Common questions about credit card debt answered

COVID-19–related credit card debt: Your questions answered

As a result of the COVID-19 pandemic, almost 1.2 million Americans have lost their income, and many are relying on credit cards to cover their mortgage, rent, and other essential living costs.

Credit cards can be a useful resource when facing a short-term financial challenge, but if you are unable to make the monthly payments, credit card debt can quickly mount up and have long-term financial implications.

If the global pandemic has left you with questions about credit card debt, there are steps you can take to minimize the financial impact. Let’s take a look at some of the most common questions our team is frequently asked:

Will my credit card debt be forgiven during the COVID-19 crisis?

Many US credit card companies have stated that they want to work with customers impacted by coronavirus.

The most important thing to remember is to communicate with your credit card company and let them know you are struggling. They may agree to lower or defer your monthly payment for a while to give you some breathing space or waive late payment fees during the pandemic period.

It is unlikely that any credit card debt will be forgiven, but some companies are assisting debtors with reduced interest payments. However, before entering into any agreement with a credit card company, it’s important to understand any terms and conditions or fees that may apply.

A debt counselor will offer neutral advice on the best option to clear your debt effectively—it may be that there are more practical solutions, such as a debt management program, that could save you money in the long term.

Will the amount of credit card debt affect my credit score?

Credit card debt impacts your credit score, as it helps to identify whether you are a high-risk money borrower. About 30% of your overall credit score is determined by the amount of debt you owe and is calculated by comparing your credit limit with the amount of credit you’ve used.

If your credit card limit is $1,000 and you’ve used $250, then your credit utilization rate is 25%. It’s recommended to keep this rate below 30% to maintain an acceptable overall credit score.

If this all sounds daunting, it’s helpful to know that for some COVID-19–related debt, such as federal-backed mortgages and student loans, the Coronavirus Aid, Relief, and Economic Security (CARES) Act provides a degree of protection against a negative credit rating. However, under the CARES Act, medical bills and credit cards are not covered, so these debts could still adversely affect your credit score.

If you are concerned about your credit rating, you may wish to consider consolidating your debt. With a managed debt consolidation plan, your credit score could even improve, as you’ll only have a single debt to repay. By meeting each monthly repayment in full and on time, you can become debt-free faster and achieve a better credit rating.

What is credit card debt consolidation and how can it help me?

If your credit card debts have spiraled out of control, you may be feeling overwhelmed by letters and calls from your credit card companies demanding payments. A personal consolidation loan can take away the stress of multiple credit card debts.

You could also benefit from reduced monthly payments, particularly if your credit cards accrue high interest rates. A personal consolidation loan often has a lower interest rate than most credit cards.

In the United States, it’s reported that 52% of citizens with over $6,000 in credit card debt have consolidated their payments. A debt consolidation plan will allow you to repay your creditors as soon as the agreement has been approved, leaving you with one manageable monthly payment.

Get advice from the professionals for a debt-free future

Effective Debt Relief is on hand to answer your questions about credit card debt. We’ve helped many people who have faced a sudden loss of income during the pandemic with debt counseling, debt reduction programs, and consolidation loans.

To find out more about how Effective Debt Relief can help, call our specialist debt advisors at 800-940-5449. Our knowledgeable team can talk you through our range of debt management solutions to determine the best solution for recovery from your financial challenges.

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