The Comprehensive Guide to Debt Management During COVID-19

The Comprehensive Guide to Debt Management During COVID-19

The global economy is experiencing severe contractions and is collapsing at a pace not seen since WWII. Economists believe that unprecedented policy support means that the global economy will rebound much quicker than in a typical recession. However, economic activity will remain depressed until the end of 2021. The coronavirus (COVID-19) outbreak is affecting the global economy in ways that none of us have ever seen before. During the last few months, it has been challenging to take note of all the rapidly changing developments and translate them into valid economic forecasts.

Given the extreme economic events taking place due to the global pandemic, it became obvious that all positive scenarios were likely overly optimistic. It is expected that the global GDP will decline by 2.6% this year, and the impact of the coronavirus pandemic is projected to overshadow the effects of the global financial crisis of 2007-2008. Economic growth is expected to decline in all major economies, with Italy, the UK, and the US seeing the largest GDP decline (more than 6%). Large markets, such as India and China, would (under normal conditions) be able to grow by 5-6%, but now, they’re expected to grow a little over 1% this year.

Large Economies Entering into Recession

United States

The US economy is shrinking at the fastest rate since the Global Financial Crisis in 2008. According to officials, the US economy sank at an annual rate of 4.8%, marking the first contraction since 2014. The economic hardships are expected to become even more severe from April to June. Gauging the real depth of the economic decline is difficult, and we will not really know the extent of the damage for years to come.


For the first time since 2015, Japan has fallen into recession as the economic toll of COVID-19 continues to escalate. Japan has the third-largest economy in the world, and in the first three months of 2020, it shrank at an annual rate of 3.4%. Besides the impact of COVID-19, consumers in Japan were also hit by a sales tax hike from 8% to 10% in October 2019. The Japanese government has announced a $1 trillion stimulus package.

Latin America

The economies of Latin America and the Caribbean are also severely affected by the coronavirus. Due to domestic and external factors, they are experiencing the combined effect that’s expected to lead to the worst economic contraction the continent has ever undergone (worse than the ones seen in 1914 and 1930). The forecast for 2020 is an average regional contraction of -5.3%.

Before the pandemic hit, these regions have already gone through 7 years of low economic growth (an average of 0.4% in the period of 2014-2019). The interruption of global supply chains will have the biggest impact on Mexican and Brazilian economies as the region’s most significant manufacturing sectors.


Despite the massive monetary and fiscal stimulus to help cushion the blow, Australia is facing an unprecedented economic contraction due to the global pandemic. They have not suffered two consecutive quarters of contractions since the early 1990s. The expected recovery is also unprecedented due to the nature of contraction – it is driven by public health measures, not by financial and economic factors.


From January to March of 2020, Germany’s economy shrank by 2.2%, and it was the biggest quarterly fall since the global financial crisis in 2009. However, Europe’s largest economy hasn’t experienced as serious a drop as some of its neighboring countries, like France, which reported a decline of 5.8%. This is largely due to the government’s unprecedented rescue package and the decision to allow construction sites and factories to stay open. But as the full effects of the lockdown are expected to become apparent in the second quarter of 2020, economies predict a deeper slump in that period.


A month ago, many economists claimed that China’s economy has begun to grow. In the first quarter of 2020, their economy contracted 6.8% – the first contraction since quarterly records began in 1992. Hubei province (the epicenter of the coronavirus outbreak) reported a staggering 39.2% economic contraction between January and April as lockdown measures took their toll. China decided not to pursue its original economic growth target for 2020 (around 6%), but a much lower goal (3% growth at best, which would still be a remarkable achievement). The economic damage in the US and Europe would be serious, which means it’s unlikely that China can generate a strong economic rebound. Their economic recovery depends on how fast the pandemic can be controlled overseas.

