What is a credit card hardship program?

Are you finding it increasingly difficult to pay your credit card bills as a result of bad luck? Have you charged more than you can afford to repay? Concerned that your credit rating will suffer if you do not act quickly?

Fortunately, there are alternatives. One option is to enroll in a credit card hardship program, which is a structured offering designed to assist consumers facing personal and financial adversity and assist them in avoiding credit card default.

Continue reading to learn about credit card hardship programs, eligibility requirements, the benefits and drawbacks of participating, the steps involved in the process, and alternative options to consider.

Explanation of credit card hardship programs

A credit card hardship program is a financial arrangement offered by credit card companies and lenders that allows you to negotiate smaller or more manageable payments on your outstanding debt.

Often, lenders or banks agree to temporarily reduce or eliminate interest charges, lower your payments, waive late fees, and extend payment due dates through these arrangements. Under certain conditions, you may even be permitted to temporarily suspend payments entirely. Taking any of these steps can make it easier to repay your debts during a difficult time.

Consider that the average credit card interest rate is a record-high 20.71% today, and that many credit cards charge expensive late fees. This double whammy makes it difficult for many financially challenged borrowers to break the cycle of increasing debt, especially if they’ve suffered a major setback such as illness, divorce, or job loss.

Modifications allowed under a credit card hardship program can result in significant savings, potentially amounting to thousands of dollars in interest and fees saved. Credit card hardship programs, on the other hand, do not last forever; they typically expire after three to twelve months.

Qualified candidates and requirements

Anyone who is unable to pay their credit card bills due to a financial hardship may be eligible for a credit card hardship program.

“These programs are designed to provide relief to individuals facing genuine hardships, such as a sudden job loss or serious loss of income, medical emergency or other unforeseen event that’s caused a significant drop in income or an increase in expenses,” Jon Morgan, CEO of Venture Smarter, said in a statement.

Other qualifying circumstances include a serious and costly illness or injury, a divorce, a family emergency, or a natural disaster.

“The requirements for qualifying for a credit card hardship program will vary from issuer to issuer,” TheFinanceNewsletter.com personal finance expert Andrew Lokenauth notes. “Some common eligibility requirements include being current on your payments for at least six months, having a good credit history and being able to prove you are experiencing financial hardship.”

“Many institutions also require that the consumer meet with a credit counselor or complete a debt management program in order to qualify,” says Laura Sterling, vice president of Marketing at Georgia’s Own Credit Union.

Pros of a credit card hardship program

A credit card hardship arrangement has advantages and disadvantages that should be carefully considered.

“On the plus side, you may be able to postpone or reduce your payments.” Your interest rate may be reduced temporarily. You’ll most likely be able to make lower monthly payments without incurring late fees. And you might be able to avoid seriously harming your credit,” says Lokenauth. “Most importantly, it will provide extra time to help you get back on your feet financially.”

Other benefits include the possibility of avoiding default or bankruptcy and reduced financial stress.

Consider a credit card with a $5,000 balance and a 20% interest rate to demonstrate the benefits of a credit card hardship program. You’ve lost your job and are unable to make the $200 minimum monthly payment.

“Assume the bank agrees to reduce your interest rate to 5% and your monthly payment to $100 under a hardship program.” “You pay a total of $1,200 over the next 12 months instead of $2,400, making it more manageable while you look for a new job,” Morgan says.

As another example, suppose you have $3,000 in unexpected medical expenses that you charge to your credit card. The card has an 18% interest rate, but if you enter into a hardship program with the card issuer, your interest rate is reduced to 8%.

“Here, you can potentially save $300 in interest charges over the course of the year,” Morgan said.

Negative aspects of a credit card hardship program

Participation in a credit card hardship program, on the other hand, may have a temporary negative impact on your credit scores, as participation in these programs, as well as any missed payments, can still be reported to the three credit bureaus.

Other drawbacks include the following:

While you’re enrolled, your credit card account may be frozen, which means you won’t be able to use the card. While this may be beneficial financially, it can make life more difficult if you continue to rely on access to the card’s credit.
Card issuers may continue to charge interest while you are participating in the program. As a result, the balance on your card may continue to rise.
The plan may lengthen your loan terms and raise the total interest you pay.
You may be required to set up automatic payments from your bank account to ensure payment of the credit card. If you’re already juggling making payments as funds become available, this could add to your difficulties.

Where you can find a credit card hardship program

Contact your credit card company and inquire about and enroll in a credit card hardship program.

“Many major credit card issuers — including Chase, Citibank, Bank of America and American Express — offer these programs,” Morgan said.

Just keep in mind that you will have to start the conversation.

“Credit card companies do not publicize credit card hardship programs, even if they do offer them.” “If you are experiencing a hardship, it is best to contact your issuer directly to see what assistance they can provide,” Sterling advises.

Prepare to take the following steps once you’ve contacted your lender:

Provide documentation of your adversity. Prepare, collect, and submit documentation to demonstrate your financial difficulties. Items such as a job termination letter, costly bills incurred as a result of a natural disaster, medical bills, or other income statements may be included.
Negotiate and reach an agreement on the terms. “Discuss the available options with your bank, including reduced interest rates, waived fees, lower monthly payments or a temporary suspension of payments,” Morgan says. To enroll, you may be required to sign a program contract.
Finish the program in accordance with the rules. Make your new monthly payments on time, follow the terms of the agreement, and follow any program requirements. Keep track of when the program expires.

Credit card hardship program alternatives

You don’t have to enroll in a credit card hardship program. Instead, consider the following alternatives:

Apply for a credit card with a balance transfer option. This type of card may be able to assist you in paying off debt by allowing you to transfer existing card balances to a new credit card with a 0% intro APR period for a set period of time (typically 12-21 months). This can save you a lot of money that you would have spent on interest alone.
Look into debt consolidation loans. “Here, the payments may be more manageable if you can consolidate multiple high-rate loans into one lower-rate loan,” Sterling said.
Look into credit counseling. “Seek advice from a certified credit counselor with a nonprofit organization that can help you create a budget and explore debt management options,” says Morgan.
Look into debt consolidation. “With this option, you negotiate with your creditors to settle your debt for less than you owe, but it can be a risky option because it may damage your credit,” said Lokenauth.
As a last resort, consider bankruptcy. “While it has significant long-term consequences, bankruptcy may be necessary for those with overwhelming debt and no other viable options,” Morgan said.

In conclusion

Credit card debt can make you feel overwhelmed and anxious. However, if you can demonstrate genuine financial hardship, you can alleviate some of your anxiety by working with your credit card company to repay what you owe on more favorable terms and with fewer penalties and charges.

“Just be sure to do your research and explore all your available options before you enter into a credit card hardship program,” Lokenauth said. “Also, read the fine print carefully and make sure you understand all the terms before signing or committing to anything.”

Important takeaways

A credit card hardship program may allow you to pause or make smaller payments on your credit card debt in exchange for better terms and fees.
Many credit card companies offer credit card hardship programs that you may be eligible for.
Other alternatives to bankruptcy include balance transfer cards, debt consolidation loans, credit counseling, debt settlements, and, as a last resort, bankruptcy.

What is a credit card hardship program?