Credit card deferment and forbearance programs aren’t anything new. Creditors have long offered customers in financial distress short-term hardship options in the hopes that these users will be able to keep their accounts in good standing and avoid the collections process (which is less than optimal for both sides).
Financial calamities, like the current coronavirus pandemic, mean that credit card issuers may have to temporarily increase the scope of those hardship programs or else risk seeing millions of accounts defaulting simultaneously. The problem, however, is that sometimes the deferment ends before your situation has gone back to normal.
So let’s take a look at what happens when your credit card deferment ends, and what you can do to protect yourself.
VERIFY THE TERMS OF YOUR HARDSHIP PROGRAM
To start, make sure you understand what benefits are actually in place and for how long. At the outset of the coronavirus pandemic, many creditors were quick to offer a wide variety of COVID-related benefits, from waived fees to bonus perks to extended deadlines on existing rewards. Not all offered payment deferments and many only offered deferments on a case by case basis.
It should also be said that not all deferments are the same. The terms “deferment” and “forbearance” can sometimes be used interchangeably, but both can mean something different depending on your creditor’s policies.
If you’re unclear on your responsibilities or when your hardship expires, connect with your creditor ASAP. Here are some questions you should know the answers to:
Is there a monthly minimum payment? While a deferment usually means that no payment is due during the specified period, a forbearance program may sometimes simply reduce the amount of your monthly minimum. Make sure you understand what your creditor expects from you each month.
When does the deferment end? Many of the deferments offered by creditors at the start of the pandemic were for 60 or 90 days, but you should verify when it started and when it’s scheduled to end.
Are you being charged interest or fees? In a student loan forbearance, interest charges are almost always accruing even as you aren’t making payments (which is one of the arguments against using a student loan forbearance). Most credit card deferment programs don’t charge interest during the deferment period, but that’s not universal.
How much will you owe once the deferment ends? This is the big question. What will your new minimum monthly payment look like post-deferment? If you haven’t been charged any interest, it may be what it was before the deferment began. However, if your creditor expects you to “catch up” on your missed payments within a certain timeframe, you may be expected to make substantially higher payments.
ASK FOR AN EXTENSION OR NEW HARDSHIP
Assuming things haven’t gone back to normal and you still need help managing your credit card debt, your first step should be to contact your creditor before your current deferment ends and ask about an extension.
It’s hard to say whether or not a creditor is going to be willing to help you out a second time. Like most lending decisions, it usually comes down to some form of risk versus reward. And in many cases, the customer representative is simply working off a set of pre-determined guidelines. But it never hurts to ask. Just be prepared to explain your situation and know that it may take a few phone calls (and some persistence on your part) to get to a definitive answer.
REVIEW YOUR DEBT REPAYMENT OPTIONS
If you can’t get a new deferment in place, you’ll need to consider your situation and your options. Is it that you can’t pay the minimum required by your creditor or are you not able to pay anything at all?
If you need a lower payment to make it work, consider your options. If your credit is in good standing, you may benefit from a debt consolidation loan. If it’s difficult to get a loan with good terms, you can access a lot of the same benefits through a debt management plan.
Be proactive, though. If it’s your intention to keep your accounts in good standing and continue to pay, then figure out your debt repayment plan early. Once you start missing payments, you may find that some of your options have dried up.
PRIORITIZE YOUR AVAILABLE CASH
If your income is reduced or paused entirely, there’s only so much cash to go around. In a situation like that, debt repayment should naturally fall to the bottom of your budget priorities.
Take the time to review your available money and routine expenses. There may be enough to keep some accounts current, while others become delinquent. It’s not a bad idea to let creditors know that you won’t be able to make your payments to them (even if they can’t offer you a new hardship).
Ultimately, you need to do what’s best for you and your family, and that may not include making payments to your creditors.
CHECK YOUR CREDIT REPORT REGULARLY
Finally, if you’ve used a creditor hardship program of any type, it’s important that you review your credit report to verify how that account was reported during the hardship. Specifically, the CARES Act requires that creditors who offer deferments during the coronavirus pandemic not report those accounts as delinquent during the deferment period. In other words, the payments skipped during the deferment shouldn’t adversely impact your credit.
No matter the details of your hardship program, review your credit report frequently to see how your accounts are reported. If you see an error, be sure to request that your creditor correct their reporting as soon as possible.