What Is A Credit Card Hardship Program? | Bankrate (2024)

Key takeaways

  • A credit card hardship program may help you catch up without defaulting on your credit cards.
  • Many credit card issuers offer credit card hardship programs to borrowers experiencing financial hardship, even if the issuers don’t actively promote these programs.
  • There are alternatives to credit card hardship programs, including balance transfer cards, debt consolidation loans, credit counseling and debt settlement.

Are you finding it increasingly difficult to pay your credit card bills? Maybe you made purchases when you were comfortable with the payments, but now your finances have changed. Perhaps you’ve encountered an unexpected financial challenge, such as a medical emergency, divorce or natural disaster, that makes it more difficult to pay your credit cards as scheduled.

Feeling overwhelmed by credit card debt is stressful, and makiing late payments or missing them completely can potentially hurt your credit score.

Thankfully, there are options for consumers struggling to repay credit card debt. One such option is a credit card hardship program. A credit card hardship program is a structured solution designed to assist consumers who are at risk of defaulting on their credit cards.

How do credit card hardship programs work?

The average credit card interest rate is over 20%, and many credit cards charge costly penalties for late payments. This double-whammy makes it tough for many financially challenged borrowers to get out of their cycle of increasing debt, especially when financial hardship is a factor.

Financial hardship is when a consumer faces an unexpected setback that makes it difficult to fulfill financial obligations. Common causes of financial hardship include illness, divorce, accidents or job loss. A credit card hardship program is a financial arrangement that allows those facing such situations to negotiate more manageable payments on outstanding credit card debt.

The specifics of a hardship program depend on your credit card issuer and your financial position. A hardship program may offer any combination of the following temporary measures to make your credit card debt payments more manageable:

  • Due date extensions
  • Lowered interest rate charges
  • Pauses in payments and/or interest charges
  • Reduced minimum payments
  • Waived late fees

Modifications permitted under a credit card hardship program can lead to substantial savings, potentially amounting to thousands of dollars saved in interest and fees. However, credit card hardship programs don’t last forever. They often expire after three to 12 months.

Unlike debt consolidation, where you roll your debts into one, a hardship program allows you to keep your same cards and payments until you can get back on track.

Who qualifies for hardship loans?

Anyone unable to pay their credit card bills as a result of hardship may qualify for a credit card hardship program.

As Jon Morgan, CEO of Venture Smarter notes, “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.”

Other hardships that qualify for this type of program include suffering 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,” says personal finance expert Andrew Lokenauth of TheFinanceNewsletter.com. “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.”

Most lenders and banks will require documented proof of your hardship, such as a job termination letter, medical bills or financial statements.

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

What are the pros and cons of a hardship program?

A credit card hardship arrangement has benefits and potential drawbacks.

Pros

“On the plus side, you may be allowed to pause or lower your payments. Your interest rate may be temporarily reduced. You’ll likely be allowed to make lower monthly payments without being charged late fees. And you could avoid seriously damaging your credit,” says Lokenauth. “Most importantly, it will provide extra time to help you get back on your feet financially.”

Other advantages include the opportunity to avoid default or bankruptcy and reduced financial stress.

To illustrate the benefits of a credit card hardship program, imagine you have a credit card with a $5,000 balance and an interest rate of 20%. You’ve lost your job and can no longer afford the minimum monthly payment of $200.

“With a hardship program, let’s say the bank agrees to reduce your interest rate to 5% and lower your monthly payment to $100. Over the next 12 months, you pay a total of $1,200 instead of $2,400, making it more manageable while you search for a new job,” says Morgan.

As another example, assume you face unexpected medical expenses of $3,000, which you charge to your credit card. The card assesses an interest rate of 18%, but after entering into a hardship program with the card issuer, your interest rate is lowered to 8%.

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

Cons

Being in a credit card hardship program may temporarily negatively impact your credit scores. However, participation in these types of programs, as well as any missed payments, can still be reported to the three credit bureaus.

