Making ends meet: How to get cheaper loans in a crisis

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These items reprinted with permission from NerdWallet.

The coronavirus pandemic, which has turned the US economy on its head, has resulted in widespread job and income losses and increased the debt burden for millions of Americans. More than 2 in 5 US adults (42%) say their household finances have worsened since the pandemic began NerdWallet’s annual debt studywhile only 14% say it has gotten better and 43% say it has stayed the same. Of those who report a worse situation, almost half (45%) say that they got into debt because of it.

Taking on debt may be inevitable in the circumstances, but there may be ways to reduce the cost of that debt in the form of interest or fees. Depending on your personal situation, you may have cheaper or more accessible options.

For good / excellent credit: credit transfers, 0% credit cards, personal loans

Credit card offers for credit transfers were more difficult to find during the pandemic as card issuers tried to reduce their risk. But those with good to excellent credit scores – generally defined as a credit score of 690 or greater – can still find them. If you have a balance that you cannot reasonably pay off over the next few months, you can transfer it to a card with an introductory offer of 0% to avoid interest for a year or more. However, there are usually fees for credit transfers.

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If you anticipate that you may need to hold a credit card balance in the near future – due to an income disorder, for example – a 0% introductory rate card may offer a year or more of respite for purchases. For those who need more time, a popular payday loans near me no credit check notes may be a better choice. You can also use a personal loan to consolidate existing balances. This is a good option if the 0% period on a prepaid transfer card wasn’t long enough to wipe out the debt before the interest rate climbs into the double digits.

If you have a fair or bad credit rating or no credit rating: emergency loans

When you need cash quickly but don’t have good credit, an unsecured emergency loan may be the way to go. Depending on your credit, these can have high interest rates, so this should be viewed as fallback if you cannot take out a family loan, receive support from a nonprofit or religious organization, or qualify for a 0% credit card.

See: What if I break my rental agreement?

Members of a local credit union may be able to get better terms and lower interest rates on an emergency loan because they take into account your overall financial situation, not just your creditworthiness. Emergency loans may not be ideal from a cost standpoint, but they are for those who don’t have good alternatives.

For those with 15% or more home equity: HELOCs

If you have adequate equity in your home and need access to credit, use a home equity line of credit or HELOC, will likely be cheaper than amassing a credit card balance. A HELOC allows you to borrow against your home equity, which is the value of your home minus the amount you owe on the mortgage.

To qualify for a HELOC, you generally need equity of at least 15% of the value of your home, a creditworthiness of 620 or more, and 40% or less for a debt to income ratio, which is the percentage of your gross income Bonds.

The interest rates on HELOCs are usually adjustable so they can go up and down. Try to get quotes from a few different lenders so you know you are getting the best rates available. Look out for the Lifetime Cap, which is the highest amount that can be charged to you. If you feel that you cannot afford to pay at the highest rate, it is probably not worth doing as a HELOC carries the risk of losing your home in foreclosure if you cannot repay your debt.

For medical bills: 0% payment plans, medical credit cards, income-related hardship

Among Americans who have reported deteriorating finances since the pandemic began, 14% of NerdWallet’s study said they had incurred medical debts or additional medical debts.

If you have any outstanding Medical bills, ask your health care providers if they offer payment plans; If so, find out about interest or fees. Some providers allow you to make equal monthly payments within your budget, which can be a good option if there are no costly fees on your account.

If an affordable payment plan is not an option, a medical credit card with 0% interest can help avoid interest for a period of time (usually six to 12 months). Note that some medical cards charge deferred interest. This means that if you do not pay the balance in full by the end of the interest-free period, you will owe interest on the entire original balance up to the beginning.

Depending on your income, you may be eligible for a hardship plan that can reduce your payments as well as the total amount you owe. Ask your provider if this option is available.

If you have multiple unsecured balances: debt management plans

A debt management plan can be a good choice if you cannot adequately make your existing loan payments every month. You are working with a credit counselor who is an attorney for you who is trying to get better terms on your existing balance and combine your unsecured debt into one monthly payment that you make to the credit counseling agency instead of your creditors.

See: Will late payment damage my creditworthiness?

If you go down this route, look for a nonprofit agency that is accredited by the National Foundation for Credit Counseling. You will likely need to close your credit card accounts when going through a debt management program.

For the unemployed: credit unions, crisis loans

Access to credit is often the toughest for those who need it most, but there are options for unemployed Americans. Local or regional credit unions can offer credit to get you through a difficult time, and the Capital Good Fund offers a crisis relief loan that studies your employment and finances before the pandemic. The Capital Good Fund is available in a limited number of states, but these residents may find exactly the liferaft they need.

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Erin El Issa writes for NerdWallet. Email: [email protected]

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