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Coronavirus and Dealing with Debt: Tips to Help Ease the Impact

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COVID-19 has posed a threat to mankind. To fight against this deadly virus, quarantine and social distancing are badly needed. But at the same time, these are resulting in the freezing of our economy as well. Yes, you heard it right!

Most of the businesses are shuttered and eventually, many people are getting laid off or furloughed from their jobs or getting a pay cut. That’s why many people are facing problems with how to manage their budgets and deal with their debts.

But you don’t need to worry. We have listed some of the common debts you can have. And tips to deal with those debts during this pandemic and ease the impact. Here you go!

Scenario 1: You need help with your student loans

You might know that President Trump has signed the CARES (Coronavirus Aid, Relief, and Economic Security) Act on March 27, 2020.

In this law, if you have taken out student loans, you don’t need to make any payments for 6 months (from March 13 to September 30, 2020) and no interest will be accrued during this period.

By the way, have you made any payment after March 13, 2020?

If yes, you can ask for a refund from your student loan provider! Otherwise, any payments made after March 13, 2020 will be directly applied to your principal amount.

If you are financially capable, I would suggest you continue making payments for your student loans. It can help you to get rid of your student loans faster.

However, this benefit is applicable only if you have taken out a federal student loan, held by the Department of Education.

So, if you have taken out a private student loan, you can’t reap the benefits of the CARES Act.

But many private lenders have also extended their hands to deal with the pandemic like postponing monthly payments up to 90 days, waiving off late fees, not reporting to the credit bureaus, etc. Check with your lender whether or not you can get such benefits.

Scenario 2: You have unsecured debts like credit cards, payday loans, etc.

Usually, an unsecured loan has a higher rate of interest as you don’t need to keep any collateral while taking it out! And the harsh fact is, the soaring high-interest rates won’t stop due to COVID-19.

However, many credit card companies like Chase, Citi, and Wells Fargo are offering lowered interest rates, waiving off late fees, and skipping payments even. If you are going through any financial hardship due to COVID-19, you can talk to your creditor and seek relief.

Still, I would say, credit cards are a bit better than payday loans (PDLS). A recent CreditCards.com study shows that the average APR (Annual Percentage Rate) of credit cards is 17.69%! It’s much lower than the incessantly high-interest rates of PDLS.

No doubt, payday loans can offer you fast cash without any credit check. But this convenience comes with a price of high-interest rates along with other charges.

And trust me, buddy, these high fees and interest rates are enough to make you fall prey to the debt spiral.

If you have taken out a payday loan, it might be cumbersome for you to pay it off during this pandemic! And if you fail to pay off your payday loans, incessantly high-interests will be levied along with rollover charges. Eventually, you might have to shell out a huge amount of money to pay off your PDLS.

So, you can look for some payday loan debt relief options and get rid of your payday loan with ease.

Scenario 3: You have to make payments for your mortgage loan

Are you facing problems making payments for your mortgage loan due to the pandemic? If yes, the CARES Act can bring you some relief if you have taken out a federal mortgage loan.

According to the CARES Act, if you are going through financial hardship due to COVID-19, you can request forbearance for up to 180 days. And you don’t need to submit any supporting documents to prove your financial hardship. You just need to attest it.

If needed, you can request for an extension of forbearance for an additional 180 days.

Besides, according to this new law, your loan servicer can’t charge additional interest, fees, or any other penalties during forbearance.

So, if you can’t pay off your mortgage or can make a partial payment, talk to your loan servicer asap! And if needed, ask for the mortgage relief options as per the CARES Act.

But what if your mortgage loan is not federally backed?

Well, in that case, you have to talk to your loan servicer. Many private mortgage lenders are offering relief options. Besides, some states like New York, California, Indiana, etc. have extended support to their residents by providing mortgage and rental relief programs.

As you can see, you need to deal with your debts strategically during this pandemic! If you are going through financial hardship, you can reap the benefits of the CARES Act and deal with your debts accordingly.

But if you are financially capable of paying off your debts, you should continue doing that. If needed, you can talk to a virtual financial advisor and seek advice on how to manage your finances in this situation.

Besides, if you are eligible for receiving stimulus checks, make good use of it. You can save that money for your emergency fund, pay off your debts, save for your retirement, etc.

The bottom line is, you need to deal with your debts wisely during this pandemic. The CARES Act can help you get some relief for your debts temporarily. But your debts won’t be erased. Still, you will owe your debts. So, acquire some simple habits to transform your finances to a better level in the future.

Lastly, stay home, stay safe!

Disclaimer: The information in this article is not intended to encourage any lifestyle changes without careful consideration and consultation with a qualified professional. This article is for reference purposes only, is generic in nature, is not intended as individual advice and is not financial or legal advice.

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