Handling Credit Card Debt While Unemployed

A strange thing happened when the COVID-19 economic shutdown hit the United States — millions of Americans did NOT go further into credit card debt.

A familiar thing is happening now that the economy is recovering. Millions of Americans are going further into credit card debt.

Sadly, there is no vaccine for credit card debt. You need to protect yourself, and the first step is to recognize the enemy.

When money is tight, it’s tempting to have a credit card company throw you a lifeline. But it’s really more like tossing an anchor to a drowning man or woman.

The culprit is interest rates, which averaged 16.3% in June, according to the Federal Reserve. That’s five times more than a typical mortgage rate these days. And most credit card companies compound interest daily, meaning more interest is added to the principal every 24 hours.

You can end up paying as much in interest as you did for the item you purchased. That treadmill seemed to have largely gone out, but now it’s back.

Belt Tightening Loosens Up

Credit card debt was expected to skyrocket when the pandemic hit and the unemployment rate jumped to 14.7% in . But total credit card balances fell from $927 billion in the fourth quarter of 2020 to $770 billion in the first quarter of 2021.

Analysts think the drop was due to the torrent of federal stimulus money that was a five-figure windfall for some families. Between that and enhanced unemployment benefits and forbearance policies, Americans were able to pay off a lot of debt.

But now that the economy is stabilizing, demand for credit cards has gone back up. There were 6 million new credit card openings in , according to Equifax. That was the highest .

People are spending more, but a lot of them are doing it with money they don’t have in the bank. That comes as COVID financial relief is drying up.

About half the states have cut off the $300 a month in additional unemployment benefits the federal government was providing. That supplement will end for everybody on Sept. 6.

The Centers for Disease Control’s moratorium on evictions expires Oct. 3. The pause on repaying student loans ends . Those federal dates might change, but the benefits bonanza will eventually expire.

Credit card bills have no set expiration date. It’s up to you to make one. Here are some ideas that should get you started in that direction.

Enroll in Creditor Hardship Programs

Credit card hardship programs are an option. Though credit card issuers don’t advertise these, some companies are willing to lower your required minimum monthly you could check here payment if they think it will stop you from defaulting.

Be aware that entering a hardship agreement probably will be entered in your credit history and likely will lower your credit score. Seeking this kind of relief is typically a last resort, but worth considering if you can’t afford minimum payment.

Mortgage lenders and auto lenders often have hardship programs as well. You can sometimes learn about which lenders offer hardship programs through online research.

Make a Budget and Prioritize Expenses

You’re not the first person who’s been in this fix. The ones who’ve weathered it the best, start by making a budget that reflects their new financial situation. On the expense side, it’s time to cut back spending. That means make decisions on what you really need and what you really don’t.