Understanding Credit Card Hardship Programs: What To Know

Credit card hardship programs address a compelling and common need in that they help borrowers struggling with monthly payments get back on sound financial footing. For those worried about interest rates and credit card debt, options like credit card hardship programs exist to help you get caught up on outstanding payments and balance your budget.

What Is A Credit Card Hardship Program?

In practical terms, a credit card hardship program is a financial arrangement under which your credit card provider (bank, credit union, lender, etc.) allows you to negotiate alternative payment terms. It effectively enables you to make smaller payments on your outstanding debt, or under more manageable terms. These arrangements (which can also involve temporarily suspending payments) help cash-strapped borrowers get caught up and back on sound financial footing.

However, credit card hardship programs and the debt relief they provide are temporary in nature. While they can save you thousands of dollars in outstanding fees or interest charges, most last just 3-12 months. It’s also important to note there are many variations of hardship program that differ by the individual financial institution.

Where To Find A Credit Card Hardship Program

To explore the possibility of applying for a credit card hardship program, you’ll want to connect with your credit card provider. Most offer a variety of options and programs through which to help you get caught up on upcoming or past due interest charges, late fees, and payments. However, it is up to each lender to decide on such a program – and not every lender will offer debt relief solutions of this kind.

Who Qualifies For A Credit Card Hardship Program?

A number of different individual circumstances may qualify you or your household for a hardship program. Note though that requirements will vary by credit card provider and individual credit card product.

• Reduction in pay: Lowered income from one’s employer or self-employment activities.
• Loss of job: Whether fired or laid off, job loss is among the most common reasons that working professionals seek out hardship relief.
• Illness: The onset of acute or sudden medical conditions that make it difficult to meet your financial obligations.
• Divorce: A common reason for seeking hardship relief, given its impact on one’s financial circumstances.
• Emergency: An unforeseen cost or expense can often set one back in their financial circumstances.
• Natural disaster: Flood, earthquake, lighting strike, the effects of unforeseen wildfires, etc.

How To Get Started With A Credit Card Hardship Program

There are several steps involved with getting setup for a credit card hardship program. Understanding them up-front can help you as you work to address any current financial challenges.

1. Understand Your Budget

First off, it’s important to review and assess your budget to understand the impact of a potential credit card hardship program. You need to know how much you can afford in terms of a monthly payment, and when payments will be required to be made, as well as under which specific conditions. That means not only having to understand how much income is coming your way, but also when other expenses need to be paid. Planning can help you structure your credit card payment plan more effectively.

2. Contact Your Credit Card Company

If you’re experiencing financial difficulties, it’s important to contact your credit card provider as soon as possible to let them know and ask if you can get on a hardship plan. You will likely need to provide documentation that corroborates your financial situation. Staying in regular contact with your card provider shows good faith, and that you’re working diligently and responsibly to address the scenario.

3. Negotiate

Of course, you don’t necessarily have to agree with the terms being presented by your lender. Remember that you can also negotiate here, as it’s important to only accept financial terms that fit your individual budget and situation. Above all else, a credit card provider wants to ensure that you get caught up on payments and that they get any outstanding balances back. They’ll often work with you to craft a payment plan and terms that work for your budget to maximize the odds of repayment.

The Benefits Of A Credit Card Hardship Program

Every hardship program is different depending on the credit card issuer’s policies and borrower’s situation. Below though, you’ll find the most common benefits of resolving credit card debt.

Lower Interest Rate

A lower interest rate means you’ll accrue less in interest charges on your outstanding balance. That translates to more money back in your pocket every month.

Lower Fees And Penalties

Lower associated costs for late or delayed payment can help you reduce your overall out of pocket expenses over time. This is especially useful when making payments over an extended period.

Fixed Payment Schedule

A hardship program can set you up with a payment schedule that works for your household budget and help you get back on your feet financially.

Cancelled Collection Efforts

Saves you the hassle of dealing with collections agencies, who’ll often reach out repeatedly via phone, e-mail, snail mail and other methods.

The Challenges Of A Credit Card Hardship Program

There are also certain disadvantages to participating in a credit card hardship program as well, some of which may have temporary or lasting effects on your credit score.

Frozen Credit Line

A frozen credit line may prohibit you from using credit cards to pay for ongoing expenses, which means that you’ve got one less source of credit to leverage when times get financially lean.

Lower Credit Limit

As part of a credit card hardship program’s terms, you may be subject to a lower credit limit than you’d typically be assigned. Keep in mind that this may negatively impact your credit score.

Changed Borrowing Terms

The terms and conditions under which you’re allowed to access your credit card may change as well.

Required Automatic Payments

You may be required to automatically make certain payments at preset times as part of a hardship plan, which may prove challenging if your income or expenses continue to fluctuate.

Alternatives To Credit Card Hardship Programs

If a hardship program isn’t available or right for you, there are other options to regain your financial health.

Balance Transfer Card

Using a balance transfer credit card, you can move any outstanding debt on an existing credit card over to a new card which generally operates at a lower interest rate. Many offer lower- or zero-interest-rate introductory APR solutions, allowing you to cut interest payments significantly and giving you time to pay down your balance without accruing additional charges.

Credit Counseling

A variety of credit counseling services can help you settle your debts through a variety of budgeting and financial arrangements or tools to satisfy lenders’ obligations and requirements. Many can help you reduce costs and get on a payment plan that works for you.

Debt Consolidation Loan

A debt consolidation loan – available from banks, credit unions or other lenders – can help you take out a loan at a lower interest rate to help you pay off higher interest rate credit card debt.

The Bottom Line: Credit Card Debt Can Be Resolved With A Hardship Program

If you’re experiencing temporary or recurring financial difficulties, a credit card hardship program can help you reduce late fees and monthly payments and minimize the negative impact to your credit score. It can also help you remain on sound footing with your credit card provider, and offer a pathway back to financial solvency that works for your individual situation and budget.

That said, there are both upsides and downsides to participating in a credit card hardship program. As a result, it’s important to do adequate research before signing up for one so that you fully understand the process and its potential impact on your household finances.

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