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Money Matters: Managing student loans, medical debt, credit cards and more

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Debt is part of many people's financial journey. Managing it responsibly will help you avoid stress about the money you owe.

Welcome to Money Matters, featuring WSECU's Briana Mickelson, VP, Member Experience. In this ongoing radio segment and blog series, you'll find personal finance advice, spending and saving tips, and information about current financial trends. Gain practical knowledge you can use every day to help you make the most of your money. Explore the latest episode topics each week.

1. Managing your student loans

Americans today carry over $1.5 trillion in student loan debt — an average of $32,731 per student. That's a large sum to handle even in the best of times, much less during a pandemic when so many incomes (and savings) are being adversely affected. Even if the federal government extends its COVID-19 forbearance past Sept. 30, that debt isn't going away. If you're struggling to make payments now or in the future, there are ways to ease your financial stress.

First, you'll need to research your existing loans, either on your own or with the help of a loan servicer. How many loans do you have? Are they federal or private? What are the interest rates and payback options? Details of your federal loans can be found at the National Student Loan Data System, while private loans are listed on your annual credit report, which is free through such services as Experian and Equifax.

Federal loans are advantageous because they are eligible for one of four income-based repayment plans. These are designed to reduce your monthly payment amount by capping the amount owed at 10%-20% of discretionary income and extending the repayment period to 20 or 25 years. You'll end up paying more interest, but any remaining balance will be forgiven at term's end. Visit studentaid.gov for details and eligibility.

If you're making individual payments on several different loans, consider consolidating them into one loan. This can help simplify your finances and should lower your monthly payments by extending the term of the loan. The total amount you owe stays the same, and you may even end up paying less interest overall (assuming the new interest rate is favorable).

Maybe you only need temporary relief, such as during a bout of unemployment or sick leave, in which case you can apply for deferment (temporary postponement) or forbearance (postponement or reduction) of your monthly payments. While this may be possible for both private and federal loans, remember that private loans continue to accrue interest during a break in payment. Washington state currently offers 90-day forbearance for commercially held federal loans and private student loans.

Private loans offer one other money-saving possibility: refinancing at a lower interest rate. Look into available options online, or talk to your financial institution to see which refinancing options apply most favorably to your situation.

Finally, beware of student loan forgiveness scams. There are a number of loan forgiveness programs out there,but do your homework to verify the legitimacy of each one.

These are tough times, but there's no reason your student loan debt has to make them even tougher!


2. Credit card hardship programs

It's easy to fall into the trap of credit card debt, especially if COVID-19 has impacted you financially. Credit card debt strains your financial health in multiple ways, so how do you find relief?

You might start by exploring short-term solutions with your credit card issuer. You may be able to skip a few payments or get your payments reduced. If you're still having difficulties after that, you may need to look into a debt relief or credit card hardship program.

What is a credit card hardship program?

It's a payment plan that you can negotiate with your credit card issuer. They may be able to waive fees, lower interest rates or reduce payments over a designated time frame.

Who should consider enrolling?

If you can't make your minimum payments, if you've exhausted all of your short-term options or if you need a longer-term solution, you may want to consider asking your credit card issuer about enrolling in a hardship program. Keep in mind that these programs aren't for everyone. Enrolling in one doesn't mean your troubles are over. Before you make the call, weigh the pros and cons.

The pros of enrolling

You may get a reduced interest rate, which can save you hundreds of dollars as you pay down the debt.

You may get relief on a portion of the overall debt. For example, on a $10,000 debt, your card issuer may eliminate as much as $5,000 of the overall amount.

You may be able to avoid taking a hit on your credit score. A slew of late payments or a bankruptcy will hammer your score. Whereas, you can potentially avoid these with a credit card hardship program.

You may get your minimum monthly payments reduced. This can also save a significant amount of money during the term of the hardship agreement.

The cons of enrolling

You will have to call your credit card issuer to explain your situation. These programs are designed for cardholders who are seriously in need.

Enrolling could affect your credit score. Every program is different, so pay attention to the terms of your agreement.

You may have to negotiate the terms directly with your card issuer. For many, this is outside of their comfort zone.

There may be adverse consequences that go along with enrolling, including a reduced credit limit, frozen or closed accounts, a financial review of your accounts, or continued interest accrual.

Stick to the terms

If you decide to enroll in a credit card hardship program, stick to the terms of the agreement. That will require you to get used to your new monthly budget ASAP. Obviously, this will reduce your debt and ease the burden on your finances. However, if you don't stick to the terms, your agreement could be canceled, putting you back into financial crisis.

