Stimulus Proposal: $10000 In Credit Card Interest Relief During Coronavirus Pandemic
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The U.S. economy is continuing to roil from the coronavirus pandemic. While the official April unemployment rate of 14.7 percent marked the highest level since the Great Depression, it also understated the true economic devastation being inflicted across America. With Congress deadlocked on when to pass the next relief bill, let alone what provisions it should include, now is an opportune time to consider creative solutions to help Americans weather the extended Covid-19 crisis. One novel proposal by two law professors would provide government subsidies for consumer credit card interest payments.
The brainchild of Norman Silber, a senior research scholar at Yale Law School and professor at Hofstra Universitys Maurice A. Deane School of Law, and Jeff Sovern, professor at St. Johns University School of Law, the proposal would have the federal government subsidize interest payments on consumer credit card charges while also capping interest rates and allowing consumers to fully defer minimum payments. These steps would help stem the impending credit crunch that has already started to hit many Americans and maintain an accessible lending mechanism readily available to 75 percent of Americans.
In order to fully appreciate the potential impact of Silber and Soverns proposal, it is crucial to contextualize it in the missteps of the CARES Act and the early warning signs emerging of financial institutions scaling back available credit to consumers.
Using Debt Consolidation To Get Relief
Debt consolidation is often the preferred choice for debt relief because of the benefits it provides. With consolidation, you pay back everything you owe while minimizing interest charges. You can often enjoy lower monthly payments, even while you pay off your debt faster and save thousands. Theres also no credit report damage, which you see with other solutions like debt settlement and bankruptcy.
There are three basic ways to consolidate credit card debt:
Establishing And Maintaining Credit
Two of the many challenges for low-income families are establishing a solid credit history and maintaining good credit when you do.
Equifax, one of the three major credit bureaus in the U.S., estimated in 2020 that there were 25 million consumers who were credit invisible. That means they have not used a credit card or taken out any loans that would tell lenders how good they were at paying things off. Equifax judged another seven million people to be credit unscorable meaning they had used so little credit that there wasnt enough information to give them a credit score.
Lacking a credit history, low-income consumers either wont get approved for a loan or, if they do, they face much higher costs to use credit to purchase a home, car or any big-ticket item.
Higher-income consumers obviously possess more money, better lifestyles and more luxury items, but they also have more ways to get and keep good credit.
The Consumer Financial Protection Bureau said low-income consumers are 240% more likely to start their credit history with negative records, such as a debt collection. Higher-income consumers start with positive records, such as opening a credit card or getting a co-signer who has good credit.
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Who Should Use A Debt Settlement Company
Most debt relief companies aren’t for bill-paying consumers who just want a discount. On the contrary, you really need to assess the pros and cons before deciding whether debt settlement programs are right for you.
If you cant afford your current debt payments due to an event like job loss or illness and either cant or wont file for bankruptcy, then debt settlement should be your last resort for getting your finances straightened out.
When your credit report is teeming with missed payments, creditors know that they might not receive any repayment from you without a costly lawsuit, so they might be willing to settle for less than the full amount you owe them.
But because debt settlement can damage your credit score for years to come, you really should treat this service as a last-ditch effort. And if you do have success with debt settlement programs, make sure you develop healthy personal finance habits going forward to create lasting change.
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Debt Settlement As An Alternative To Bankruptcy
Government Programs for Debt Relief
Filing for Chapter 7 or Chapter 13 Bankruptcy can plague you with a set of challenges, such as lawsuits, monetary judgments, or garnished wages which you may want to avoid, not to mention the long term impact on your credit score which it may incur. If you want to avoid bankruptcy, debt settlement is a viable and recommended alternative by the Federal Trade Commission. Under debt settlement, a debtor can receive a lump sum agreement or installment through which he or she will pay off debt at a reduced, fractional rate of the total account balance, perhaps at around half, or more or less depending on the debtors situation. Though debtors can hire a firm to help with creating a debt settlement plan, the FTC warns against for-profit firms as they are often out to scam debtors. Debtors can create their own self-managed debt settlement plan or look into free credit counseling agencies.
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Option : Enroll In A Debt Management Program Through A Credit Counseling Agency
The benefit of professional help: A debt management program is the solution you use if you cant make progress on your own. If you dont have good credit or youve missed some payments, your creditors may be resistant to working with you. Having the help of a credit counseling agency means you get a team of negotiators on your side. That makes it easier to craft a repayment plan that your creditors will actually accept.
