Smart Money Podcast: ‘Where Have All the 0% Offers Gone?’
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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.
This week’s question is from Mike, who says: “I have high credit card debt. My credit [score] is still good at 725 but was much higher. I've been switching to new cards that offer 0% interest on transfers in order to avoid paying interest so far. But I haven't been seeing as many offers for these cards lately. I’m wondering how you think I should handle my credit card debt?”
Lenders tend to become more cautious when the economy slows, so people with good credit scores may not see as many pitches for 0% balance transfer offers from credit card issuers.
These offers still exist, though -- you may just need to seek them out, rather than waiting for the offers to come to you. Don’t apply for a bunch of cards at once, however, since that can damage your credit scores.
If you can’t get approved, you still have options, depending on your situation:
You’re in good shape. If you can make more than the minimum payments on your debt and your income isn’t in jeopardy because of the coronavirus epidemic, pick the card with the lowest balance or the highest interest rate -- your choice -- and focus on paying that off while paying the minimums on your other debt. Once you pay off your first targeted balance, switch to the next lowest-balance or highest-rate card and work on paying that down. One at a time, you can pay off your cards and get out of debt.
You’ve lost your job or are worried you will. If your income has suffered, it may be best to pause your debt payoff plans for now and focus on saving money. The more cash you have on hand, the better, and many lenders are offering customers the ability to reduce or defer payments during the pandemic.
You’re struggling. If you’re having trouble making minimum payments, you probably need to look into your debt relief options. Consider making an appointment with a credit counselor to see if you qualify for a debt management plan. Also consult a bankruptcy attorney.
Make a plan. Pick a debt repayment method, call a nonprofit credit counseling agency, or make an appointment with a bankruptcy attorney to discuss your options. Figure out what's going to work, so you can resolve what you owe and move on with your life.
Don't take rejection personally. It's harder to get approved for credit cards and loans right now. Explore other options.
Consider forbearance. Many credit card issuers are willing to let people skip a few payments if they're struggling financially. Your debt doesn't go away and continues to accrue interest, but forbearance could give you a little breathing room.
More about paying off debt on NerdWallet:
Have a money question? Text or call us at 901-730-6373. Or you can email us at [email protected]. To hear previous episodes, return to the podcast homepage.
Liz Weston: Welcome to the NerdWallet Smart Money Podcast, where we answer your questions and help you feel a little smarter about what you do with your money. I'm your host, Liz Weston.
Sean Pyles: And I'm your other host, Sean Pyles. As always, be sure to send us your money questions. You can call or text the Nerd hotline at 901-730-6373. That's 901-730-NERD. Or you can email us at [email protected]
Liz: This episode, Sean and I are going to discuss how to pay off credit card debt when you have a high credit score, and how payment options are different in the era of COVID-19. But first, we'll get to our new segment this week in your money, where we talk about the latest trends in the personal finance world and what it means for you.
Sean: This week we're talking about how coronavirus is financially affecting millennials, specifically how it's hitting us harder than other age groups. The data that we're discussing comes from TransUnion, the credit reporting agency, and it was collected the week of April 27th, so it's pretty fresh still.
Liz: Here were some of the findings. First of all, millennials were the most concerned about being able to cover their bills. With 77% reporting they were worried about this. Additionally, 34% of millennials were concerned about being able to pay their mortgage. Millennials contacted their creditors to discuss payment options in higher rates than other generations with 61% of them doing so; 13% of millennials did not have a plan to pay their bills.
We've seen a lot of surveys recently showing that there's a huge impact from the coronavirus pandemic on people's finances. This one calls out the outsize effect it seems to have on millennials' finances. So Sean, as a millennial, does this picture seem about right for you and your friends?
Sean: Yeah, it does. I think it's consistent with issues that we've seen around millennials and finances in general. I mean, a lot of us entered the workforce right around the Great Recession. As we know, millennials are earning less than previous generations and, oh great, now we have a global pandemic that's making it so a lot of us can't work. Not to be a complaining millennial, but we've had a pretty hard run of it, so I'm not surprised. I have a lot of friends who are out of work, are having trouble paying their bills.
But one thing that also stood out to me in these numbers is that yeah, while millennials are having a pretty hard time financially, they seem to be pretty savvy about what they're doing with it, where 61% are contacting their creditors and only 13% don't have a plan. I think that shows that we are being proactive about it, even though we're in a really tight situation right now.
Liz: Yeah, that really stood out to me too because we keep telling people, "Contact your lenders, contact your lenders. They're offering forbearance. You can skip payments on your mortgage and tack those payments on the end of the loan in many cases." I just expect that to go in one ear and out the other. But you know, millennials are taking us up on that advice, and they're actually doing that, which is terrific. That's exactly what you should do in a situation like this, where we don't know when it's going to end. We don't know how much worse it's going to get. You need that wiggle room, so you want to take advantage of any option you have to get a little bit more space in your budget.
