In response to increasingly uncertain economic times thanks to COVID-19, Canadian banks have begun to offer credit card payment deferrals to help Canadians who are struggling. Since the offers started being made on March 17, the Canadian Banking Association reports there have been over 100,000 requests for credit card payment deferrals. The offers differ, but they all have one thing in common: you have to ask for them.
How to Get a Credit Card Payment Deferral?
A credit card payment deferral allows you to skip monthly minimum payments without penalty for a certain period of time (e.g. 3 months, 6 months, etc.). At the end of the deferral period, you do not need to make up your payments all at once: the minimum payments will resume as per your cardholder agreement. One thing to note: interest will still accumulate during the deferral period, so only do if absolutely necessary.
To get a credit card payment deferral, contact your bank or credit card issuer by phone or online. There will likely be a recording with the basic information, and a long wait time to speak to someone, but hang in there. At most banks, any customer service representative can make you an offer, usually right there on the phone. Ask for an email confirmation once you’ve made the deferral, but don’t be surprised if they’re not able to provide one.
Because of the coronavirus crisis, some banks or credit card issuers are also offering reduced interest rates for a limited time. For instance, rather than pay the average 19% interest, you may see your annual interest rate slashed to as little as 10.99% for a few months, allowing you some breathing room to pay down your balance. Again, ask your credit card issuer if this is an option.
How Are Credit Card Companies Responding to COVID-19?
With the coronavirus crisis, things are changing by the hour. But here’s what we know so far:
Alternatives to a Credit Card Payment Deferral
If you are carrying a large balance, a credit card payment deferral may not be the way to go, since the interest that will continue to accrue may exceed any short-term savings. But there are other options.
Transfer Your Credit Card Balance
If you’re carrying a balance, buy some extra time by doing a credit card balance transfer. This involves moving high-interest debt on one credit card to a new credit card with a much lower interest rate. With a balance transfer credit card, you’ll get a limited period of time with a low (or no!) interest charged on that balance – giving you extra time to pay down your debt a heck of a lot faster and save a bundle on interest over the long run.
If your financial situation is precarious right now, look for a balance transfer credit card with a 0% introductory interest rate and a long promotional period (9-12 months is ideal). For an in-depth comparison of the best options, read our article on The Best Balance Transfer Credit Cards in Canada for 2020.
Get a Personal Loan
Getting a personal loan can help tide you over, as well as save you money on interest charges in the long-run. For instance, Loans Canada offers loans up to $50,000 and interest rates start as low as 5.15%. It’s the largest lender network in Canada, and while Loans Canada doesn’t lend money itself, it works like a search engine to find the best personal loan to suits your financial circustances. If you have bad credit, there are loan options available that could relieve some of your financial stress in the short term.
If you can get a personal loan with favourable terms and a lower interest rate, you may want to take advantage of the more flexible credit environment to consolidate your credit card debt. After all, why pay 19% interest on a credit card balance when you can pay as little as 5.0% in interest? Read more about The Best Personal Loans in Canada.
Increase Your Credit Limit
Because banks are softening their usual credit restrictions, this could also be a good time to increase your credit card limit. There are obvious drawbacks to this, since they are still charging interest. If you go this route, be realistic about what you can really afford to take on in terms of debt. Don’t ask for any increase that you can’t manage once your payments are reinstated (probably in 3 months’ time).
Get a Line of Credit
Some banks are also offering to increase your personal lines of credit. But if you don’t have one, this may be the time to apply. A line of credit (LOC) is an open-ended loan that lets you borrow money at any time, up to a set limit. As these usually come with relatively low-interest rates, this could be a good option, either for access to credit at better rates. You might even get a rock bottom interest rate if you take out a secured or home equity LOC.
FAQs – COVID-19 and Credit Card Payment Deferrals
These are tough times, and there’s no single strategy for working through it. Everyone has a different struggle and depending on your financial circumstances, your plan of attack may look different. Aside from what we’ve laid out above, you can relieve the strain by doing a few things like cutting expenses, applying for a mortgage payment deferral, or even cutting a deal with your landlord for rent reductions. Above all, don’t forget to apply for the COVID-19 government financial aid! But if your credit card balance causing your anxiety, a credit card payment deferral could be a useful tool in helping you get through this with your finances intact.