How It Works:
Balance Transfer Credit Cards
A balance transfer means moving burdensome balances to low-interest or interest-free credit cards. Credit card companies typically require you to have a credit score of around 700, so this might not be the debt relief solution for you if your credit is struggling. Plus, a transfer fee of around two to three percent usually applies.
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Will You Waive My Late Fee
Whether you plan to skip a payment or just need a few more days to get the money together, missing a due date can trigger a late fee in addition to interest charges. If you cant avoid missing a payment or paying late, its worth asking for a one-time waiver.
There are acouple other questions worth asking about a late payment, too.
- Will I be charged a penalty APR? Some credit card issuers may raise your interest rate when you miss a payment. The higher interest rate is known as a penalty APR. But if you miss a payment because of the financial impact of COVID-19, you could ask your credit card issuer if it would be willing not to charge a penalty APR due to the situation.
- Will you report my late payment to the credit bureaus? Even if your credit card issuer agrees to waive the late fee and interest charges, it could still report a late payment to the credit bureaus, depending on how late your payment is. When you talk to your card issuer, you should make sure to ask if they intend to do so.
Best Overall: National Debt Relief
We chose National Debt Relief as the best overall in our ranking based on its track record for results, overall transparency, and a money-back guarantee. National Debt Relief has several examples of massive reductions of credit card balances on their website, showcasing their abilities.
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More than 10 years in business
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Proven results settling debts for less than consumers owe
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No upfront fees
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Does not handle certain types of debts like mortgages
National Debt Relief was founded in 2009 with the main mission of helping consumers get out of debt through a reliable debt settlement program. This firm is incredibly transparent about its process and resultsthey share examples of what they’ve done for past clients on their website: $15,000 reduced to $3,000 in debt, $22,500 reduced to $8,000, and $11,000 reduced to $2,000 in debt.
National Debt Relief helps consumers begin the process by offering a free consultation with one of its debt counselors. From there, you will have the option to explain your situation and talk over potential solutions, including using National Debt Relief for debt settlement.
Like other debt settlement programs, this company has you set aside a specific amount of money in a separate account each month, which you will later use to settle your debts for less than what you owe. In the meantime, National Debt Relief helps coordinate your efforts and negotiates with your creditors on your behalf.
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If Credit Card Relief Programs Arent An Option
If youre dealing with financial hardship because of COVID-19, and are having trouble making monthly payments, but your credit card company doesnt have an option that works for you, there are still things you can do to manage your situation.
Even if you do get some relief, keep in mind that its temporary, and the bills will still be there, and may be worse, once the relief period ends.
No matter what your situation, the number one thing to do is sit down and get a solid understanding of your finances. Make a budget that lists expenses and income. Figure out ways to lower the first category and increase the second.
Keep in mind that interest rates on credit cards are also determined by credit scores and can range from 16% up to the high-20s, so work on using credit cards less and paying them down is a win-win.
Debt management programs, offered by nonprofit credit counseling agencies can provide advice on your budget, how to get credit card payments down and how to improve your credit.
A may also recommend a debt management program as a way to help you reach financial goals. Agencies have agreements with major card companies to reduce rates for those enrolled in their programs. The counselor will offer you the lower rate, and you can decide if it works for you. You make one monthly payment to the credit counseling agency, and the agency disburses the money to each credit card company in agreed upon amounts.
Financial Aid For Education
Programs that can help include:
- Federal Student Aid Details the types of grants and scholarships available.
- QuestBridge Provides information on resources for high-achieving, low-income students, plus resources for educators.
- The Education Trust Advocates for students with high academic achievement, especially those in low-income situations, and offers a number of tools. Those include help in choosing a college based on performance.
- Bloomberg Philanthropies Helps high-achieving students who are low- and moderate-income.
- FinAid Provides information on educational loans, scholarships and military aid, as well as several dozen financial calculators. Gives tips on choosing a college, options for online degrees, jobs and internships and more.
- JKCF The Jack Kent Cooke Foundation site has scholarship, grant and other info intended for exceptionally promising students from low-income families.
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What About Government Approved Debt Programs
You may have also seen terms like government of Canada debt relief grants or free Canadian government grants to pay off debt. While these look appealing and might make you think there are some ways for you get a deal when dealing with your debt, sadly, this is not the case.
