April 22, 2020
Banks, credit card issuers, utility companies, and other service providers have stepped up in a big way to help customers who are unable to pay their bills due to the coronavirus pandemic. Many will allow you to defer payments for a set number of months without late fees or damage to your credit score, so you have one less thing to worry about during these troubling times.
But, you’ll want to read this before you agree to any hardship assistance programs.
Because these programs are pretty unprecedented, there’s a lot of confusion around how they work. If the balance in your checking or savings account is shrinking and you plan to take advantage of them, here are four things you should know.
1. You aren’t enrolled automatically
While many businesses are making their hardship assistance programs available to most of their customers, you still have to ask. You can’t just assume you’re enrolled. If you don’t let your lender or service provider know that you’ve been financially affected by COVID-19 and intend to participate in its hardship assistance program, it won’t know. And it will continue to charge you late fees just as it would in normal circumstances.
Visit the company’s website or reach out by phone to learn more about its specific program and how to apply.
2. It might take a while to get approved
Companies are overloaded with requests from individuals seeking hardship assistance while they’re out of work. If you call, you may experience longer-than-average wait times, so applying online is better if it’s an option.
Once you’ve submitted your application, follow any instructions the company gives you and follow up if you don’t hear anything. Make sure that you are successfully enrolled in the hardship assistance program before you miss a payment.
3. Your balance will probably continue to accrue interest
Many lenders are giving you the option to defer payments for a few months without late fees. But your balance will continue to accrue interest, which means you’ll end up paying more money overall. This can be especially dangerous with high-interest debt like credit cards.
If you’re unsure whether your balance will continue to accrue interest while you’re enrolled in the hardship assistance program, reach out to the lender and ask. You might also be able to find this information on the company’s dedicated COVID-19 page.
4. Your loan term will get extended
If you have an installment loan, like a mortgage or a car loan, and you defer payments under a COVID-19 hardship assistance program, that doesn’t change how much you owe. So if you don’t make payments for two months, your loan term will be extended by two months, or possibly longer if your balance continues to accrue interest during the deferral period.
This isn’t something you need to worry about right now, but it’s something to keep in mind when planning for the long term. You might have to rethink the timeline for some of your other financial goals if it’s going to take you longer than expected to pay off your current debt.
These programs could change
This level of hardship assistance is unprecedented and we don’t know how long it will last because we don’t know how long it will take our country to recover from the COVID-19 pandemic. It’s possible these programs will get extended or expanded if the pandemic goes on much longer, but they will come to an end at some point.
Pay careful attention to all correspondence you receive from your lender by mail or by email so you understand if its hardship assistance program is changing and when you’re expected to start making payments again. If you miss this information, you could inadvertently rack up late fees and other penalties.
Hardship assistance is a nice option to have if you’re unable to keep up with your bills. But make sure you understand how these programs work before you sign up so you don’t create bigger problems for yourself down the road.
(Sources: Motley Fool and The Ascent)