Tips for Dealing with Debt Going Forward

The Coronavirus (COVID-19) is severely transforming how we run our lives and our workplaces. Many people face a reduction in income or job loss altogether and will find it challenging to keep up with their student loans, mortgage payments, credit card bills, and other debts.

Managing Your Federal Student Loans:
The federal Coronavirus Aid, Relief, and Economic Security (CARES) Act suspends payments (and interest won’t accrue) on federal student loans held by the U.S. Department of Education for six months, until September 30, 2020. The payment suspension is automatic, you don’t have to request it.

The Act also stops collection actions, wage garnishments, and Treasury offsets, and prohibits negative credit reporting during the coronavirus national emergency.

Mortgage Payment Help:
As soon as you realize you’ll have trouble making your next mortgage payment, call your loan servicer to learn what options might be available to you. You could be eligible for a forbearance, like under the CARES Act, or another form of short-term immediate mortgage relief, like a waiver of late fees.

Foreclosure Suspensions:
The CARES Act also imposes a 60-day foreclosure moratorium for federally backed mortgage loans starting March 18, 2020, including loans purchased or securitized by Fannie Mae or Freddie Mac, FHA-insured loans, loans insured or guaranteed by the VA, and loans made, guaranteed, or insured by the Department of Agriculture. This moratorium covers the majority of residential mortgage loans in the country.

On March 18, 2020, the Federal Housing Finance Agency (FHFA), which regulates Fannie Mae and Freddie Mac, announced a suspension of foreclosures and evictions for a minimum of 60 days. On May 14, 2020, FHFA said it was extending the moratorium until at least June 30, 2020. The foreclosure moratorium applies to Fannie- and Freddie-backed, single-family mortgages. The Federal Housing Administration (FHA) also set a foreclosure and eviction moratorium through June 30, 2020, for homeowners with FHA-insured single-family mortgages. the Department of Veterans Affairs (VA). The VA also imposed a foreclosure moratorium on VA-guaranteed loans, which lasts through June 30, 2020.

Many states have imposed a temporary foreclosure moratorium as well. Numerous counties are suspending sheriff’s sales and evictions indefinitely due to the COVID-19 outbreak. Courts, too, across the U.S., are shutting down to halt the spread of the virus and are postponing foreclosure hearings as part of the process.

Property Tax Foreclosures and Tax Sales Postponed:
If you’re behind in paying your property taxes, certain counties are declaring a moratorium on property tax foreclosures and tax sales. Call your county treasurer’s office or look online to see if your area has a moratorium.

Banks, credit unions, and other financial institutions are offering loan extensions and deferred payment options, among other things, if you’ll have trouble making payments on a personal loan or small business loan.

If you need money to make ends meet, different lenders and the U.S. Small Business Administration (SBA) are offering loans to those affected by coronavirus.

Utilities, Phone, Internet:
Many government bodies, like in California, Connecticut, District of Columbia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Vermont, Virginia, West Virginia (where regulators have urged a suspension of disconnections), and Wisconsin have ordered a moratorium on utility shutoffs. Some utility companies have also implemented a shutoff moratorium.

Many phone and Internet providers, too, are waiving late fees and postponing shutoffs. Some providers are giving free Internet service to new customers or unlimited data to current customers for a limited amount of time, like 60 days.

Auto Loans:
Lenders are offering payment delays and other alternatives to those who will have trouble making their car payments.

Managing Your Credit Reports:
You should review your credit reports regularly. Under federal law, you’re entitled to a free copy of your credit report every 12 months from each of the three nationwide credit bureaus (Equifax, Experian, and TransUnion). As part of a court settlement, you can get up to six copies of your Equifax credit report each year, for free.

Under the 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 the COVID-19 pandemic during the covered period, the creditor has to report the account as current to the credit reporting agencies if you weren’t already delinquent. (“Covered period” is defined as the period starting January 31, 2020, until the later of 120 days after enactment of the CARES Act or 120 days after the end of the national state of emergency declaration.) 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.

If you come to an agreement with the creditor, and the creditor improperly reports the delinquency to the credit reporting bureaus, you may dispute it. If your dispute doesn’t resolve the issue, you can add an explanatory statement to your credit report. Keep your explanation brief—100 words or less is best—so that the agency is more likely to use your unedited statement. For example, you might say something like, “The delinquent accounts showing on my credit report were because my employer significantly reduced my work hours due to the coronavirus outbreak. I intend to make up the payments as soon as I can.” After you file your statement with the credit reporting agency, the agency has to include your comment (or a summary of it) in any report that includes this information. You might also consider filing a lawsuit to force the creditor to remove the information.

Also, some creditors have said they’ll use a special code, one for natural disasters that adds a comment to the report, for delinquent debts during the pandemic. This code might make a difference if a potential creditor actually reads the full report when making a lending decision. But any debt reported as delinquent still shows up as negative on reports and can hurt your FICO credit score. FICO doesn’t factor this kind of code in when calculating credit scores, although VantageScore will disregard late payments for accounts with a disaster code.

Getting Help:
When you’re sure that your income will be reduced or eliminated as a result of COVID-19, contact each of your creditors to let them know about your situation. Tell them how coronavirus has impacted your ability to pay your account and inquire about options for financial relief. If you’re not happy with the alternatives, feel free to ask if any other options are available for you to consider. The more you know about your choices, the more likely you’ll be able to come to an agreement that works for your circumstances.