What to do About Credit Card Debt During the COVID-19 Pandemic

a one-hundred dollar bill that has a hint of purple over it with a strip of paper at the top with the words "COVID-19", illustrating money management and handling credit card debt during the crisis.

While the economy is struggling to recover from the COVID-19 pandemic, many people are dealing with debts they incurred prior to the crisis.

Specifically, credit card debt creates a special challenge for consumers. It is debt that will grow over time if it isn’t paid off, and could keep mounting if people use credit for purchases. The pandemic creates a need to think about credit card debt differently. Here are some tips to manage your credit card debt during the pandemic:

Stop Borrowing

The very first priority for credit card debts during the pandemic is to stop using them. Don’t add to your debt during this crisis, no matter what else is going on. One of our top rules is never use credit as a substitute for income, and that’s what you’d be doing if you use credit cards for regular expenses while in lockdown.

We understand these are difficult and unprecedented times. Job loss or reduced income can make it seem impossible to survive financially. That said, if you use credit cards to bridge the gap, you’re setting up a massive financial crisis. The longer the borrowing goes on, the worse the crisis will be.

More Resources: Unemployment Tips During the Pandemic

The better response is to face the crisis now, while it’s more manageable. Use every resource available to you to avoid borrowing any more money through credit card use. Look for sources of relief that have been offered in response to the crisis and do so as soon as possible—if you use credit cards to limp along and get through the pandemic, there may not be as many relief options for you later. Don’t set yourself up for a second financial crisis after we’ve all gotten through this one together.

Focus All of Your Spending on Essentials

Because it’s crucial to stop accumulating new debt during a crisis, you should focus your budget on essential spending.

There are a lot of discretionary expenses that we were all forced to cut back on during the shutdowns in response to the pandemic. We stopped going to the movies, dining out at restaurants, going to theme parks, concerts, etc. Even as the economy slowly warms back up, make sure you have all of your essential spending covered without using credit cards before considering any non-essential spending.

Even within an essential spending category, like groceries, there is room to separate essential spending from non-essential. Skip the takeout coffee while out shopping for groceries. Choose a generic brand whenever you can. This is a good time to test yourself and see just how frugal you can be. This will help you get through the financial parts of the COVID-19 pandemic, and pay down debts that could become a bigger problem for you later.

Related Article: The Best Way to Use Your Coronavirus Stimulus Check

Don’t Cancel Cards

Even though it’s best to live without depending on credit cards, that doesn’t mean you should close those accounts. If you can keep them open, it will be better for your credit score as you pay down the outstanding balances. You should consider cashing in any rewards you’ve earned, and use those rewards for essential spending.

Related Article: What to do if you have too many credit cards

You could try to cancel any purchases that haven’t gone through yet, like large online orders that haven’t shipped. You can do that without closing your credit card account and impacting your credit score.

Due to safety concerns, some retailers are temporarily halting returns due to COVID-19, so make your purchases carefully. If you think there is a chance you may have to return your purchase, ask the store for their return policy so you don’t tie up your money with the inability to make a return. If your situation warrants it, a program like a debt management plan might require you to close open accounts; that’s a different matter, and it’s important to do everything the plan requires of you. You might also consider closing an account with a large annual fee, but it’s best to have the account fully paid off before closing it.

For most general credit card accounts though, it’s better to keep them open, paid off, and unused.

Call Your Creditors if Needed

If you’re facing struggles with making all of your payments, don’t hesitate to reach out to your creditors—especially during the coronavirus pandemic. Most major banks and creditors have programs to offer relief to consumers who are having trouble making their payments. They might allow you to skip payments, lower your interest rates, or grant some other kind of forbearance.

More Resources: Do you qualify for COVID-19 financial relief?

A lot of people will do what they think is right, and scrape together a budget to get by without asking for help. That can be honorable, but you shouldn’t do it if it puts you in greater financial danger. You might stretch yourself too thin getting through the crisis, then face a financial fallout months later. You might not have as much luck getting relief from your creditors many months after the crisis has subsided. If you have any trouble with your finances, speak up now and ask for help while it’s being offered.

Pay What is Comfortable

Our standard advice is to always pay more than the minimum monthly payments to all of your credit cards. Paying only the minimum required means staying in debt for years—even decades—and running up more in interest charges.

A global pandemic is one case where one can deviate from our standard advice; of course, try to pay more than the minimum required payment if you can, but if you can’t, that’s okay, as long as you make your payments on time. If it helps you meet your budget and get through the situation without growing your debt, making only the minimum payment could be the sensible thing to do.

Be Careful Where You Find Help

Beware of scams. There are a lot of bad actors who take advantage of people in tough situations. Even during a global crisis, you have to be careful and protect yourself from those who would take advantage of you.  Our COVID-19 guide contains the warning don’t fall for scams, and contains some advice. In short, be suspicious of anyone who contacts you about financial aid, debts, or any financial responses to the pandemic. Make sure you initiate and control these interactions, and that you’re talking to someone trustworthy.

Our best advice is to stick with reputable nonprofit organizations (here’s a hint: look for approval by the COA (Council on Accreditation) and/or HUD (U.S. Department of Housing and Urban Development. It’s difficult to get approved by those agencies, and having approval from one or both of them is one signal that the agency you’re working with is legitimate.)

Don’t Trade Good Debt for Bad Debt

During hard times, many people make a bad trade; they use good debts to pay off bad ones.

What we mean by that, essentially, is don’t refinance your mortgage or use student loans to pay off credit cards. A mortgage is “good debt” because it helps you build a long-term asset that you can live in and ideally own by the time you retire. If you refinance or take out a second mortgage to pay off credit cards, you’re trading good debt for bad. Don’t let credit card lenders force you to give up your equity in your home!

We urge you to look for other ways to pay down those “bad” debts, while keeping your progress toward paying off your mortgage. Likewise, use student loans sparingly and only for their intended purpose—don’t use student loans to pay off revolving debts or buy assets.

Learn More: Good Debt Vs. Bad Debt

Set Priorities with Your Bill Payments

We’ve talked about prioritizing your bills when money is tight, and now is a very good time to exercise these priorities.

Look at all of the bills, debts and other financial obligations you have and pay the most important ones first. Not paying your house payment or rent can leave you without a roof over your head. If you are having trouble making either contact your mortgage company or your landlord right away, more options are available the sooner you ask for help.  Not paying child support or taxes carries serious consequences. If you can’t pay your child support, be sure and keep the court aware of your situation. If you can’t pay your taxes, don’t skip filing your return. These bills should come first.

Utilities also come before credit card debt; don’t let your power be shut off or lose access to services you need to earn a living. If you can’t pay your utilities, call and explain your situation and determine what kind of arrangements can be made.

Any time you are making bill payment arrangements, keep a record and write down the day and time of your call, as well as the name of the customer service representative that spoke to you.

Only after these more important bills are addressed and paid should you focus on unsecured debts like credit cards.

No matter how tough our situation seems, it’s possible to find a path forward that keeps your finances intact without destroying your credit score. Talk to a certified debt counselor for free, confidential advice based on your unique situation.

Article written by
Melinda Opperman
Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovative ways to motivate and educate community members and students about financial literacy. Melinda joined credit.org in 2003 and has over two decades of experience in the industry.

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