There you are, living your best life, when sudden, sharp abdominal pain strikes. He sends you to the emergency room. Before you know it, what should be a routine procedure turns into a medical fluke, and your hospital stay is extended from one week to three months.
That’s what happened to me a few years ago when an appendectomy turned into a much more serious medical emergency – an emergency that left me in a coma, in intensive care for a few months. And while the physical and emotional strain I went through was tough, the financial burden I was met after my hospital stay was a particularly difficult obstacle to overcome. I came home with unpaid credit card bills, late fees, and a collapsed credit score.
The possibility of an unplanned hospital stay has become an all-too-familiar fear over the past two years for many. And during a medical visit emergency – whether it’s COVID or whatever – one of the last things you think about tends to be dealing with your bills or, in my case, paying a credit card. But unpaid card payments add up quickly and can really hurt your credit score.
Here’s what to expect if you ever find yourself in a similar situation, what I did (or rather, didn’t) to try and fix my dipped score, and what I would have done differently to fix it. all damage.
my failure Payments had serious consequences
When I got out of my medical emergency and returned from the hospital, missed credit card payments weren’t at the forefront of my mind: I was focused on my recovery. When I had the mental capacity to deal with my finances, I had assumed that my mostly on-time payments, while not perfect, were enough to spare my credit score at least a little.
But the damage was done: I had hundreds of dollars in late fees from nearly four months of unpaid bills, and my credit rating had dropped nearly 200 points.
Unfortunately, one-time delinquency is enough to dramatically lower your credit score. Indeed, up to 35% of your score is determined by payment history. A late payment of more than 30 days can reduce your score by 100 points, even with a previously impeccable credit history. Late payments can also impact your credit history for up to 7.5 years after the fact.
In addition to the late fees and the impact on my score, I was charged an APR penalty. A penalty APR is a high interest rate, up to twice your regular rate, that is applied to your balance. And while not all cards charge a penalty APR, those that do may charge you a high rate on the new fees for up to six months.
Although I tried to repair the damage by getting back on track and making partial payments, my late fees, coupled with my new exorbitant interest rate, made paying off my balance expensive and difficult. Between that and the hospital bills I had racked up, I became overwhelmed and fell even further behind on my credit card payments.
What I to wish I had known
NerdWallet writer Funto Omojola says she wished she knew about credit card hardship programs after a medical emergency caused her to miss nearly four months of payments.
When I was drowning in credit card debt, I assumed I had no options – that all I could do was try to pay off what I could and that in time the things were right. could hopefully be fixed. But what I didn’t know was that because my defaults were due to a medical emergency, there were options available that could have helped me more easily manage repayment of what I owed and deal with the financial pressure that followed. And if I had known that these options were open to me, I would have immediately taken advantage of them.
Difficulty programs can help
Some credit card issuers offer hardship plans that can help ease the financial burden of emergencies such as natural disasters, loss of income, unexpected illness or, as you might hope, a global pandemic.
“(These) programs may include temporarily reducing interest rates, reducing minimum payments, removing late fees and / or extending due dates,” said Katie Ross, executive vice president of the nonprofit American Consumer Credit Counseling, in an email. But not all credit card issuers offer hardship plans, and even those that do don’t always clearly describe the process on their websites, she noted.
If your credit card issuer hasn’t made it clear on their website that they offer a hardship plan, don’t be afraid to call anyway to see what options they might offer, Ross advised. . To reach your issuer, dial the number on the back of your card.
Before you call, however, make sure you’ve figured out what to say and what to ask.
âIt’s important to prepare for the call ahead of time,â said Ross. âBe prepared to offer material explaining your financial problems. “
In the case of my medical emergency, for example, I should have provided a clear explanation of my hospitalization, how it caused my initial delinquency and subsequent inability to pay my balance, and what kind of assistance I needed , among others.
Understand the terms
It is important to note that not all hardship requests will be accepted and that even for those who are able to enroll in a program, what is offered will vary depending on each borrower’s situation.
âThere is no one hardship program that credit card companies offer for everyone,â Ross said.
For example, American Express states on its website that eligibility for its financial aid program will be determined by “default status, pre-enrollment in the program, or your card account balance.” Conditions apply.
Once you have signed up for a back-up plan, it is important to get your agreement in writing. Some programs charge a fee or have conditions on card usage and program enrollment length, so understanding your specific conditions is crucial.
It’s good to take a second to breathe before you dive in
Facing a heavy financial burden after my hospital stay was a challenge. I didn’t feel like I had a sufficient understanding of my recovery, let alone how to deal with the debt I was facing.
âThe first step in managing the potential financial burden is to take the time to simply recognize, ‘Are you okay? âSays Aja Evans, a financial therapist. “And generally the answer will probably be no, but give yourself time to deal with this.”
Once you’ve made the time you need to take care of yourself both physically and emotionally, making a plan can help you further alleviate the stress of dealing with what lies ahead.
âIf you have a plan for how you’re going to pay off the debt, it’ll be a lot easier to navigate it emotionally,â says Evans.
If you’re having trouble signing up for a hardship plan or your card issuer doesn’t offer one, there are other steps you can take to alleviate your debt.
Talk to a credit counselor
Credit counselors from nonprofit credit counseling agencies can advise you on your options. They are able to create a tailor-made plan to tackle your credit card debt. âThey could sign you up for a debt management program to help you pay off that debt,â Ross said. “And in these programs, interest rates are lower and late fees are usually waived.”
Balance Transfer Credit Cards
A balance transfer allows you to transfer debt from a high interest rate card to a new account that charges lower interest, which can make paying off your debt cheaper and faster. The best balance transfer cards come with a $ 0 annual fee as well as a long 0% introductory APR. Note, however, that these types of cards generally require good to excellent credit, which can be a difficult hurdle to overcome if your credit has already been knocked out. These cards also typically charge a balance transfer fee, typically 3% to 5% of the total amount transferred.
Add a consumer statement to your credit report
Ross suggested adding a consumer statement to your credit report, which can help explain why you missed or made late payments on your credit cards. âIt won’t impact your credit score, but this rating could help lenders understand your situation,â she said.
Statements are limited to 100 words or less and may include as much or as little detail as you deem appropriate for your specific situation.
“These statements can be as simple as’ I was unable to make payments to this account due to the fact that I lost my salary during the COVID-19 pandemic,” “Ross said.
Typically, you can submit your statement by mail or online, although the process differs across the three major credit bureaus. To submit one through Equifax, for example, you can physically send your statement to the office or add it to your online consumption report.
Photos courtesy of Funto Omojola.
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