The COVID-19 factor

There is a risk of your credit score taking a hit. However, with COVID-19 credit card relief, there is limited credit protection. As long as you live up to your end of the bargain, your credit card issuer is required to report your account as current unless it was delinquent when you entered the agreement. In that case, it will continue to be reported as delinquent until you bring it current.

Have a long-term plan for your new situation

Relief from a credit card hardship program is a short-term solution. In the long term, have a plan to continue that relief. Two good strategies are creating an emergency savings account that covers at least three months of bills and working to reduce any remaining high-interest debt while still adding to your savings.

There's nothing easy about a credit card hardship program, but if you can successfully navigate it, the hard work will be worth it.


3. Coping with medical debt

Whether you have health insurance or not, receiving medical care often costs more than you expect. Just ask the roughly 17% of people who have past-due medical bills on their credit reports. Luckily, there are steps you can take to help prevent or alleviate a medical tab beyond your means.

A little preventative treatment can go a long way. Prior to any planned medical visit, have your provider detail any expected costs. Since health insurance may not cover everything, follow up with your insurer — or check your Explanation of Benefits — to confirm which costs will be covered. It's the best way to avoid a bill showing up without warning.

If you do receive an unexpected bill, request a detailed breakdown of the charges from your medical provider, then check to make sure the charges are accurate and that any insurance benefits were applied correctly. Mistakes happen more often than you think.

If a bill becomes too high to pay in full, don't despair. Medical providers are often willing to negotiate terms and can work with you to lower your bill or arrange monthly payments — usually at little to no interest. Income-driven hardship plans or financial assistance may also be options if your income is especially low or you've become unemployed.

Just don't ignore the bill, as it may eventually end up in collections, damaging your credit rating (and encouraging annoying phone calls). Also, don't pay your bill with a credit card. It may seem like an easy fix, but the high interest rate can eventually magnify your debt into a never-ending burden.

A better option is a healthcare financing solution, such as a medical credit card. These are offered by some providers for specific procedures, often with interest-free periods of six to twelve months. As long as you pay in full before the no-interest period ends, you won't be hit with a potential deferred interest rate that adds further costs.

If your medical debt is simply more than you can handle, consider speaking with a medical bill advocate to provide additional guidance or negotiate on your behalf. An ally who thoroughly understands the system can be worth their weight in gold.

Just remember, even in these difficult times, as long as you exhibit good faith, most providers should be willing to work with you.


4. Making the most of automatic payments

When it's time to pay your monthly bills, automatic payments are a great way to reduce the stress of wondering if you've paid each bill or paid on time. You can usually set up automatic bill payments through your financial institution or an autopay feature from the service provider, and these auto-payments will add convenience and peace of mind to your life.

When you pay a bill late, you start to incur extra fees that make the bill more expensive. Paying the bill automatically will help you avoid these late fees as well as improve your credit, which is affected by timely payments.

Some lenders and service providers even offer lower rates and discounts when you sign up for autopay. If you use a credit card tied to a rewards program, you'll earn points for every bill paid.

Still, auto-pay does have potential pitfalls. Beware of lenders and companies that charge extra fees for auto-payment. Consider the processing time for each payment because some bill-pay services may not post transactions for several days. If your payment is not scheduled early enough, there's a risk of it arriving after the due date.

Complacency is another concern. You don't want to just kick back and leave the bills to pay themselves. You should still review all charges at least once a month in case of errors or unexpected rate changes and check credit card statements for fraudulent activity or overly high balances. If a balance carries high interest or exceeds your credit limit to accrue overdraft fees, then the penalty may not be worth the convenience.

There are precautions you can take when paying with a checking or savings account. Because hard times (and bad math) can happen to anyone, leaving a healthy balance unexpectedly short, consider enrolling in overdraft protection. As an added safeguard, set up text alerts or email reminders. These not only remind you of upcoming transactions, but they also provide awareness around your monthly expenses that keeps you in touch with your financial health.

In short, stay vigilant when using automatic payments. But also enjoy their advantages, knowing you're saving time (and paper), protecting your credit and maybe earning a dollar or two along the way.

As you manage your finances, remember you're not alone. WSECU is the credit union for Washington. If you need help with personal banking, loans, or business finances, you can contact WSECU here.

Tune in to STAR 101.5 weekday afternoons at 5:50 p.m. to hear money tips and ideas to make your dollars go further, featuring WSECU's Briana Mickelson.

You can visit the Money Matters page on star1015.com/sponsored/money-matters to read more money management advice from WSECU.

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