Is credit card relief of little use? Discover debt management

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As cardholders experience financial hardship due to COVID-19, some credit card issuers are promoting their hardship programs.

Once a closely guarded secret, these programs are now more widely advertised, offering things like deferred payments and lower interest rates. But not all cardholders will be eligible or benefit from favorable terms.

If you have been denied COVID-19 help, is insufficient, or your aid terms are about to expire, consider turning to a nonprofit credit counseling agency. Credit counselors may be able to help you with debt reduction options, possibly including a debt management plan, which consolidates multiple balances into one payment at a lower interest rate.

“It basically works like a consolidation loan without creating a new loan,” says Thomas Nitzsche, spokesperson for Money Management International, a nonprofit credit counseling agency.

Here is what you need to know about this type of assistance.

DIFFICULT PROGRAMS VS. DEBT MANAGEMENT PLANS

Credit card hardship programs are ideal for balances that can be paid off in a matter of months. Conditions vary from issuer to issuer and exemption is usually granted on a case-by-case basis. To determine your eligibility, you must contact your card issuer.

Debt management plans are best suited for long-term debt that can take up to five years to pay off. They consolidate various balances like unsecured loans, certain types of medical debt, and credit cards into one payment at a fixed rate, according to Nitzsche.

You wouldn’t go directly through your card issuer for such a plan, but a third-party credit counseling agency can suggest it, if you qualify, and set it up with the issuer. Credit history is not an eligibility factor, but you usually need regular income to show that you can contribute payments that meet the plan’s conditions. A missed payment can dissolve a debt management plan.

There are also usually fees associated with a debt management plan, which can vary depending on factors such as where you live. But the fees can be negotiable, and your savings will usually outweigh the cost.

“I NO LONGER HAVE TO TALK TO CREDITORS”

Unlike a hardship program, a debt management plan can also save you time. For Helen Kerins, a New Jersey-based YouTuber with Krazy Kerins, the best part was letting the credit counseling agency negotiate with the issuers. “I no longer need to talk to creditors,” she said.

Kerins, 42, had previously used a debt management plan in her twenties to pay off her creditors, but she admits that her habits have not changed completely thereafter. In 2016, however, her priorities were different as a wife and a new mom, and she was determined to face nearly $ 44,000 in debt.

She contacted a credit counselor and submitted credit card statements, account numbers, contact details and other details. Together, they discussed his options over the phone and determined that a debt management plan was appropriate. (Credit counselors may offer other options or resources for budgets in the red.)

After the agency contacted Kerins’ credit card issuers, it got a significant reduction in interest, and its monthly spending on this debt also fell sharply.

Before, “I used to pay almost $ 700 or $ 800 a month just with my credit cards,” says Kerins. The debt management plan brought that number down to about $ 475 per month in total, which included the $ 25 monthly service fee charged by the counseling service.

IT IS POSSIBLE TO COMBINE THE EMERGENCY OPTIONS

If, for example, only some of your creditors are offering hardship relief directly, you could potentially enroll the other accounts in a debt management plan.

“The (debt management plan) is pretty flexible,” Nitzsche says. “You can add or remove creditors at any time for any reason. “

Likewise, even if you have already been signed up or turned down for a hardship plan, that does not usually prevent issuers from offering affordable terms through a debt management plan. Spokesmen for American Express and Wells Fargo, for example, have confirmed that these issuers are prepared to work with such cardholders.

With either type of plan, you may need to stop using your credit cards. Your transmitter can even shut them down. But even then you may have other options.

In Kerins’ case, the monthly payments were automatically debited from her bank account and she reduced her debt from nearly $ 44,000 to $ 10,000. Her husband then used his own good credit to qualify for the credit card balance transfer offers, and she transferred her balance to those cards to save more money and speed up debt repayment.

She finished repaying this debt in full in December 2019.

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This article was provided to The Associated Press by the NerdWallet personal finance website. Melissa Lambarena is a writer at NerdWallet. Email: [email protected] Twitter: @lissalambarena.

RELATED LINKS:

NerdWallet: How To Get Out Of Credit Card Debt In 4 Steps http://bit.ly/nerdwallet-debt-steps

CFPB: Dealing With Debt During The Coronavirus Pandemic: Tips To Help Mitigate The Impact https://www.consumerfinance.gov/about-us/blog/coronavirus-and-dealing-debt-tips-help-ease -impact/

Money Management International: Debt Management Plan https://www.moneymanagement.org/debt-management

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