Any company, individual, service, or program that claims they are government approved is often embellishing their reputation or simply misleading you. As was mentioned earlier, the government doesnt offer any debt relief services and doesnt publicly approve or endorse any either.
What these companies often mean by claiming to be government approved is that they have obtained a license from the government or that they are offering a consumer proposal, which is defined within the Bankruptcy and Insolvency Act.
So while many of these services are regulated or licensed by the government, it doesnt mean that they are approved by them. Simply put, companies will use those buzz words as a way to make their option seem like the more official, prestigious, and best one for people who are struggling with debt.
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Debt Relief Programs Cant Make Your Debt Disappear
Commercials full of lavish promises aside, debt relief programs cant just make your debt disappear. That said, in some circumstances, especially when you enlist the help of a good debt relief company, you may see a decrease in your overall balance, whether through a lowered interest rate or settlement resolution.
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What Is Debt Settlement
Generally speaking, debt relief companies turn to debt settlement as the best debt relief option. With debt settlement, these companies ask their clients to set aside a specific amount of money in a dedicated savings account each month. The goal of this account is to build up a sum of money that can be used to settle debts later on.
Debt relief companies then negotiate with creditors on your behalf, which typically involves offering less than what you owe toward your balances. At the end of a debt settlement program, clients should be debt-free and able to move on with their lives.
While paying less than what you owe may sound ideal, the Federal Trade Commission notes that debt settlement has risks. For example, debt relief companies will ask you to stop paying your bills while they work to settle your debts, which can have grave consequences for your credit score. Also be aware that creditors are not required to settle your debts for less than what you owe, so theres no guarantee your debt relief company will be successful.
Good Ways To Find Relief Versus Bad Ways
The right debt relief solution will help you reach zero without creating new financial risks or damaging your credit. When it comes to bad ways to seek debt relief, there may be some circumstances where using one of these solutions would be the best option. However, you should exhaust every other option first before you consider these last resorts.
| Good Ways to Find Debt Relief | Bad Ways to Find Debt Relief |
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On the other hand, if you still want to try paying off the debt with regular payments, follow the steps below. They will increase your chances for success.
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Bankruptcy Is The Only Way To Avoid Repayment
In fact, the only way to avoid paying off your credit card debt is to declare bankruptcy. In particular, Chapter 7 bankruptcy can eliminate your need to repay some or even all of your unsecured credit card debt but not without a different kind of cost.
The consequence of choosing to file for bankruptcy is extensive credit damage but, its also a fresh start. Like many things in life, its a give-and-take situation. You can free yourself from the debt burden you were carrying, but it may limit your credit options in the future. A bankruptcy can stay on your credit report for seven years and may need to be disclosed on some government forms for up to 10 years. Bankruptcies can also make it difficult to qualify for many types of new credit, especially mortgages. And, if you do receive new credit, you will likely pay the highest interest rates and fees.
Potential Objections To Cirpa
In interviews with several experts, the most common criticism of CIRPA was that it was a sub-optimal policy response compared to direct stimulus payments. Im going to show my libertarian streak and say it would be much better just to give families the money, said Luke Shaefer, a professor at the University of Michigan. Others were worried about the eventual reckoning when CIRPA ends and consumers are faced with repaying their bill, unlike a stimulus check which has no repayment.
These points are valid, but also confound a standalone program with one that could complement existing initiatives, like stimulus checks. CIRPA is not a substitute for relief checks, Silber and Sovern acknowledged. We think its critical that relief checks keep flowing. Instead, CIRPA could amplify relief for consumers for whom direct payments are not sufficient.
A similar line of argument was raised by Michael Graetz, the Columbia Law professor, who made a comparison to the home mortgage crisis during the financial meltdown of 2008. When you look carefully at the efforts of federal government to address the crisis, one thing that became clear is that the reduction in interest rates, which was the primary government tool, didnt stop foreclosures, it only helped a little, he told me. The only thing that helped was a reduction in principal to the market value of the house.
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Managing Debt Collectors And Scammers
The most helpful government debt relief programs cant immediately fix your credit issues, especially if your finances put you in the lower end of the low-income household category.
Even your best intentions to pay off debt probably wont spare you from debt collection, and the scammers it attracts.
You should know your rights with debt collectors and even more importantly you should be on high alert to avoid debt settlement and debt elimination scams.
You may not instantly know them when you see them. But there are indicators when a debt relief service is offering you something it cant deliver:
