- Federal relief measures, including stimulus checks and a pause in loan repayments, have given some Americans a temporary boost during the coronavirus crisis.
- If you are worried about making ends meet when that relief runs out, here are some steps to take now.
Despite widespread job losses and financial uncertainty, Americans are faring well by most measures during the coronavirus pandemic.
As a result, credit scores, a general measure of credit worthiness, have improved across the board. In July, the average national credit score hit a record 711, according to FICO, the developer of one of the most commonly used scores by lenders.
But that's not the whole story.
"While the signs are positive, we are cautiously optimistic in light of the economic uncertainties created by the pandemic," said Rod Griffin, senior director of public education and advocacy at Experian.
Credit reports show those loans as current, even though borrowers aren't making payments — and likely cannot afford to.
"On the surface, the consumer credit market is performing quite well," said Matt Komos, vice president of research and consulting at TransUnion. "Serious delinquency levels remain near record lows."
"However, the performance of those accounts still in accommodation will help shape the true consumer credit picture," he added. "With many accounts expected to come out of accommodation between March and May, most notably mortgage accounts, we will soon see the true impact of those programs for both consumers and the credit marketplace."
President Joe Biden recently extended the payment pause on federal student loans through at least September. His administration also moved to extend mortgage payment forbearance through the end of June.
(Pandemic Unemployment Assistance and Pandemic Emergency Unemployment Compensation have been extended through March 14. Workers who don't exhaust their allotment of benefits by that date can continue collecting benefits up to April 11.)
While economists argue that government stimulus is meant to provide a stop-gap until the economy picks up and jobs become more readily available, once consumers get used to not paying certain bills, the money gets re-prioritized elsewhere and it's hard to revert back, according to Howard Dvorkin, chairman of financial education site Debt.com.
"By next fall, I have to imagine that there is going to be a tsunami of people needing debt relief," Dvorkin said.
If you are worried about making ends meet, Dvorkin recommends switching to cash to immediately curb spending and avoid racking up additional credit card debt. Then, put any extra funds toward paying off the loans with the highest interest rate — also called the avalanche method of debt repayment.
TransUnion's Komos also advises borrowers to get in touch with lenders now to explain the financial constraints they may experience when federal relief runs out.
"We always encourage consumers, if they are getting into a challenging spot, be proactive and reach out — don't wait."
Many lenders have shown a willingness to work with borrowers on loan repayment, often on a case by case basis.