The coronavirus has put the brakes on the economy. However, many individuals still face due dates for payments on lingering credit card balances.
A new survey from CreditCards.com finds that 59% of credit card holders – or 110 million adults – entered the coronavirus pandemic and subsequent slowdown with credit card debt.
Many of them – 56% – had been carrying that debt for at least one year.
The most common reasons cited were medical bills, car repairs or home maintenance, with 35% of respondents; followed by day-to-day expenses, with 26%. Meanwhile, discretionary spending accounted for 31%.
“It’s generally responsible stuff, but it’s easy to get in,” said Ted Rossman, industry analyst at CreditCards.com. “It’s hard to get out.”
Interest rates can be as much as 25% or more, which makes it harder to pay balances down. And the coronavirus’ effect on the economy could make it more difficult to manage those debts, Rossman said.
One strategy – transferring to a zero percent balance transfer card – has become more difficult as credit card issuers have pulled back on these deals due to the economy and job market, he said.
You can still get one of these deals if you have a good credit score – 700 points or more – and a job with income.
“It’s a good a deal as ever, because it’s no interest for up to 21 months,” Rossman said. “But a lot of people can’t get those nowadays.”
Consequently, the strategy for dealing with this debt has changed.
Ask for a break
A lot of credit card issuers are offering to give a break to individuals who are having a tough time paying their bills.
That may include changing your payment due date or allowing you to skip a payment.
If that doesn’t involve charging you more interest, it could be a good deal, Rossman said.
Conserve your cash
The conventional wisdom has been to put as much money as possible toward your credit card debts.
However, during tough times, you may want to consider something else: building up your cash reserves, Rossman said.
“For a lot of people, the credit card is the emergency fund,” Rossman said.
Be aware companies could pull back, as they did in the Great Recession, by lowering credit lines or sometimes cancelling cards entirely.
With a sudden downturn in the job market, it is ideal to have more cash on hand to cover necessary expenses like groceries or prescriptions so that your balances don’t continue to grow.
“It may actually be prudent to ride it out for a time, making more minimum payments or maybe asking the issuer for a break for a time,” Rossman said. “After everything rebounds, then you can really get on top of your debt.”
CreditCards.com’s survey was taken online in early March. It included 2,526 adults.