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Coronavirus: How to deal with credit missteps

Delinquencies, charge-offs and more might be looming on the horizon. Here's how to prepare for common credit mistakes in the wake of a crisis


As more people experience difficult financial circumstances, it’s now more tempting than ever to rely on credit cards to get by. But while this pandemic won’t last forever, your debt might. Here’s how to prepare for (and hopefully avoid) common credit card debt mistakes in the midst of a crisis.

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Whether you’re accustomed to meeting all of your expenses without a hitch or have experienced tough financial circumstances, COVID-19 has probably made life more difficult. Now is the time to prepare for what lies ahead.

Money and credit missteps you make today can hurt you long after everything settles down. Here is your guide to avoiding credit problems that can impact you for years to come.

See related: 9 ways to carry card debt responsibly in the coronavirus crisis

Temporary resolutions

As businesses throughout the U.S. have closed, individual incomes have withered. The Department of Labor reported in mid-April that about 22 million people had filed for unemployment over a four-week period.

So, if you’re not earning as usual, you’re not alone. However, good company doesn’t pay the bills.

Your first task might be to apply for unemployment insurance. These benefits are intended to replace a portion of your lost wages, and the amount you receive depends on your past earnings and your state’s formula.

Benefits have recently increased with the passage of Pandemic Unemployment Assistance, which adds $600 more per week to regular unemployment benefits, and will last four months. Moreover, it covers independent contractors (who were previously not covered), so if you’re an affected gig worker, you can apply.

If unemployment insurance isn’t an option or you prefer to avoid it, get creative with alternative income bearing options:

  • Check job listings and apply for work in fields that are hiring.
  • Identify unnecessary items around your home and sell them on listing sites.
  • Ask adult children who are working to contribute to the pool.

The idea is to make do until you’re back on your feet. A positive attitude is everything, says Dana Freeman, a travel writer from Burlington, Vermont. She has always treated credit cards well and values her high credit scores, but the pandemic has taken toll on her earnings.

After all, travel is indefinitely suspended. So, she’s taking matters into her own hands. “I’m cleaning out closets and selling things on eBay,” says Freeman. “You do what you have to do.”

Brace your budget

“Begin with where you are at the very moment,” says Michael Foguth, founder of Foguth Financial Group in Brighton, Michigan. “It is important to tighten up your spending habits if your income is being affected by COVID-19. Create a plan to move forward based on any income reductions you may be experiencing.”

Carefully review your entire budget and pinpoint those expenses that are absolutely necessary. In general, they will be your rent or mortgage, utilities, food, transportation, ongoing medical costs and required children’s needs.

See related: How to create a budget, stick to it and save using apps and card rewards

After that, start to eliminate all extras for the next few months. Challenge yourself. It’s amazing what you can live without for a short period of time.

“You may need to reduce or eliminate discretionary spending like subscriptions and other expenses that are not absolutely necessary,” says Foguth. “The simple way to do this is by simply being hyper aware of what is going in and what is coming out of your accounts.”

You’ll also want to set enough money aside to cover at least the minimum for your credit cards and loan payments. Remember, you’re preparing for the future. When life returns to normal, you won’t want to deal with additional problems such as high debt, demanding creditors and bad credit. A short-term emergency budget can do just that.

Deal with past debts

According to Experian’s 2019 Consumer Credit Review, the average credit card account balance per person was $6,194. That’s a lot to owe when cash is flowing in as normal, but it’s daunting when there’s a lot less to go around.

However much you owe, if you’ve recently become unemployed and hold credit card debt, look into transferring high-interest debt to a 0% APR credit card. As long as your credit rating is good, you may qualify for an account that gives you over a year to pay without interest being added. But be advised that these offers could be harder to come by as the pandemic continues to take a toll on the U.S. economy.

See related: Best 0% APR credit cards

Howard Dvorkin, a Florida-based credit expert says these offers are even more enticing given the present situation. “With the Federal Reserve consistently lowering interest rates, consumers can expect slightly lower APRs on new credit card offers,” says Dvorkin. “A 6- to 18-month grace period on accrued interest can make it the perfect time to use a balance transfer to pay off debt.”