Consumer Problem’s with Debt

Millions of households expect to miss or already have missed payments on bills or rent because of the crisis. As a result, they could face serious consequences. Millions of workers have been either laid off or furloughed by employers and had their pay cut as a result. People facing the greatest health risk from COVID-19, along with those who do not have secure employment, were more likely to have fallen behind on a bill or debt payment. As people stay at home, quarantined to prevent the spread of the coronavirus, their household expenses have increased.

The income shock that many people have experienced came suddenly, without warning, and nobody is sure how much longer it will endure. The most affected groups are already afraid that they’ll have to file for bankruptcy or another type of insolvency. Helplines have been flooded with calls from those who want to know what kind of debt relief options are available to them. It is expected that the number of calls will increase this summer, once state-backed furlough schemes and payment holidays come to an end and redundancies increase.

Problems with Holding Too Much Debt

What are the consequences of holding too much debt? When people become indebted, they often think that a little debt won’t hurt. We start by making small purchases on our credit card, and before we know it, there are thousands of dollars of debt on our cards. There’s a huge difference between having a little and a lot of debt. Debt can cause various problems in one’s life, such as:

  • Debt is costly. When you are signing loan documents or swiping your card, debt may feel free. The truth is that it’s an illusion because you pay a certain price for the debt you create, and that price is called interest. The higher the interest rate, the more money you will pay for your debt. Also, the higher your debt load and the longer it takes to pay off your debt, the more interest you will pay.
  • Negative impact on your credit score. When your credit score is evaluated, 30% of it is based on the amount of debt you owe. The more debt you have, compared to your original loan balances and credit limits, the lower your credit score will be. Even if you are not looking to get a loan or a credit card, a poor credit score affects your life and the cost of other things, such as car insurance.
  • Keeping you from reaching your financial goals. When you take out a loan, you need to make monthly payments that limit the amount of cash you have to spend on other important things. Due to the coronavirus outbreak, important things include essential resources, such as food and healthcare products. The more debt you accumulate, the less you’ll have to spend on everything else.
  • High-interest debt will cost you much more than the item itself. For example, if you buy a $3,000 audio setup for your living room set on your credit card at 11%, and you only make the minimum monthly payment, you could end up paying more than $5,400 by the time you pay off the debt.
  • Debt takes away from your future income. Any time you charge something on your credit card or take out a loan, you are borrowing from the money you plan to earn in the future. In other words, you are spending the money you haven’t earned yet. You can never know what changes may happen to your income (like the global pandemic that affected your country’s economy, sending it into recession and leading to decreased income or job loss), so it is better not to spend money upfront.
  • The psychological toll of holding too much debt. When indebted, it is difficult not to think about how you’ll keep from taking on more debt to make ends meet or how you are going to make your payments. The pressure and stress can lead to mild or severe health problems – from frustration, anger, resentment, depression, and migraines to ulcers and even heart attacks.

How to Manage Your Debt During the COVID-19 Pandemic

The coronavirus crisis has put public health at risk and threatens the global economy, holding the entire world in its grip. In order to contain the virus, centers for disease control and governments have taken substantial measures, such as locking down borders, closing brick-and-mortar stores, and canceling events. Disease control and prevention comes first, as does securing your mental health and wellbeing. However, these measures raise other concerns for individuals, families, and companies who need to protect their finances. No work means no income, and not everyone has an emergency fund, quick loan resources, or a hefty savings account. And this is why COVID-19 is leading millions to the edge of the “financial cliff.”  Here are ways to manage your debt and finances during the coronavirus crisis:

Keep track of reliable sources of information

There’s so much noise about COVID-19, and each day there is a new wave of information. Before you turn to online news portals and social media to read coronavirus-related news, you must first filter the information you are consuming. Turn to reliable news sources and stay up-to-date on what the federal and state governments are doing to help their citizens. Besides providing important medical information, measures to assist with lost income through various debt relief programs have also been announced.

