I have really been struggling financially in the past year or so. When COVID-19 hit, things obviously got even tighter. Therefore, I was thrilled to learn that many of my credit cards and other lenders offered the opportunity to waive payments. This is incredibly helpful. However, as with anything financial, it’s important to look carefully at the terms before assuming that this is a good move to make. What are the downsides of waiving credit card payments?
What Does Waiving Credit Card Payments Mean?
Many people didn’t ever even think about waiving their payments until recently. However, with the COVID-19 situation, more people than ever are under financial strain. As a result, more and more credit cards are offering assistance that includes waiving payments. This isn’t a new thing; most credit cards have always had various forbearance and hardship programs. However, they have recently increased their offerings and made customers more aware of what they can offer as a direct response to COVID-19 challenges.
What it means to waive payments varies a lot from card to card. Most often, the credit card company will allow you a one-month period during which you do not have to make your monthly minimum payment. You generally don’t incur any penalty fee. However, you may (or may not) accrue additional interest during this time. However, there are different plans. For example, some credit cards will waive your late fees but still require the monthly minimum payment when you do pay.
Each company typically offers multiple hardship programs; waiving credit card payments is just one of the options. Some companies will assist you by lowering the monthly minimum payment, but not waiving it entirely. Others will work with you to adjust your interest rates, change your repayment plan, or otherwise improve your ability to meet the financial burden of your debt.
Downsides of Waiving Credit Card Payments
For the most part, I have found it personally advantageous to take advantage of waiving credit card payments right now. I was able to take one month off of payments, penalty-free, across several different credit cards. This allows me to save a lot of money on my monthly minimum payments, which is helpful while getting on my feet during this time of financial strain.
That said, there are definitely some downsides in waiving payments. Those downsides include:
- The underlying financial problem doesn’t go away. If I can’t make my minimum monthly payments this month, then what will change to allow me to make them next month? If I’m only offered a one-month payment waive, is this helpful? These are things to consider.
- You aren’t paying down your debt during this time. The debt itself isn’t going to go away. The idea when waiving credit card payments is that you are in a temporary bind that will lift soon. If that doesn’t happen, you still owe all of that money. In some cases, you may still be accruing interest.
- Remember that if you continue to accrue interest, and especially if you keep using the cards without paying down on them, then you’re going into greater debt. Not only is this a burden on you, but it can affect your credit utilization rate. In other words, you might end up with a lower credit score as a result of waiving credit card payments.
Waiving credit card payments isn’t good or bad in and of itself. It has benefits and it has downsides. Review all of your options carefully before making the decision that is best for your personal finances.