Coronavirus has turned our lives upside down in the past couple of weeks. It is likely that its effect on society will be felt for months to come. It’s an upsetting and anxious time. Also, many people are worried that they may face financial struggles as a result of the pandemic. However, there is some good news: banks and lenders are changing their rules and making concessions where they can in order to soften the blow.
Credit card debt can cause problems at the best of times, but especially when borrowers face a potential drop in income as a result of coronavirus. Often, the best thing to do when dealing with debt is just do something. If you are worried about debt, it might be a good idea to get free and impartial advice from services such as Citizens Advice and StepChange.
In the meantime, here is what you need to know about coronavirus and credit card debt.
In September 2018, the Financial Conduct Authority (FCA) introduced its credit card persistent debt rule. This required lenders to contact customers who had debt that had not reduced for 18 months and ask them to either increase their repayments or cancel their credit card.
As a result of the coronavirus pandemic, this rule has been suspended. In fact, the FCA has ordered banks not to cancel anyone’s credit card until after 1 October 2020. This means that lenders are giving borrowers who have persistent debt more time to respond to their communications.
Lenders are showing some leniency when it comes to those affected by the coronavirus pandemic and their credit card debt. Some are already offering payment holidays to those who are struggling to keep up with their debt repayments.
In some cases, lenders may offer a payment holiday of up to three months to borrowers who cannot meet their credit card payments due to coronavirus-related financial problems. Whether a payment holiday will be offered – and whether you would qualify – is dependent on your credit card provider.
One important thing to remember is: if you think you may miss a credit card payment due to coronavirus-related financial problems, try to talk to your provider beforehand. This way you can find out whether a payment holiday is an option before you end up with a missed payment on your credit report.
And with regards to your credit score, the three main credit reference agencies in the UK have confirmed that payment holidays will show up on your credit report but they shouldn’t affect your score.
Similar to lenders offering payment holidays on credit card debt, some are waiving their fees for missed payments. On most credit cards, you will find yourself charged a late payment fee for a missed payment – typically around £12. However, many UK lenders are waiving this fee if you have coronavirus-related financial problems.
It’s not just existing debt that can be a worry at the moment. A potential shortfall in income could cause anxiety when it comes to your outgoings. For those who have few options available to plug the gap, some credit card providers are offering credit limit increases.
However, it is best to treat this option with caution. If you do choose to take advantage of an increased credit limit, this additional debt will need to be repaid. Additionally, having a high outstanding balance on a credit card could negatively impact your credit score.
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