Dealing With Loans and Credit Card Debt You Can't Pay After COVID-19

Learn about different kinds of potential relief if you can’t make payments on a personal loan, small business loan, or credit card debt.

By , Attorney

COVID-19 has limited some people's ability to work and earn a paycheck. You might find it difficult or impossible to keep up with your loan payments or credit card bills. Fortunately, many banks, credit unions, other financial institutions, and credit card issuers have assistance programs for those who've been financially affected by the virus.

In this article, you'll get information about options that might be available if you're worried about falling behind in payments on a personal loan, small business loan, or credit card.

Available Help for Personal Loans and Small Business Loans

Many banks, credit unions, and other financial institutions offer loan extensions and deferred payment options if you have trouble paying on an existing loan. And, if you need more money right away, some lenders also offer emergency loans.

If You Have a Personal Loan or Small Business Loan

Most lenders and creditors will try to adjust or alter terms on existing loans if the borrower is facing a financial hardship due to COVID.

For instance, your lender might work with you to extend your repayment term or otherwise restructure your debt obligation to, for example, reduce the interest rate. Your lender might also offer payment accommodations, such as allowing you to skip some payments or extending the due dates, which would help you avoid a delinquency and negative credit bureau reporting.

To find out what kind of relief is available, contact your lender.

If You Need Money Now

Some lenders have eased terms for new loans to help customers deal with any impact on their cash flows due to COVID-19. Also, the U.S. Small Business Administration (SBA) offers disaster assistance loans to small businesses impacted by COVID-19.

Other Kinds of Assistance

Banks, credit unions, and other financial institutions also offer other forms of help to customers such as:

  • waiving automated teller machine (ATM) fees and increasing ATM daily cash withdrawal limits
  • waiving overdraft fees
  • offering or expanding their payday alternative loan programs (you should definitely avoid payday loans if at all possible)
  • waiving early withdrawal penalties on time deposits, like certificates of deposit (CDs), and
  • easing restrictions on cashing out-of-state and non-member checks.

Available Assistance for Credit Card Debts

Credit card issuers offer different kinds of help during the COVID-19 pandemic, like giving credit line increases and providing increased fraud security.

But be careful about increasing your credit line. While having more credit available might help your credit scores if you don't use it (because your utilization ratio would go down), if you charge more on your card after getting the increase, it could be very difficult to dig yourself out of that debt.

Instead, you might consider asking if any of the below options are available:

  • getting a collection forbearance (a temporary amount of time during which you don't have to make payments, though interest might still accrue)
  • skipping payments (also called "deferring" payments), perhaps without accruing interest
  • making a lower minimum payment
  • getting a lower interest rate or an interest waiver
  • obtaining a payment deadline extension, or
  • getting a waiver of late charges.

Many issuers are offering these kinds of options. Contact your card issuer by phone, online, or its app to find out what alternatives are available to you and to work something out. To avoid hurting your credit, pay the amount you and the creditor agree upon and stick to the terms of the agreement.

On the downside, some of these options could cost you more or damage your credit scores in the long run. For example, interest charges might be added to your existing balance and increase your debt, resulting in a higher credit utilization rate that lowers your credit scores.

So, generally, you should try to make at least the minimum payment on your credit card accounts on time if you can. Take advantage of these emergency measures only if you're in dire need, meaning your livelihood is significantly affected, or you don't have savings you can use.

When the Federal CARES Act Prohibits Adverse Credit Reporting

Under the federal CARES Act, if you make an agreement with a creditor to defer one or more payments, make a partial payment, forbear any delinquent amounts, modify a loan or contract, or get any other assistance or relief (called an "accommodation" under the law) because you were affected by COVID-19, the creditor has to report the account as current to the credit reporting agencies if you weren't already delinquent.

But you have to come to an agreement with the creditor first to avoid adverse reporting, and you have to stick to the terms of the agreement. Don't unilaterally stop making your payments, delay your payments, or pay less than you're supposed to.

If you were already delinquent at the time of the agreement, the creditor can keep reporting the delinquent status unless you bring the account current. In the case of a charge off, the creditor may continue to report it as a charge off.

Beware of Scams

You should be on the lookout for COVID and debt relief scams. Be extra careful if you receive an email with a coronavirus-related subject line.

Scammers might send messages advertising assistance with your overdue bills with malicious attachments or links to fraudulent websites designed to trick you into revealing sensitive information. Avoid clicking on links in unsolicited emails, and don't open email attachments.

Also, be wary of attempts to contact you through social media, texts, or phone calls related to COVID-19 and debt assistance. Don't give out your personal or financial information, like your name, password, PIN, or other account information, in response to an email or other solicitation.

Getting Help

If you need help managing your debts and financial situation, consider speaking with a nonprofit credit counseling agency, like those affiliated with the National Foundation for Credit Counseling. A credit counselor will discuss strategies with you, as well as tell you about ways to reduce your debt and other financial obligations. You should, however, avoid for-profit debt relief services.

If you need legal advice about handling your debts and creditors, talk to a knowledgeable debt settlement attorney in your area.

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