Credit Cards and the Corona Crisis: This is the Moment to End Your Debt

There is a silver lining to the corona crisis: it should become cheaper to qualify for debt resolution. Here are three reasons why.

 

#1: Credit Card Issuers are Prepared to Assist

 

Already, many of America’s top banks have announced plans to assist customers facing credit card distress. Your options could potentially include forbearance (postponement of payments) or a reduced interest rate. One word of caution: before agreeing to forbearance, be aware that interest will still accrue on your balance.

Ally Bank, Bank of America, Capital One, Chase, US Bank, and Wells Fargo are among the big banks offering assistance to customers experiencing hardships during the coronavirus. Meanwhile, Citi is calling on eligible credit card customers to check out its ‘always-on’ assistance programs. These include credit line increases and collection forbearance programs.

Whatever your situation, it looks like the big credit card issuers are open to discussing individual solutions

 

#2: Debt Consolidation Rates Are Set to Come Down

 

A debt consolidation loan is like any other personal loan, except it’s used for consolidating credit card debts. Let’s say you owe money on three credit cards. A debt consolidation loan replaces your three separate monthly payments with one streamlined payment at a (hopefully) lower interest rate.

The good news is: personal loan and debt consolidation loan rates are about to come crashing down. That’s because of the Federal Reserve’s two emergency decisions this month to cut its target federal funds rate by 1.5 percentage points in response to the coronavirus. This brings the Fed target rate to close to zero for the first time since the 2007-8 financial crisis.

The federal funds rate is the rate at which banks lend money to each other. When the federal rate goes down, banks pass on some (but not necessarily all) of the savings to borrowers through lower rates for loans. In a press conference following the emergency decision, Fed Chairman Jerome Powell said lowering rates to zero “will matter to borrowers who will get some relief from our cuts.”

How far will debt consolidation loan rates fall? It’s impossible to say exactly. In the three months after the Fed’s emergency 1.5-point rate cut in late 2008, the average personal loan rate fell 0.43 points. After seven years of near-zero federal rates, personal loan rates had fallen close to 2 percentage points.

At the end of 2019, the average personal loan rate stood at 10.2%. If history is a guide, rates could fall to a range of 8.4% to 9.7%. If you can afford to wait for rates to drop, you could save hundreds of dollars on monthly payments on your debt consolidation loan.

 

#3: Creditors May be More Willing to Settle

 

Other types of debt resolution should be treated with caution because of the potential damage to your credit score. However, if debt negotiation becomes necessary, the good news is the coronavirus crisis might give you bargaining power over your creditors.

Debt management and debt settlement involve getting your creditors to agree to reduce your interest rate or accept only partial repayment. In theory your creditors could sue for the amount, but they usually find it quicker and less costly to just accept partial repayment. If the coronavirus leads to widescale debt trouble, creditors may become more willing to cut their losses and accept partial repayments (rather than no repayment at all).

 

Best Companies to Use for Debt Resolution

 

The following companies are all experts at successfully resolving personal credit card debt. We selected these three for their speed and low rates – two skills that will be particularly valuable as the fast-moving coronavirus hits people’s pockets.

  • Freedom Debt Relief can kickstart your debt resolution program within a few days, saving you from having to wait to suffer the full impact of the coronavirus. Best for people with over $25,000 in debt, on average Freedom Debt Relief reduces its customers’ debts by 50%. Depending on your level of debt, this can translate to thousands of dollars saved on debt repayments.

  • Accredited Debt Relief designs customized debt resolution programs for each of its customers. Even prior to enrolling you in a program, Accredited Debt Relief can assist with a free consultation and free guides to debt management. This service is great for anyone with $10,000-$15,000 in debt wanting to assess the impact of the coronavirus on their debt situation before committing to a program.
  • LendingTree by working with one of America’s largest financial marketplaces, you can rest assured that by working with LendingTree, you will find the right debt solution for you. For those looking for debt options, LendingTree can match users with hundreds of service providers in just a few minutes. For borrowers with $10,000 or less in debt who are looking to capitalize on the rate drops that have come into effect as a result of the coronavirus crisis, LendingTree is a great platform to ensure you get the rates and terms to most effectively and efficiently get out of debt.

 

Comparing Options and Rates Helps You Save

 

This year is going to be challenging for most people, but that doesn’t mean you have to just accept your situation. If it looks like debt is going to be an issue for you, then it pays to start planning now.

Advertising Disclosure

This site is a free online resource that strives to offer helpful content and comparison features to its visitors. Please be advised that the operator of this site accepts advertising compensation from companies that appear on the site, and such compensation impacts the location and order in which the companies (and/or their products) are presented, and in some cases may also impact the rating that is assigned to them. To the extent that ratings appear on this site, such rating is determined by our subjective opinion and based on a methodology that aggregates our analysis of brand market share and reputation, each brand's conversion rates, compensation paid to us and general consumer interest. Company listings on this page DO NOT imply endorsement. We do not feature all providers on the market. Except as expressly set forth in our Terms of Use, all representations and warranties regarding the information presented on this page are disclaimed. The information, including pricing, which appears on this site is subject to change at any time.