Sean: And on top of that, it counters the stereotype of millennials being afraid to pick up the phone, so thanks, guys. Thanks for making us look better collectively. One thing I wanted to focus on with this was that 34% number, that 34% of millennials are concerned that they won't be able to pay their mortgage. That's huge. But as the millennials may know, if they're doing their research as it seems like they might be, there are protections here. The CARES Act has made forbearance a lot easier. But I want to talk about something that might not be as well known is that renters, which is going to be a ton of millennials -- I know very few millennials who are homeowners, renters have some protections too.
Liz: Does that depend on where you live and what the rules are?
Sean: To some extent, yes. So with the CARES Act, renters who are living in buildings with federally held mortgages, which you can look up online, are protected from eviction for 90 to 120 days. There are some caveats there with where you fall in the 90 or 120, so do some research online because I won't get super technical. But it's worth noting that roughly 28% of rental units in the U.S. are protected under the CARES Act.
Liz: So that's a little bit better than one in four.
Sean: Yeah. So if folks are having a hard time paying their rent, make sure that you are communicating with your landlord to let them know about any budget shortfall that you might be experiencing. But as we all know, not all landlords are the easiest to work with. So also, make sure that you understand your tenant rights. That means knowing whether you can or cannot get evicted, whether it be through the CARES Act or a municipal or statewide regulation. A number of those have also popped up in response to this pandemic.
Liz: So I guess millennials have really been a snakebit generation. They have had a rough time, but it's really heartening to see so many of them reaching out for the help that's out there. There are obviously laws, rules that can help you and lots of resources. So if you're having trouble, please come to NerdWallet.com. We've got right at the top, we've got some COVID related resources for you that may help. Don't be afraid to take advantage of the help that's out there.
Sean: Right, we are in this together, solidarity among the millennials. We'll get through this.
Liz: There we go.
Sean: Again, please turn to us for help because that's what we love to do. And with that, let's turn to our money question now.
Liz: This one comes from Mike who says, "I have high credit card debt. My credit [score] is still good at 725, but it was much higher. I've been switching to new cards that offer 0% interest rates on transfers in order to avoid paying interest so far, but I haven't been seeing as many offers for these cards lately. I'm wondering how you think I should handle my credit card debt?"
Sean: Mike, you have so come to the right place. I've on the debt beat for a little over four years at NerdWallet, which means that I have spent countless hours thinking through questions just like yours. Up until the world turned upside down due to the coronavirus pandemic, we had some pretty simple answers for you. But like a lot of other things, access to credit cards and other tools to pay off debt like personal loans have been affected by the pandemic. So we're going to have to recalibrate how we discuss your debt payoff options. One thing I want to start with is Mike said that he has high debt. We don't really know what that means though.
Liz: Yeah, it could be a high dollar amount that he's perfectly capable of paying off over time, or it could be a relatively small dollar amount that he's struggling with. So the important thing to know is are you able to pay more than the minimums on your debt? If you're able to pay more than the minimum, that means you probably can pay down your debt over time and you can do it on your own. If you're struggling to pay the minimums or if you're borrowing from one source to pay another, that indicates that you might need some help.
Sean: Yeah, it's interesting that Mike was considering using specific products to help him in this time. One thing we know is that your low APR cards, personal loans, two main tools that people use to make their debts a little more affordable, are a lot harder to qualify for in this current moment. The credit card companies just aren't giving them out the way they used to four, five, six weeks ago. Like everyone else, they're tightening their belts. They're seeing that some people aren't going to be able to pay their bills and they're being a lot more conservative. On the other side, personal loans are also a lot more difficult to qualify for than just a few weeks ago.
Liz: We've said for a long time, one of the best things that you can do if you have high credit card debt, but also have high credit scores, is get those 0% balance transfer offers. Move the debt to those cards and use them as a way to pay down your principal. We've never recommended you use them to kick the can down the road. In other words, to just make minimum payments and let it ride because there was always uncertainty out there. Would you get the next 0% offer? Now we're seeing the answer to that.
Sean: I think it might be useful for us to discuss some of our favorite debt payoff tactics. There are a few different strategies that come to mind. Debt snowball is one, where you focus on paying your smallest debts first. Then you roll the amount that you were paying toward that debt into your next-biggest debt. Then it continues to cascade like a snowball rolling down a hill. We recommend this method because it provides little wins along the way that can keep you motivated because paying off credit card debt can be a long haul. It's a bit of a psychological trick here. You want to keep yourself encouraged and that's why we recommend debt snowball.
There's another method called debt avalanche, which has a bit of a spin on this, where you pay your debts with the highest interest rate first. The thinking here is that you would be able to save some money over the course of your payoff. But if you do the calculation, sometimes the savings aren't that significant, so think about what might work for you.
Liz: Yeah, and either way, it's important to pick a method and get going. Keep in mind you're paying the minimum on all your other debts while tackling the one that you've targeted the most important one first. It does take some time. Possibly Mike is going to be more motivated now to pay down this debt now that he doesn't have access to those 0% cards. He might need to get super serious about digging into his budget, seeing where he can cut expenses, and start getting this stuff paid down.
