The rise of COVID-19 has set off quarantines and layoffs causing some individuals to have reduced income. The reduction in income is concerning for everyone, but especially alarming for those with credit card debt. If you’re unsure of how to manage your credit card debt during the COVID-19 crisis, this is what we know so far.
What Is Your Bank Saying?
In response to the COVID-19 economic downturn, many financial institutions, service providers and businesses have been implementing special solutions to mitigate the overall hardship.
Since your bank is responsible for what happens with your credit card and other financial products at this time, visit their website for guidance with regards to COVID-19. Many financial institutions are overwhelmed with calls at the moment. It’s suggested that you visit your bank’s website first to have your questions answered, then call if you need more information.
What Canada’s Major Banks Are Doing About COVID-19
Many of Canada’s major banks have made a public statement regarding changes they have implemented as a response to COVID-19. These changes are special solutions that are designed to help individuals experiencing loss of income and businesses dealing with reduced profits. Many banks are also handling issues on a case by case basis, contact them if you require further assistance.
- CIBC – Mortgage payment deferral for a maximum of six months and relief on other credit products.
- RBC – You can receive a one-month payment skip for credit cards, mortgages, personal loans, and other financial products for immediate financial relief. You can also receive up to six months of deferred mortgage payments for long-term financial relief.
- TD – TD offers up to six months of payment deferral for mortgages and opportunity for relief on other credit products.
- NBC – Special loans that will cover living expenses and six-month mortgage deferral.
- BMO – Deferral of payments on mortgages for up to six months and deferral of payments on loans and credit cards for a maximum of three months.
- Scotiabank – Offering up to three months of credit card payment deferrals and up to six months for mortgages.
What Is The Government Of Canada Saying?
The Government of Canada has announced that they will be placing a six-month, interest-free pause on the repayment of Canadian student loans for all student borrowers. This pause in repayment is known as a moratorium. The student loan moratorium comes into effect on March 30, 2020. No payment will be required and interest will not accrue during this time. Students don’t need to apply for the repayment moratorium. The Canada Revenue Agency (CRA) is also deferring filing and payment due dates for individual 2019 tax returns.
Use Of Government And Bank Payment Deferrals To Save Money
Whenever mass economic struggle strikes, it’s best if you can save as much money as possible for financial emergencies. Since financial institutions and the government are allowing you to defer payments, put what you don’t spend on necessary living expenses into savings.
The purpose of the government and financial institutions allowing you to defer payments is to avoid further economic turmoil for both businesses and individuals. Use this opportunity to save for a financial emergency as no one knows what the future holds at this time. It should go without saying, this isn’t the time to spend on luxury items.
Alternative Financing Options
There’s an old saying that goes: prepare for the worst and hope for the best. During this economic downturn resulting from COVID-19, it’s advised that you get ready for financial struggle as best you can so you’re prepared for the worst. Even if the worst doesn’t happen, you’ll feel more relaxed with a plan in this time of uncertainty. And of course – hope that you don’t run into any problems and make it through this crisis.
Below are alternative financing options you can turn to if you need them during the COVID-19 pandemic.
Home Equity Line Of Credit (HELOC)
A home equity line of credit (HELOC) is a line of credit that uses your home equity as security. HELOC financing is also commonly referred to as a second mortgage. In order to obtain this type of financing, you must own a home that has positive equity.
You can calculate the amount of equity in your home by taking the market value and subtracting your mortgage and other outstanding debts against the home. For example, if the market value of your home is $500,000 and your mortgage is $350,000, your equity would be $150,000 ($500,000 – $350,000).
A HELOC works like any other line of credit. You can draw down from it when you need and interest becomes payable when there is an outstanding balance. HELOCs are good in financial emergencies because they can be used to cover unexpected expenses worth thousands of dollars. A line of credit typically only requires interest payments as well, meaning principal repayment is flexible.
Debt Management Program (DMP)
A Debt Management Program (DMP) is a service offered by credit counsellors that consolidates unsecured debts into one larger monthly payment. The main goal is to make your debt obligations more manageable and more affordable. The payment is made to your credit counsellor who then distributes the funds to your creditors on your behalf. You will be required to repay the entire debt within five years.
If you’re interested in a DMP, you’ll need to meet with a credit counsellor who will determine if you qualify for the program, whether your creditors will accept the terms of the program and how much you can afford to pay each month. If you meet all the criteria, the credit counsellor will contact your lenders to negotiate a settlement, then you’ll start making payments. At the end of the process, all your unsecured debt will be paid.
A debt management program is ideal in a financial emergency if you have a lot of unsecured debt, including credit card debt, and are behind on payments. Creditors are more likely to accept a DMP in a financial crisis, such as COVID-19 because some payment is better than no payment. You will also have an overall reduced amount of debt and only need to worry about one payment.
A personal loan is a flexible form of financing that can be used for virtually any purpose. Personal loans are typically unsecured meaning they do not require the use of collateral. When you get approved for a personal loan, you’ll receive a lump-sum payment and then become responsible for regular, scheduled payments which include interest and principal components.
Personal loans are ideal in financial emergencies because they don’t require security and can be used for any purpose. In addition, they can be obtained quickly, especially when you’re using an online lender.
Pay A Little More Than the Minimum Amount
In times of financial struggle, the key is to avoid missing payments. Even if you can’t make the payment in full, be sure to make the minimum payment (plus a little extra if you can) to avoid adverse effects on your credit. If you fail to make the minimum payment, you might incur late fees and increased interest rates.
Credit Card Debt & COVID-19
The impacts of COVID-19 on your finances can feel overwhelming, especially if you have outstanding credit card debt. Do your best to prepare by making a budget, paying minimum balances and saving what you don’t spend on living expenses. Finally, take advantage of financial institution and government relief as it is there to help you through this difficult time.