by Kailey Hagen | Sept. 24, 2020
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These programs can help you, but they can also hurt you if you don't know how they work.
It's hard to believe it's been six months since the nation shut down due to the COVID-19 pandemic. We've learned to adjust to our new normal in some ways, but for those who have lost their primary sources of income due to the recession, there really isn't any getting used to that.
Many have turned to COVID-19 hardship assistance programs banks and other creditors are offering. These programs let you defer payments or make alternative payment arrangements without harming your credit, so they can be a lifeline right now. But as with any binding agreement you enter into, you need to make sure you know what you're signing up for. Here are some questions you should ask before participating in a COVID-19 hardship assistance program.
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Most hardship assistance programs require interested customers to sign up, and only certain people may be eligible. It's dangerous to assume you qualify and stop sending in monthly payments without notifying your creditor or verifying your eligibility to participate in the program.
Many companies have dedicated COVID-19 pages on their websites, and they're good places to begin your search for information. Look for details about who is eligible for hardship assistance. If you can't find this information or if you have questions, reach out to the company via phone or email to clarify.
COVID-19 hardship assistance programs provide a temporary reprieve from payments, so eventually you have to resume your regular pay schedule. Make note of when you're expected to resume payments, and set a reminder if you're worried about forgetting. Your creditor may also send you a notice, but you should be prepared in case that doesn't happen.
If you fail to resume payments when you're supposed to, your creditor can report your missed payments as late. This can hurt your chances of securing new loans or credit cards in the future.
Many creditors are letting customers skip payments for several months, but that doesn't mean it's not costing you. Often, your balance continues to accrue interest if you're not paying enough to cover the interest every month.
That might be the lesser of two evils compared to falling behind on your payments and ruining your credit. But it could also make it more challenging to pay back your debt when you do resume payments. This is especially true of credit cards, which often have high interest rates.
If you can, try to pay at least enough to cover the interest your balance accrues every month. That way, you'll only have your old balance to worry about when you begin regular payments again.
Some credit card companies may lower your credit limit or close your card if you enroll in a hardship assistance program. If you have an installment loan, like a personal loan, you'll likely see your loan term extended by the number of months you deferred payments. So if your hardship assistance enabled you to skip three months of payments, your loan term will have three months tacked onto the end.
Make sure you familiarize yourself with any other effects enrolling in the hardship assistance program could have, and ask questions if you don't understand how something works. Failing to do so could result in a surprise that makes managing your finances more difficult in the future.
Applying for hardship assistance might be as simple as filling out an online form, but every company is different. Check its COVID-19 page for details. Never assume you're automatically enrolled unless a company explicitly says so on its website. Even if you're eligible, you usually have to notify the company of your intent to participate in its program, or it will continue to record your payments as late.
Whenever your money is involved, you have to take care to read the fine print. And this is particularly true in this unprecedented situation, when the hardship assistance programs many companies are offering are brand new. Don't sign up for one until you're confident you understand how it works, and if you run into any questions, always ask the company.
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