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Options for negotiating credit card debt during quarantine

April 9, 2020

Around the world, a critical scenario of economic recession is already evident and dependence on credit increases.

7 min read

The opinions expressed by collaborators are personal.

Options for negotiating credit card debt during quarantine
Options for negotiating credit card debt during quarantine

The increase in cases related to the health emergency in Mexico has led to the extension of the National Sana Distancia Day throughout the country until April 30, which implies restricting mobility as much as possible and stopping non-essential activities for the population.

Around the world, a critical scenario of economic recession is already evident and dependence on credit increases . In the United States, practically 70% of people who lost a job due to the coronavirus are already taking on more debt than expected with their credit cards; while 60% of those who suffered a cut in hours and labor income use more credit, according to a survey carried out by LendEDU , the financial products platform in that country. The same survey warns that 37% of those who keep their work unchanged also depend more on cards.

The crisis is driving household debt to its highest point, and two troubling facts are that people lack savings to support themselves, and many hit their credit limits on high-interest cards even before the coronavirus, warns the analyst Michael J. Graetz, professor at Columbia University.

“It is time to analyze your financial situation for the next 4 to 6 months and make an urgent plan. Consider that your income will probably be uncertain as of this month, reorganize your expenses according to the new priorities in crisis, and take into account what debts you have. If you consider that the scenario will be very difficult for you to maintain, come to negotiate options with your bank, ”says Luis Madrigal, director of Coru.com .

In order to guide cardholders, the financial services platform Coru.com offers an overview of alternatives to deal with debt with credit plastics.

Options to face credit card debt in the coronavirus crisis in Mexico

Access the support of banks in the face of contingencies
This measure, launched from the National Banking and Securities Commission (CNBV), consists of banks being able to defer or freeze capital payments for up to 4 months, with the possibility of extending it to an additional 2 months, with respect to the entire amount due. It applies as long as the credit is up to date and valid as of February 28, 2020.

Each bank establishes particular conditions and deadlines to enroll in this support program, so the client must enter their bank's website and request the benefit via internet or telephone to suspend credit card payments for the following 4 or 6 months, as offered by your bank.

  • PROS: These support programs generally involve exempting the minimum payment for now, to keep the credit history unaffected, and is aimed at clients who cannot cover it, but the remainder of the debt that was not paid, continues and generates interests. That is, there will be no late payment interest for not paying the card during this grace period. In some cases banks also offer discounts for prompt payment. It is a viable option if you prefer to be certain of liquidity now, temporarily suspend payment of the card, but control your spending to be able to meet the fees once the benefit ends.
  • CONS: Ordinary interest continues to run for credit cards, so at the end of the grace period, the payment is restored normally, with the ordinary interest that the contracted plastic has.

Search for debt transfer or consolidation
Another way to refinance several past due debts is to transfer them to a single credit card, through the option of transferring debt from one plastic to another. In this case you should also be up to date with payments and find out with your bank if they offer a product that accepts the transfer of balances, or look for an alternative that is more beneficial for offering a better interest rate.

  • PROS: The advantage is to obtain a lower interest rate or a more comfortable term to pay the debt
  • CONS: More than a cons, it is necessary to review before making a transfer of debt to another credit card, the commissions and costs: generally when transferring a debt a new contract is signed where it is specified if there is a cost for the transfer , as well as other commissions or penalties, whether for prepayment, non-payment or non-compliance with amounts.

Find out the minimum and maximum amounts of the transfer, the conditions to maintain the preferential rate benefit and the new payment terms, and if there are additional benefits from the bank.

Seeking a debt restructuring
That is, to negotiate the credit conditions in favor of the client: either in the term or the interest rates. For example, access fixed payments, or defer installments to decrease the monthly payment, but with a higher interest rate, or shorten the term with a lower interest rate, even if the monthly payment increases. This can be done directly by the client, or with the support of a debt repairer that guarantees confidence and security measures for the user.

  • PROS : with debt restructuring, the person can maintain a good credit history rating, if he fulfills the agreements in a timely manner.
  • CONS : Beyond problems, the important thing is to detect real priorities, that is, if you prefer comfortable payments at a higher cost or higher payments in exchange for less expensive debt. This payment option must be requested in the first months of borrowing, as it is no longer viable for banks for clients with more than five months of non-payment.

Request a remove
It is an agreement with the bank or financial entity to reduce the debt. The delinquent client seeks an agreement to obtain a discount percentage of the debt. In the negotiation of the discount, the default for many months in a row must be seen to demonstrate that there is indeed no way to settle the current debt.

  • PROS : None. It is the least recommended of the options since it implies negative consequences in the credit bureau.
  • Important : With a removal, a mark is left in the credit history that may make it difficult to access other credit in the future. It is recommended to use this resource only when all options have been exhausted.

NOTE: This text contains current public information of the various entities in order to be relevant during the contingency. Being a rapidly changing situation, the information could be constantly updated.