Just When You Need a Financial Cushion, Banks Snatch It Away
If you were counting on your credit cards to see you through the coronavirus economic crisis, don’t. BILLSHARK wants to alert you to the latest evidence that corporations care more for their bottom line than their customers or employees.
Credit as a lifeline
Let’s take the banks’ latest move on credit cards, for example. At a time when at least 30 million Americans are suddenly unemployed, many are living on their credit cards to survive.
This is not a move recommended by experts, because it not only sinks a person deeper into debt which could take years to repay, but can also lead to bankruptcy if you don’t get back to work in time to make the required payments.
The current situation is exceptional, however, and many people need their credit cards to survive right now. If you are among the 77 percent in a recent survey who expect to return to their old jobs within a few weeks and feel confident about your ability to repay, and you have no available alternatives to obtain some badly needed cash, it may make sense to borrow against your credit line for necessities.
Credit limit cuts
But if you do, you better move fast. As CBS News reported last week, a customer survey by LendingTree found that already about 25 percent of credit card holders (nearly 50 million Americans) have had their credit limits cut or their card accounts closed in the last 30 days.
This is a preemptive move by issuers that want to reduce their exposure to bad debt. Most people are not aware that banks can legally reduce credit limits with a written notification or close an account altogether with no advance notice and without explanation.
“We’re continuing to utilize internal and credit bureau triggers to dynamically reevaluate the customer’s credit worthiness to manage credit exposure,” Brian Wenzel, executive vice president and chief financial officer of Synchrony Financial, said during an earnings call recently.
In other words, the customer is always last.
“While the moves make bottom-line sense for card issuers, they don’t make it any easier for cardholders,” LendingTree analyst Matt Schulz told CBS News. “These reductions and closures come at the worst possible time.”
“Many consumers intend to use their cards to help bridge the gap between their last pre-layoff paycheck and their first unemployment check,” he added. “Having their cards’ limits slashed makes that much harder.”
How to protect your cards
Fortunately, there are steps you can take to head off a move by your credit card issuers to reduce your credit line.
One of the first targets of card issuers will be unused credit cards. If you have cards with a high limit and no monthly balance, this will draw the attention of companies that are on the hunt for risky borrowers.
To keep lines of credit open in the current crisis, LendingTree’s Schulz recommended spreading out purchases over multiple cards, which keeps these cards active. He also suggested moving small recurring purchases, such as subscriptions to streaming services, to a dormant card and using autopay to make payments.
“That regular $10 to @20 charge keeps your card active without adding any unnecessary expense to your budget,” he told Newsweek.
If your limit is decreased on one card, you can ask a different lender to increase the limit on another card, although this might be a tough sell right now.
If you’re having trouble
If your credit line has been reduced or your account suspended, contact your credit card company. Assuming you can get through to them, you might be able to convince them to restore it if you can provide proof of a steady income or an increase in pay or assets.
If you’re not in a financial position to make the full minimum payment or any payments at all, don’t just let the penalties and interest pile up; instead contact your card issuer.
Everyone realizes the economic impact the coronavirus has had on the entire world, and at the moment many banks are willing to be flexible.
“In response to the coronavirus pandemic, many issuers are supporting their customers by offering flexible bill payments and by waiving late fees and interest,” said Jeff Sigmund, spokesman for the American Bankers Association.
Even before the crisis, all creditors had in place a little-publicized hardship program. Look for a phone number on your bill that says something like “call this number if you’re having trouble paying your balance.”
They may not call it a “hardship” program, but simply call and say you’re having trouble with your account and want to talk to someone about customer assistance. You may be able to obtain a lower interest rate, a lower minimum payment, or reduced fees and penalties.
In extreme circumstances, banks may offer the option of a forbearance, allowing you to suspend payments entirely for a brief period, or even to ultimately reduce the amount owed.
And remember that BILLSHARK stands ready to help you in your battle against the broadband behemoths. We have helped thousands save on bills for such necessities as Internet and wireless service. It costs you nothing to let us review your bills to see how much we can save you every month.