It’s relatively easy to open credit cards and rack up excessive balances. Unfortunately, repaying what you owe is another story. And for some consumers, it could take several months or years to dig yourself out of a debt hole. There are also instances where life happens, and you’re forced to lean on credit cards to survive.
Either way, credit card debt can create serious financial issues. The good news is there are programs to help you get back on track if you’ve already fallen behind and ultimately break the chains of credit card bondage.
What is a Credit Card Hardship Program?
Credit card issuers offer hardship programs to financially distressed account holders. They prevent you from racking up additional late fees and doing even more damage to your credit score.
Depending on your credit card issuer, you could qualify for one or more of these options:
- A reduced interest rate or monthly payment
- Late fee waivers
- Deferred monthly payments
- A fixed debt repayment plan
- Debt settlement
Wondering what’s in it for the credit card issuer? The reality is they aren’t in the business of helping you manage and resolve your outstanding credit card debt balances. However, they’d much rather collect from you than write off the account and sell the balance to a collection agency for pennies on the dollar.
How Does a Credit Card Hardship Program Work?
It varies by credit card issuer. Here’s what to expect:
- Step 1 – Analyze your spending plan: If you don’t yet have a budget, now’s a good time to create one. Otherwise, take a look at your spending plan to determine if your expenses exceed your income. If so, review each item and make cuts as you see fit. Once you’ve trimmed up your budget, seek a credit card hardship program if you’re still running a deficit. But suppose you have enough money left over after necessities to make your credit card payment. In that case, you may not be a good candidate for a hardship program.
- Step 2 – Reach out to your credit card issuer: Call the credit card company at the number listed on the back of the card. Ask the representative about hardship programs available to financially distressed cardholders. Assuming there are options, the representative will transfer the call to another department that handles explicitly these matters.
- Step 3 – Plead your case: You’ll often need to explain to the creditor why you should be considered for a hardship program. When speaking with the representative, be sure to communicate what led to your circumstances and how much you can comfortably afford to pay each month. The credit card issuer may also request financial documentation to substantiate your claims, so you want to be honest about your situation.
- Step 4 – Review your available options: Once the hardship department reviews your case, they will let you know if you qualify for a program. It could take a few days to get a response, but some will notify you while on the call. If approved, carefully review your options and select the right fit.
- Step 5 – Enroll in a hardship program: Be sure to adhere to the requirements, or the creditor could remove you from the program. Also, keep in mind that hardship programs aren’t designed to be long-term solutions. Instead, they’re more short-term in nature and are geared toward helping you get back on track with your credit card payments.
Pros and Cons of a Credit Card Hardship Program
If you’re leaning towards a credit card hardship program, consider these benefits and drawbacks before deciding if it’s ideal for you.
Pros of a Credit Card Hardship Program
- You could avoid added stress. It can be stressful to juggle credit card payments and other monthly bills. And if you’ve fallen behind on payments and the collection calls have started, chances are you’re even more overwhelmed. But enrolling in a hardship program can bring much-needed relief as you can bring your account current and stop accelerated collection activity.
- You could save on interest. If the credit card issuer lowers your interest rate, you could save a bundle in interest. The cost-savings depend on how much you owe and can afford to pay for the duration of the hardship program.
- You could preserve your credit health over time. Each time you make a late payment, the credit card issuer will likely charge a fee. Once the account reaches 30 days past due, the delinquency will be reported to the credit bureaus and could severely damage your credit score. Subsequent late payments are even worse for your credit score and could lead to a charge-off that lingers on your credit report for up to 7 years. Fortunately, a credit card hardship program can help you avoid substantial damage if you adhere to the guidelines.
Cons of a Credit Card Hardship Program
- The creditor may close your account. Some credit card companies disallow the continued use of the card when you enroll in a hardship program and will close the account.
- You could hurt your credit score in the short term. If your credit card has been open for some time, a sudden closure could reduce your credit history and potentially hurt your score. It could also impact your credit utilization, or the amount of available credit in use, that accounts for 30 percent of your credit score.
How to Get into a Credit Card Hardship Program
It varies by credit card company. Call the toll-free number on your credit card to speak with a representative and learn more about how to enroll. You can also visit the credit card issuer’s website to locate contact information for the various departments.
Alternatives to Credit Card Hardship Programs
Not quite sold on the idea of a credit card hardship program? Or maybe your balances are too high, and you need a more aggressive option? Consider these viable alternatives.
Debt Settlement Programs
If you can’t afford to make monthly payments on your credit cards and a hardship program isn’t an option, debt settlement could work. It’s offered by for-profit entities who work with your creditors to secure settlement offers. Ultimately, you’ll pay less than what you owe, but there could be serious consequences for your credit. However, there are no fees to enroll, and you’ll only pay a fee each time a debt is settled.
Debt Management Plans (DMPs)
These debt management plans are usually offered by nonprofit credit counseling agencies that work with your creditors to secure concessions to help you pay off your balances faster. You could get a lower interest rate, more affordable monthly payment or fee waivers. But you’ll pay an enrollment fee, and monthly fees for each credit card enrolled in the program.
Bankruptcy
Bankruptcy should only be used as a last resort to get relief from excessive credit card debt. Consult with a bankruptcy attorney to determine if you should file.
