How To Make Debt Less Costly When You Need It In A Crisis – TBEN


The coronavirus pandemic that rocked the U.S. economy has resulted in widespread job and income losses and increased the debt burden of millions of Americans. More than 2 in 5 U.S. adults (42%) report their household finances have deteriorated since the start of the pandemic, according to TBEN Annual Household Debt Survey, while only 14% say it has improved and 43% say it has stayed the same. Among those who report a worse situation, almost half (45%) say they get into debt because of it.

Debt may be inevitable under the circumstances, but there may be ways to reduce the cost of that debt in terms of interest or fees. Depending on your personal situation, you may have more affordable or accessible options.

For good / excellent credit: balance transfers, 0% credit cards, personal loans

Balance transfer credit card offers became more difficult to find during the pandemic as card issuers sought to reduce their risk. But those with good to excellent credit – typically defined as credit scores of 690 or higher – can still find them. If you have a balance that you can’t realistically pay off in the next few months, transferring it to a card with a 0% introductory offer could help you avoid interest for a year or more. Balance transfers usually incur a fee, however.

If you anticipate that you may need to have a credit card balance in the near future – due to an income disruption, for example – a card with an introductory rate of 0% on purchases may offer a margin. maneuvering for a year or more. For those who need more time, a low interest personal loan may be the best choice. You can also use a personal loan to consolidate existing balances, which makes it a good option if the 0% period on a balance transfer card wouldn’t be long enough for you to clear the debt before the rate hits. goes up to double digits.

For fair or poor credit or no credit history: emergency loans

If you need cash quickly but don’t have a good credit history, an unsecured emergency loan may be the answer. Depending on your credit these may have high interest rates so this should be considered as an alternative if you cannot borrow from your family, get help from a non-profit organization. profit or religious or be entitled to a 0% credit card.

Members of a local credit union might be able to get better terms and lower rates on an emergency loan because they consider your overall financial situation rather than your credit score. Emergency loans may not be ideal from a cost standpoint, but they’re there for those who don’t have good alternatives.

For those with 15% or more of home equity: HELOC

If you have sufficient equity in your home and need access to credit, using a home equity line of credit or HELOC, will likely be cheaper than accumulating a credit card balance. A HELOC allows you to borrow against the equity in your home, which is the value of your home minus the amount you owe on the mortgage.

To qualify for a HELOC, you will typically need a home equity of at least 15% of your home’s value, a credit score of 620 or more, and 40% or less for a debt / debt ratio. income, which is the percentage of your gross amount. income absorbed by debt securities.

The interest rates on HELOCs tend to be adjustable, so they can go up and down. Try to get quotes from a few different lenders so that you know you are getting the best rates available. Pay attention to the lifetime cap, which is the highest rate you can be charged. If you don’t think you can realistically afford the highest rate payments, it’s probably not worth it, as a HELOC carries a risk of losing your home to foreclosure if you can’t pay off your mortgage. debt.

For medical bills: 0% payment plans, medical credit cards, income difficulties

Among Americans who report a deterioration in finances since the start of the pandemic, 14% say they have incurred medical debt or additional medical debt, according to the TBEN study.

If you have exceptional medical bills, ask your medical providers if they offer payment plans; if so, find out about interest or charges. Some providers will allow you to make equal monthly payments within your budget, which can be a good option if there aren’t any expensive fees added to your balance.

When an affordable payment plan isn’t an option, a 0% interest medical credit card could help you avoid interest for a period of time (typically six to 12 months). Keep in mind that some medical cards charge deferred interest. This means that if you don’t pay the balance in full when the interest-free period expires, you will owe interest on the entire original balance going back to the beginning.

Depending on your income, you may be eligible for a hardship plan, which can lower your payments as well as the total amount you owe. Ask your supplier if this option is available.

For multiple unsecured balances: debt management plans

A debt management plan can be a good choice if you can’t realistically make your existing credit payments each month. You will work with a credit counselor who will be your advocate, trying to get a better deal on your existing balances and consolidating your unsecured debt into a single monthly payment that you make to the credit counseling agency rather than to your creditors.

If you choose this route, look for a nonprofit agency accredited by the National Foundation for Credit Counseling. You will likely have to close your credit card accounts when you go into a debt management program.

For the unemployed: credit unions, relief loans

Access to credit is often the most difficult for those who need it most, but opportunities for unemployed Americans. Local or regional credit unions can offer loans to help you get through a rough patch, and Capital Good Fund offers a Crisis Relief Loan that examines your employment and finances before the pandemic. Capital Good Fund is available in a limited number of states, but these residents may find this is just the liferaft they need.



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