Debt-relief programs include:

  • Stimulus checks and suspended payments on federal student loans (the CARES Act)
  • Unemployment benefits
  • Paid sick leaves
  • Short tax breaks
  • Waiving of 401(k) penalties
  • Different loans and grants for small, medium, and large businesses
  • Different debt-relief options from credit card companies or banks

Also, you should be wary of information fatigue – trying to keep track of the latest news can tire you, so be sure to take breaks. There’s only so much information that your brain can process at any given moment. It is important that you don’t get to a point where you tune out everything and miss important things that you need to know. Look for good news stories (to balance out the negative) and avoid social media if you have to.

Apply for help that you are eligible for

Instead of worrying and letting anxiety build up because you lost a significant part of your income, find a way to turn your worry into action. Find out more about the debt-relief options you qualify for and submit your applications as soon as possible. Due to the overwhelming number of debt relief applications and reduced staff (due to the virus), application processing may take longer than normal.

Build an emergency budget

Emergency savings and emergency budgets differ – it may be too late to save for an emergency, but it’s not late to build an emergency budget based on your current level of income. Outline your expenses – start with the most important ones, such as money for food and transportation, medical costs, and housing. Due to self-isolation, your expenses will be different or less than they were before the crisis began. Expenses that will be less than before might include personal expenses, transit passes, parking, fuel, eating out, recreation, daycare, extra vehicle insurance, and entertainment. Check your ongoing monthly subscriptions, contact those companies, and ask them to pause your monthly fees.

Debt settlement

Debt settlement companies got a bad reputation before it became highly regulated. 10 years ago, they would charge large upfront fees and neglect to put in the work to settle their customers’ debts. In July 2010, the Dodd-Frank Act was signed to help protect consumers from deceptive and unfair practices by debt settlement companies. Most of these companies disappeared after that.

According to a recent review of the debt settlement industry conducted by Will Dobbie, Ph.D and Harvard Economist: Debt settlement programs can be an effective solution for individuals struggling with managing their debt. The review includes an analysis of the financial outcomes of people enrolled in a debt settlement program and uses data for a sample population of about 110,000 individuals and more than 735,000 accounts.

According to this review, people starting a debt settlement program have over $30,000 of unsecured debt across 6 or more accounts (on average) – 76% of these individuals manage to settle at least one account through the program over the first 36 months, while others manage to settle 3.37 accounts (on average) and about 50% of their debt through the program. The evidence from recent research and this report points out that debt settlement programs have the potential to help financially distressed individuals (especially those not eligible for Chapter 7 bankruptcy protection).

Contact your bank for help if you are a business

Many major banks in the US have implemented changes to their lending rules, and those changes are made for businesses experiencing profit loss and people experiencing loss of income. Revised terms, loan extensions, and the Payroll Protection Program run by the SBA are all good options to look into for disaster relief.

Seek advice from a credit counselor

If you are worried about your personal financial situation and dealing with debt as a result of COVID-19 or other circumstances, you should ask for help and credit counseling. Companies like Churchill Credit Solutions can provide expert advice, a debt management plan, and debt relief options tailored to your situation. They can also enroll you in a debt settlement or debt management program to help you deal with unsecured debt.

Times are hard, and what we see now with the coronavirus pandemic is unprecedented. The US economic recession looks worse than what we thought a few weeks ago, while the European economy is set for its worst recession on record. In 2020, the global economy will suffer its steepest economic contraction ever recorded, which will have a longer recovery (more likely U-shaped). Many countries are still under lockdown to prevent the spread of the virus by which almost 3 million people worldwide have been infected.

When managing debt and considering debt settlement as an option during the COVID-19 crisis, you should know that it is a viable way to get debt relief. On the other hand, you should consult with financial experts to see whether it’s suitable for your particular financial situation and to find out more about the risks it carries.

Remember that millions around the world are experiencing financial problems, and governments and banks are designing various programs to help consumers with their debt management. Get familiar with debt management and settlement if you are coping with debt, and if you need counseling, additional resources, and debt advice, feel free to request it on our website.

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