Coronavirus: What to Do If You’re Unemployed and Have Credit Card Debt

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The nation’s unemployment rate is set to spike due to the novel coronavirus pandemic and the unprecedented social distancing measures that government officials have enacted to try to slow its spread.

Through no fault of their own, millions of Americans have suddenly found themselves out of work. This is especially affecting people who interact with customers face-to-face: bartenders, waiters, retail sales personnel, hotel staff and many, many others. The implications are massive — for individuals, companies and our entire society.

See related:Coronavirus: Senate passes $2 trillion stimulus package

The Bureau of Labor Statistics’ next official employment report will come out April 3 and will cover the month of March. The last report, which came out March 6, is a distant memory. It measured the unemployment rate at just 3.5%, tied for the lowest in a half-century, and found that a robust 273,000 jobs were created in February.

The April 3 report will be grim. For example, the New York State Labor Department received more than 2 million web visitors last week and almost that many phone calls. Ohio’s unemployment website crashed after fielding a record number of claims. Washington state’s Employment Security Department cited claims on par with the peak of the Great Recession.

What to do if you’re currently unemployed

File for unemployment benefits as soon as possible.

Also, contact your credit card issuers and other lenders if you’re having trouble keeping up with your bills. Many card issuers are offering relief in the form of fee waivers and deferred payments. Ideally, you’ll be able to do so without incurring additional interest, so ask about that.

And seek to protect your credit score, too (lender-approved modifications such as skipping a payment should not hurt your credit, nor should more formal forbearance and disaster notations on your credit file).

Help is available, but only if you ask. You’re a lot more likely to be successful if you speak up ahead of time. Don’t fall behind and try to fix this in a few months.

If you’re having trouble getting through to customer service over the phone, try online chat or social media. Hopefully more assistance will be coming soon via a congressional stimulus package.

See related: Fed stimulus to enable smooth flow of credit during coronavirus crisis

What to do if you have credit card debt

I frequently recommend 0% balance transfer cards to people digging their way out of credit card debt. The benefit of avoiding interest for up to 21 months is as strong as ever, but the asterisk is that I believe these cards are getting harder to qualify for.

In more normal times, you could get a good balance transfer card with a credit score of about 670 or better. While card issuers keep their approval metrics very close to the vest, I suspect they’ve gotten a lot stricter of late. It’s also much harder to get a credit card with lower income.

It makes sense because credit cards are unsecured debt. You don’t put your house or car on the line as collateral. Credit cards are often the first bills to be neglected during financial troubles and the first debts to be discharged during bankruptcy proceedings. That’s a big reason why they charge much higher interest rates than mortgages and car loans (often four to five times higher, in fact).

Using the past as a guide

The recession that will likely result from COVID-19 will be different from the Great Recession — it will probably be deeper and shorter — but there are still some notable lessons we can learn from the financial crisis of 2007-09.

Credit card charge-offs (payments so delinquent issuers have basically given up hope they’ll ever see the money) peaked at 10.51% of balances in the fourth quarter of 2009, according to the Federal Reserve. Credit card delinquencies (bills between 30 and 180 days late) crested at 6.77% in the second quarter of 2009. It took about a year after that peak for delinquencies to return to a more normal level and about two years for charge-offs.

Back then, credit card issuers and other lenders became extremely cautious in their underwriting decisions, and many card companies slashed credit limits and even canceled cards entirely.

This particularly affected borrowers who were struggling with debt, unemployment and late payments. And unused credit lines became seen as liabilities because there was no telling when a dormant card might have sprung to life with charges that might not have been paid back.

All of this could very well happen again.

See related: Own a business? Here’s how to apply for an SBA disaster loan

The card industry response

While virtually no one could have anticipated the COVID-19 crisis a year ago, 2019 was a cautious year in the credit card industry for other reasons. Banks were worried the record-long economic expansion (10-plus years) was nearing an end, especially after a mix of Federal Reserve actions and investor sentiment caused the yield curve to invert. Those worries are proving true, although quite differently from how we all imagined.

Some of the actions card issuers took (tightening credit standards, becoming less generous with credit lines and marketing new offerings less aggressively) should prove beneficial during our current crisis. Stronger regulations (such as the CARD Act, which went into effect in 2010, and CECL, which kicked in a few months ago) should help, too.

5 things to do if you’re facing financial difficulty

To recap, from a consumer standpoint, here’s a checklist to follow:

  • File for unemployment and other benefits, if applicable.
  • Contact credit card issuers and other lenders if you’re having trouble making payments.
  • Get a 0% balance transfer card if you have credit card debt and can get approved.
  • Conserve cash, especially if it’s limited — cut nonessential spending, track down tax and event ticket refunds and redeem credit card rewards.
  • 0% introductory APR cards are another idea, if you can get one.

Have a question about credit cards? Email me at [email protected], and I’d be happy to help.

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