Here are tips to manage your bills during this difficult time while protecting your credit rating.
Well, this is an awkward time. While we make adjustments, money and the calendar do not. Bills are due and payment is expected even in a pandemic. Getting ahead of a potential problem is essential for your overall financial plan.
Two things to keep in mind, your creditors want to be paid while keeping you as a customer and they are expecting your call. It costs them much more money to get a new customer than what it costs to keep you. They know the dire situation that many of their customers have found themselves.
Before we go any further, I have to put in a plug for an emergency fund. You know, six months expenses set aside in a liquid non volatile saving account for times like this. If you’ve done this, good, but keep reading because there may be something helpful here. If you hadn’t set up an emergency fund before this chaos, I’m sure you’ll take heed as soon as the smoke clears.
Your two most important goals are to pay the least additional expenses in interest and finance charges and to have the least negative impact on your credit report as possible. Even if your creditor offers a payment deferment you may still be charged interest. Interest is charged on the outstanding debt and the portion of your payment that goes toward interest is lower each month as the principal is reduced. So, under a payment deferment you may rack up interest charges at the same level each month until you return to regular payments. In some cases an arrangement may be reported to the credit bureaus as a negative. Make sure you understand how interest will be charged and how the creditor will report.
Prepare before you call.
Do your research. Review your financial position, know what payment arrangements that you can accept. Familiarize yourself with the terms and conditions of your credit account. And research what their competitors are offering or what relief they are offering their customers.
Make a few notes so you can keep the conversation on track. Keep your notes brief, write them down, rehearse them and keep them in front of you when you call. There will be many other callers so be prepared for an extended que time. Plan something to do, like a good TED Talks on YouTube while you wait and try to mute the less than enjoyable music on hold. Suddenly, its your turn. Keep your comments brief and to the point. Maybe you lost your job or are just on a temporary layoff. Or your business was deemed non-essential and you had to shutter the doors until your state’s lock down ends.
Just briefly state the cause, that you want to remain in good standing with them and ask what they can do for you. Then stop talking. The brief silence may seem awkward but let them make an offer. This gives you leverage in managing your finances.
Two things to remember; the company already has solutions that they’ll offer and the person who took your call gets paid the same at the end of the week regardless of the outcome of this call. Its not their money and they have call center metrics to meet, that’s what’s on their mind. You do not have to take their first offer. If it is not to your liking, briefly explain that the offer won’t help solve your problem and ask what else they can do. They may have Offer #2 scripted on their screen ready to go.
When you should try later
If the call isn’t helping you govern your finances in light of this national business shutdown, simply excuse yourself from the conversation and call another day. Remember, though, all calls are recorded and the call center rep has been taking notes that will be reviewed next time you call. Polite but firm or business diplomatic is the decorum of choice.
Should you be met with the same disappointing results when you call back, ask to be transferred to the customer retention department. They want to keep you as a customer and they want their money, a balancing act for them. If you are told that they do not customer retention department then the company has delegated this role to mangers and supervisors. Ask to speak to a manager or supervisor.
When negotiating a solution you should keep in mind that different types of debt have different flexibility. For example, your home loan was probably sold by your bank as soon as you left the closing agent’s office but they still retain servicing so they remain you key contact. Mortgages are sold, packaged into bonds and resold as an investment by brokers and financial advisors. Your mortgage may be part of a collateralized mortgage obligation (CMO) or held by a GSE (Government Sponsored Entity) like FNMA and FHLMC (often called Fannie Mae and Freddie Mac).
The terms of the bonds or CMOs dictate what wiggle room the servicing bank has. They or a competitor may have other products with lower interest rates given the liquidity that the FED has added. Your bank has an incentive to refinance your loan because they will earn an origination fee even if they immediately sell the new loan. Consider closing costs before you pull the trigger on a re-fi. Even then, make sure your understand the way the agreement unfolds over the years. You don’t want to be caught by surprise with a future interest rate adjustment or other changes.
You are in a different situation if your mortgage is with a credit union or a small local bank who is a portfolio lender (they lend money deposited in the bank and retain the loan). You’ll most likely be working with the people from the local branch that you may know personally.
Working with a landlord
Landlords have to pay the property mortgage, insurance, taxes, maintenance and utilities included in your lease whether you pay or not. And they know that executing an eviction now will take even longer than the normal three months or so. When the dust settles they may have a difficult time attracting tenants if they earn a reputation of putting people on the streets during this difficult time.
Contact your landlord before they contact you. Again, briefly inform them of your situation with income disruption, ask what arrangements they are offering tenants, stop talking and listen.
If the offer is not suitable, counter offer. You may offer a reduced rent for the next several months to be made up on the back end of the lease. Or you may offer a lease extension for some upfront relief.
Banks have greater flexibility with car loans and your car dealer may be part of the equation, too. Call both to find out how they worked together to finance your vehicle.
Government sponsored student loans have been part of the Congressional haggling over stimulus packages to keep the economy afloat. To get the most accurate intel before you call the lender who holds the debt, call your Senator or Congressional Representative. Their staff is your best resource.
The creditors with the most flexibility will bank credit cards, personal loans and retail cards. But, even they have established guidelines to which call center reps must abide. Many of those call centers have been contracted out to separate entities acting on the creditor’s behalf.
Addressing medical bills
Many states have put on hold any elective medical procedure. But you may still find yourself in need of medical care, especially if you if you contracted the coronavirus. Explain to your provider that you lost your job. While money is the major component of healthcare, they are more compassionate than financial companies and may cut you some slack on the bill. When you receive your explanation of benefits (EOB), have your insurance company go over it with you. If you can’t pay your share, contact your provider and see if they can lower the bill or at least accept the Medicare level of payment. But they should still be willing to work out a payment arrangement.
Working for the most favorable outcomes.
We all know that the most favorable outcome is to pay on your current schedule and not have to negotiate at all. We all know that’s why I’ve written about the importance of an emergency fund. Or if you are one of my clients, you heard me speak about the importance.
But, if your emergency fund is not yet where it needs to be then you have some important things to do. Make sure you understand how any change will impact your credit report. This is the most important thing to verify. Next is the interest, finance charges and fees that your new arrangement will cost you.
Ask the customer service rep for the agreed upon proposal in writing. Some changes will require new paperwork. And some will be accommodations that your creditor makes. In this case ask the customer service rep to email a summary of your conversation. If they won’t then you summarize the conversation in an email to yourself. It won’t carry any legal weight but it will serve as a reminder should you need to discuss it with them again.