Credit Card Issuers are Prepared to Assist
Already, many of America's top banks have announced plans to assist customers facing credit card distress. Your options could potentially include forbearance (postponement of payments) or a reduced interest rate. One word of caution: before agreeing to forbearance, be aware that interest will still accrue on your balance.
Ally Bank, Bank of America, Capital One, Chase, US Bank, and Wells Fargo are among the big banks offering assistance to customers experiencing hardships during this crisis. Meanwhile, Citi is calling on eligible credit card customers to check out its ‘always-on’ assistance programs. These include credit line increases and collection forbearance programs.
Debt Consolidation Loan Rates Are Set to Come Down
A debt consolidation loan is like any other personal loan, except it’s used for credit card debts. Let’s say you owe money on three credit cards. A debt consolidation loan replaces your three separate monthly payments with one streamlined payment at a (hopefully) lower interest rate.
The good news is: personal loan and debt consolidation loan rates are about to come crashing down. That’s because of the Federal Reserve’s two emergency decisions this month to cut its target federal funds rate by 1.5 percentage points in response to recent events. This brings the Fed target rate to close to zero for the first time since the 2007-8 financial crisis.
The federal funds rate is the rate at which banks lend money to each other. When the federal rate goes down, banks pass on some (but not necessarily all) of the savings to borrowers through lower rates for loans.
How far will debt consolidation loan rates fall? It’s impossible to say exactly. In the three months after the Fed’s emergency 1.5-point rate cut in late 2008, the average personal loan rate fell 0.43 points. After seven years of near-zero federal rates, personal loan rates had fallen close to 2 percentage points.
At the end of 2019, the average personal loan rate stood at 10.2%. If history is a guide, rates could fall to a range of 8.4% to 9.7%. If you can afford to wait for rates to drop, you could save hundreds of dollars on monthly payments on your debt consolidation loan.
Comparing Options and Rates Helps You Save
This year is going to be challenging for most people, but that doesn’t mean you have to just accept your situation. If it looks like debt is going to be an issue for you, then it pays to start planning now.