If you find yourself having to rebuild your home or your life after a natural disaster, such as the recent Oklahoma tornadoes or the California wildfires, the last thing you want to think about is whether you paid your Discover credit card bill on time.
Putting such mundane tasks as paying bills on the back burner while you attend to more important issues -- such as finding temporary housing, for example -- would seem to be the most logical course to follow, but it's not, financial experts say. "A consumer's delinquent payments could ruin their credit score at a time when they need access to credit the most," says Melinda Opperman, senior vice president for Springboard Nonprofit Consumer Management Inc., based in Riverside, Calif.
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While assessing property damage, calling insurance companies and applying for government disaster assistance may be top of mind, here are the steps you should be taking simultaneously to keep your old debts from destroying your financial future.
1. Get a copy of your credit report. One of the first things you should do after a disaster is get a copy of your credit report -- a move that could help you tremendously in the future, says Tom Quinn, vice president of business development at myFICO.com. If the disaster causes financial difficulties, your credit score may plunge. By having a copy of the credit report before it reflects any financial impact resulting from the disaster, you can later make the case to a lender or someone else checking your credit -- such as a potential landlord -- that the disaster, not financial mismanagement, caused your low credit score, Quinn says. You can get a free credit report each year from each of the three big credit bureaus (Experian, Equifax and TransUnion) from AnnualCreditReport.com.
2. Create a post-disaster budget. While you're waiting for a check from your insurance company, take a realistic look at your savings and any income that's coming in. Then look at what you need for the basics such as food and shelter. If your house is destroyed, you may be able to free up some cash by eliminating some services temporarily, such as electricity, cable TV or bottled water delivery. Your post-disaster budget should be bare-bones, cutting out luxuries until you can get back on your feet, Opperman says. Once you have your post-disaster budget, you know how much you have left to pay on your credit cards and other debts. Even if you have enough in savings to pay off an entire credit card, you might want to budget minimum payments for a while to conserve cash until your life becomes stable again, Opperman says.
3. Initiate contact with creditors. Once you know how much money you're working with in your new reality, it's time to reach out to your creditors. Sometimes when disasters occur, credit card companies will email their customers to let them know they're aware of the disaster and will waive late fees that month for those who are affected. But don't let the communication stop there. Credit card issuers will often do far more for you if they know about your specific situation, says Natalie Brown, a spokeswoman for Wells Fargo. "Based on the customer's individual situation, those options could include various short- and long-term payment assistance programs or even temporary payment moratoriums," Brown says. When communicating with your creditors, look on a statement or the back of your credit card to get the number and call the creditors directly rather than responding to an email. That way you protect yourself from scammers who may be fraudulently posing as lenders to collect information and possibly steal the identities of disaster victims.
4. Document all conversations. When contacting your creditors, be prepared to tell them how the disaster affected you, how long you think your ability to pay will be impacted and how much you can afford to put toward your bill. Keep a detailed record of the conversation, knowing who you talked to, what they promised and when the phone call took place. To be on the safe side, when talking to a customer service representative, "say, 'I'm going to wait on the phone a moment while you make your notes,' " Opperman says. If a creditor agrees to a major change to the credit agreement, such as a three-month suspension of payments, ask for something in writing.
5. Explain the disaster's effects on your credit report. As you're recovering financially from a disaster, you can add a 100-word statement to your credit report explaining that you experienced a natural disaster and it caused your credit to suffer. While this won't affect your credit score, it lets any creditors who pull your report know what's going on and that you're a responsible consumer who is working to bring any delinquent accounts current. Depending on their policies, they may consider that in any lending decisions. As your situation improves, you can have those comments modified or removed from your credit report altogether, Opperman adds.
6. Look for long-term recovery funding. Your insurance policies and government assistance may help you to rebuild your home or possibly replace your car, but you may have to seek out additional resources to help you pay for other debt obligations, particularly if your job was impacted by the disaster. One option is using online fundraising sites to ask others to donate to your long-term recovery efforts, says Veronica Olah, a spokeswoman for fundraising site Fundly. DisasterAssistance.gov also provides links to short-term and long-term disaster assistance programs that may be able to help you out.