cost. A comparison tool like Credible can help make your search easier.
Talk to your creditors
When a personal loan or a credit card transfer isn’t an option, and you’re unable to make your monthly payments, call your creditors. Financial companies are aware many customers lost some or all their income as a result of the pandemic. They don’t, however, know what your specific needs are.
If you’re unable to consolidate or transfer your credit, try negotiating with your creditors. They may be able to offer a lower interest rate, lower minimum payments, or delay your payments for a few months.
Consider a debt repayment plan
A debt repayment plan can be an effective option, but it’s incredibly damaging to your credit score. Debt repayment plans require you to stop making payments directly to your creditor. Debt consolidation companies will contact your creditors and try to negotiate lower payments. Instead of paying your creditors, you pay the debt repayment company, and they send payments out to your creditors based on negotiations. Many companies charge you a certain percentage of your debt total. Consider working with a non-profit company to save the most money.
Debt collectors may still call you and send letters requesting payment
The best way to save money on your credit card debt is to pay it off as quickly as possible. The longer you maintain a higher balance, the more money you lose to interest charges. Consider using a snowball or debt avalanche method to pay off your credit card bills strategically.
If you can afford it, you may even consider using some - or all - of your stimulus money to pay down credit card debt.