To say that the Coronavirus is causing extensive disruption and confusion is putting it mildly. Rules seem to be changing if not every day then at least on a regular basis. For all the chaos, however, the basic ground rules of credit-management are still holding largely true. Debtors are expected to make at least the minimum payments if they can. Creditors are expected to show forbearance to those who are in difficulty and to make reasonable arrangements with them. Here is a quick guide to what this means in practice.
If you can pay you will be expected to pay eventually
The mainstream creditors from local authorities, landlords and utility companies to consumer-focussed lenders have all been reminded of the need to show forbearance to those in financial difficulty. Some of them have been issued with specific “guidelines” as to what is expected of them. Most Coronavirus-related guidance is currently a variation on the theme of allowing people breathing-space until the end of June.
Presumably, this means that either the UK will be back in full swing by then or the guidance will be updated. Current indications suggest the latter is, at least, a distinct possibility. Be that as it may, the key point to note is that this breathing-space is only temporary. Once the pandemic is over, you will be expected to start covering your regular payments again and make up the payments you have missed. As yet, however, it is unclear how this will happen.
If your problems go beyond the Coronavirus then you need to take a different approach
The measures taken to assist people who have been hit by the Coronavirus are intended to ensure that people with temporary cash-flow issues have at least some room to manoeuvre. If your financial issues go beyond the Coronavirus, then any solution will probably need to go beyond these emergency measures.
For clarity, there is a huge gap between “needing more help than the emergency measures” and “going bankrupt” and a whole range of options in-between to be explored. The key point to note, however, is that you need to be honest about the fact that your financial issues go deeper than the Coronavirus and start the process of getting the help you really need.
You generally need to ask for help
This holds true both for Coronavirus-related measures and more general debt-relief measures. The situation is more clear-cut for those impacted by the Coronavirus, as the government has laid out very specific expectations of what it expects from the various relevant parties. This means that if you need to approach a lender, you should have a fairly clear idea of what you can expect and you shouldn’t have to negotiate with your lender(s) in the same way as you might if you wanted general debt-relief.
That said, general debt-relief is still available for those who need it. If you are in this situation, then it is particularly important to take action as soon as you possibly can because many lenders (and debt-help specialists) are currently dealing with a lot of queries and very few staff. This means that it may take a lot longer than usual to make progress.
Be aware that taking a “payment holiday” can lead you into more debt
A payment holiday stops you from being chased for payments, however, in many cases, interest will still be applied on the debt. If the amount borrowed and/or the interest is low, then this may be a fairly minor issue, but if you have a lot of high-interest debt, such as credit card debt, then it could work out very expensive. It may still be the only practical solution for some people, but it’s important to be aware of its dangers.