Be sure to pay on time, since missing a due date can cause the rate to escalate. To stay on track, set up automatic bill pay.

Avoid overcharging

Credit cards are fantastic payment tools, and they can be useful in a crisis – but leaning on them too hard is tempting. With a shelter-in-place order in full swing, you may be charging restaurant delivery more than normal and shopping online to ease the boredom. However, the bills will come due next month – and many months after – if you allow the balance to creep up.

Don’t add more debt to your plate than you can handle, especially if you’re unemployed. Think about each purchase before you make it and put the card down if it will add to your debt load or start up a balance you can’t afford to repay quickly.

“It’s in your best interest to avoid panic buying and unnecessary expenses while this crisis lasts,” says Dvorkin. “Know that there is a solution to debt once this storm blows over, and by avoiding maxing out your credit cards, you can put yourself in the best position possible.”

Delay delinquencies, charge-offs and defaults

Contact your credit card issuers immediately if you’re having trouble paying. Many card issuers are offering relief to stressed individuals who are economically affected by COVID-19. Some are offering fee waivers and deferred payments and suspending interest.

Your credit score won’t be impacted if you pay a few days past the due date, but it will if you miss an entire billing cycle. So, if you need some extra time to scare up money for a payment, your credit rating will be protected against a delinquency. Still, there may be a late fee and an increased interest rate to contend with, so if you will be a little late, request that the punitive action is waived.

This is also a good time to dig into savings. Trace Gaynor, a musician from Culver City, California, says he’ll definitely be scrambling a bit in the next few months.

“2020 was supposed to be the best year of my life,” says Gaynor. “I had a tour set for January to April. Within 48 hours, all the shows were canceled. But thankfully, I have a little saved and have enough pay bills. It’s my rainy day fund. This is what it’s for.”

If you don’t have savings and still can’t pay your credit card bills (and haven’t negotiated a break), your credit report will indicate a 30-day late payment. The credit damage will worsen with each passing late payment. After six months, the account will typically be turned over to a collection agency and a charge-off will appear on your report.

See related: Coronavirus: Will it hurt your credit if you ask your card issuer for help?

As with credit cards, if you don’t pay your loans on time, credit damage will ensue. Missed payments will be noted on your report and eventually the loan will go into default. For secured loans, you can also lose property. Defaulted student loans can be difficult to bring back to current standing. Do not wait to contact those lenders. Odds are high they’ll help, but you have to go to them.

“Right now, many mortgage companies are offering up to 12 months of forbearance on payments,” says Ashley Morgan, an attorney from Herndon, Virginia, who also notes the assistance of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) for federal student loans. The Act suspends all payments due on certain federal loans until Sept. 30, 2020, with suspended interest.

Don’t count on bankruptcy

Ultimately, you may wonder if bankruptcy is in your future. However, Leslie Tayne, founder of Tayne Law Group in New York City, says you may not be eligible. And even if you are, you’ve got to evaluate the long-term credit damage.

“Always look for alternatives to bankruptcy,” says Tayne. “It’s not just based on your bills, it’s also based on your past income, so you may not qualify. Look ahead. In 30, 60 or 90 days, you may have your job back. It’s better to work something out with your creditors and save your credit.”

If you can put your debt payments on a formal freeze and meet your critical expenses, wait before deciding to discharge your liabilities in bankruptcy court.

“If the pandemic continues and the writing is on the wall, fine,” says Tayne. “But it should never be something you pursue in panic mode.”

Final thoughts

The best advice offered by experts is to be proactive. With huge numbers of people in the same boat, creditors are doing their best to help their customers stay afloat. They don’t want you to fall behind any more than you do.

“At this moment, most creditors understand many people are struggling,” says Morgan. “Staying in contact with banks and lenders is the most important thing. Let them know about your situation and see what they may be able to offer.”

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The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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