Managing your credit is difficult at the best of times, but it can be truly overwhelming in during times of crisis, which sadly many of us find ourselves in at the moment. Consumer debt is often seen as bad when growing up, with many of us being advised to avoid it at all costs. The reality is that many of us rely on consumer debt, often just to survive. Not making minimum payments can harm your credit score and limit your options when looking to purchase a home. Now, contrary to what your parents told you, this is not the end of the world, and if you’re looking to manage your credit, no matter what your current financial situation, here are some tips to help in managing your credit during these hard times.
Always make your minimum payments
A common piece of advice is that we should never just pay our minimum payments on our credit cards, lines of credits, and personal loans. Though traditionally, this is good advice, when we’re facing financial uncertainty and challenging times, minimum might be all you can do. The fact of the matter is, a minimum payment is better than no payment.
If you have three credit cards, a personal loan and a line of credit, it may be tempting to take whatever amount of money you can and pay off the bill with the highest interest rates and ignore those with less severe interest and penalties. Do not do this! Always make the minimum payment on your credit card and pay what you can extra each month. You won’t avoid interest fees with this strategy but you will avoid damaging your credit score in the process.
If you are in a position where you simply cannot make the minimum payments on your debts, then you will have to be strategic about how you make those payments. This does not mean pay what you can on the debts with more severe consequences and ignore the other lenders. You may need to cut down on other non-critical expenses and create a budget. We talk a bit more about budgeting in this post here. By all means, prioritize your payments, but never ghost your lenders. This brings us to point two.
Talk to your lender
Lenders are used to making negotiations on payments and working with you to come up with solutions to pay your debt. If you are nervous about talking to your lender, remember that many people are likely in the same boat as you. This means that most lenders are open to these conversations. We are facing a literal global crisis, and lenders understand this. The most important advice is to start the conversation sooner rather than later. It is much easier to understand your options while your account is in good standing rather than after being late on payments.
Lenders can offer a number of solutions to help with managing your credit. These can include consolidation loans, deferrals, and other support. In the current crisis many lenders are offering credit card payment deferrals as well as reduced interest rates on existing balances. Lenders would rather work with you to make sure you can meet your debt obligations and get back on your feet than spend time and money on collecting that debt. Talk to your lenders and see if this is an option for you.
Should I consolidate my debt?
The last thing many of us want to do right now is to acquire more debt, so the suggestion of getting another loan is probably not well received. However, debt consolidation loans differ from other loans in that they combine all of your existing debt into one loan with one payment to make through the month. This makes it much easier to manage debt during difficult times. However, though they can be a blessing in your current situation it is important to carefully weigh the pros and cons. To read a more in-depth conversation about debt consolidations click here.
How can a mortgage broker help?
If you are currently a homeowner, a mortgage broker can help you understand your goals and plan for the future. They can help you determine whether a debt consolidation loan makes sense in your situation. You may be in a position to refinance your mortgage and access some of the equity you have built in your home.
If you are considering buying a home and are worried about the impact of your existing debt on being approved for a mortgage, you should speak to a mortgage broker. An unbiased mortgage professional can help you plan a budget, focus on maintaining your credit and make sure you are in the best possible financial position. It is important to plan ahead. It is often easier to get your budget in place than trying to explain why you missed payments when applying for a mortgage in the future.
We are dealing with an unprecedented situation with economic fall-out we still don’t fully understand. If you find yourself financially struggling and uncertain of your financial future, or the security of your home, or the potential of buying a home in the future, you are not alone. If you’re looking to manage your credit during these times, know that you have options. Review your situation, make your minimum payments on all of your debts if you can, and contact your lender to understand your options. If you are a homeowner looking for options, or planning on buying a home in the future and need some help managing your credit, give me a call at (705) 333-4338 or get in touch with me here!