Sean: One thing to add onto this is that, as we mentioned, paying off debt can be a long haul. I think it's really important to map out your journey here. Starting with knowing how much you can pay monthly, making a chart, or using a calculator like the ones we have at NerdWallet that can help you see what your debt-free date would be. I'm also a big advocate of just making one of those huge thermometer illustrations and tacking it on your wall, so you can fill it in every single month. It just feels so good to do something like that. Just find something that can keep you on track.
Liz: Absolutely. And one of the things we should come back to is that if you have had or have good credit scores, and you're used to being approved for the 0% rates, you shouldn't take it personally if you start getting turned down. Again, as we talked about before, this is something that's going on economy-wide. A lot of lenders are pulling back right now. So if you do get turned down, if you're trying to get a loan or whatever, don't take it personally. Keep working on your next plan B.
Sean: But I do wonder whether it would still be worth it to try applying for one of these cards if you can. Maybe don't apply for five of these credit cards because that's not going to look good on your credit. But you might want to just see if you can get lucky because yeah, a lot of people aren't getting these cards, but some people still are. What do you think about that, Liz?
Liz: No, I think that's a really good point because you probably were flooded with these offers if you had good credit scores and now you're not. So you may think they shriveled up entirely and they haven't. They're still out there or at least low rate ones. So, as always, we tell you shop around. Don't just accept the offers that are coming to you. Reach out, go to NerdWallet, see what's out there.
One thing we should talk about is that the coronavirus pandemic has changed the rules on a lot of things, including whether you should be paying down your debt. If your income has been affected, if you think your job might be at stake, it might be prudent to put your debt payoff plans on hold for a little while so you can store up some cash just in case things get worse.
Sean: Yeah, I think that's a really good tip. Another thing I thought would be kind of fun, because debt payoff is my idea of fun apparently, is for each of us ...
Liz: You're weird.
Sean: ...to give one of our favorite tips for debt payoff. I can give one of mine. It's from personal experience when I was paying off credit card debt in the past. It was really to become a debt-obsessive is how I like to think about it. I would just focus on what my balance was. It kind of consumed me, and any time that I had any new charge, I would pay it off. I actually continue that to this day. But putting any money that I had on a biweekly basis toward my debt helped me pay it off a lot faster because I didn't have that mental weight hanging over me. If you are a little weird and maybe obsess about things sometimes, that might be a good option for you.
Liz: Absolutely. My tip is find somebody else who's in this journey and maybe a whole community of people. Because there are a lot of folks out there who are really focused on getting their debt paid off, and they're the people you want to hang with, not the ones that are trying to get you to spend more money.
Sean: Yes. But there's also something to be said about knowing when you need some professional help here beyond what you can get from a support group, or what you can achieve by doing the debt snowball method. And here, I'm talking about getting debt relief, which is a tool that people might be a little bit scared of, but it can be very helpful and can help you resolve your debts a lot faster. So Liz, say Mike is in this situation where he needs some help. What do you think he should do?
Liz: A lot of times, we suggest people make two appointments, You can do these virtually, don't have to go in person. If you're struggling with your debt, the first call is probably to a legitimate credit counseling agency. Those are the ones that are affiliated with the National Foundation for Credit Counseling, nfcc.org. They can look through your situation, see if you qualify for a debt management plan.
Call number two would be to a bankruptcy attorney. You can go to the National Association of Consumer Bankruptcy Attorneys, nacba.org. Usually they have a free consultation as well, and they can take a look, and tell you if bankruptcy might be a better option for you. The credit counselors are going to try to steer you away from bankruptcy. The bankruptcy guys think that's the best thing ever. Getting those two perspectives can give you a better idea of whether you have manageable debt or not.
Sean: All right, Mike, I hope that we've helped you answer your question and found some sort of path to pay off your debt, even if it's not with one of these credit products. Now let's get to our takeaway tips. First up, make your debt payoff plan, whether that's debt snowball method, or a debt management plan at a nonprofit credit counseling agency, or talking with a bankruptcy attorney. Figure out what's going to work, so you can resolve what you owe and move on with your life.
Liz: If you apply for a credit product right now and don't get approved, don't take it personally. Think about other options.
Sean: And lastly, if you were recently laid off, don't have much in savings, and are struggling to pay your bills, think about putting your credit card bills in forbearance for a couple of months so you can build up your savings right now. It's really important.
Liz: And that's all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at (901) 730-6373. That's (901) 730-NERD. You can also email us at [email protected] Also, visit nerdwallet.com/podcast for more info on this episode. And remember to subscribe, rate, and review us wherever you're getting this podcast.
Sean: And here is our brief disclaimer, thoughtfully crafted by NerdWallet's legal team. Your questions are answered by knowledgeable and talented finance writers, but we are not financial or investment advisors. This Nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Liz: And with that said, until next time, turn to the Nerds.