Additional disadvantages include the following:

  • Your credit card account may be frozen while you’re enrolled, which would prevent you from using the card. While this may be helpful from a financial perspective, it can make life more difficult if you’re still relying on the card for living expenses.
  • Even if payments are paused, card issuers can continue charging interest during your program participation. This would cause the balance on your card to rise while payments are paused.
  • The plan may extend your borrowing terms and increase the total interest you’ll pay.
  • You may be obligated to set up automatic payments from your bank account to ensure the credit card gets paid. Doing so could create an additional challenge if you’re already juggling payments as funds become available.

How to apply for credit card hardship programs

To inquire about and enroll in a credit card hardship program, contact your credit card issuer and ask if they offer one.

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

Just be aware that you’ll have to initiate the conversation.

Credit card issuers do not advertise credit card hardship programs, even if they do provide them. So if you have a hardship, it’s best to reach out to your issuer directly to see what assistance they offer,” says Sterling.

Once you’ve reached out to your lender, prepare to take the following steps:

  1. Document your hardship. Prepare, gather and submit documentation that proves your financial difficulties. For example, if you have lost your job, you may need to provide your termination letter. If you have experienced an illness or accident, you could provide your medical bills or pay stubs showing a reduced work schedule.
  2. Negotiate and agree to the terms. “Discuss the available options with your bank, including reduced interest rates, waived fees, lower monthly payments or a temporary suspension of payments,” says Morgan. Note that you may be required to sign a program contract to enroll.
  3. Complete the program according to the rules. Make your new monthly payments on time, stick to the agreed-upon terms and comply with any program requirements. Pay close attention to the program’s expiration date.

Alternatives to hardship programs

Entering into a credit card hardship program isn’t your only option. Here are a few alternatives to consider:

  • Apply for abalance transfer credit card. This type of card could potentially help you pay off your debt by transferring your existing card balances to a new credit card with a 0 percent introductory APR. This intro rate typically lasts between 12 and 24 months and can save big money you’d otherwise spend on interest alone.
  • Look into hardship loans. Hardship loans may offer lower interest rates for those who need money while recovering from financial hardship. For example, many borrowers applied for COVID financial hardship loans during the pandemic when businesses were forced to close. Alternatively, a personal loan with a low interest rate and low fees could help.
  • Explore adebt consolidation loan. Debt consolidation loans allow you to borrow a lump sum to pay off multiple existing debts. The idea is to find a debt consolidation loan with a lower interest rate than your current loans so you can save money on interest charges.
  • Pursue credit counseling. A certified credit counselor can help you create a personalized budget and explore debt management options. Credit counseling is available through both for-profit companies and nonprofit organizations, including credit repair companies.
  • Investigate debt settlement. With this option, you or a debt settlement company will negotiate with creditors to pay off your debt for less than you owe. This can potentially save you money, but proceed with caution — debt settlement could potentially harm your credit score.
  • Consider bankruptcy as a last resort. Filing bankruptcy significantly impacts your credit score for seven to 10 years, depending on the type of bankruptcy, so this is not a decision to take lightly. However, bankruptcy can help borrowers get out of overwhelming debt so they can move forward financially.

The bottom line

Mounting credit card debt can leave you feeling overwhelmed and anxious, particularly when facing financial hardship. However, a credit card hardship program can ease your financial worry by providing more manageable repayment terms while you recover.

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

What Is A Credit Card Hardship Program? | Bankrate (2024)

FAQs

What Is A Credit Card Hardship Program? | Bankrate? ›

Common causes of financial hardship include illness, divorce, accidents or job loss. A credit card hardship program is a financial arrangement that allows those facing such situations to negotiate more manageable payments on outstanding credit card debt.

Is a hardship program worth it? ›

Save your credit score

The biggest benefit of a hardship plan is it can save your credit. While your financial hardship may be difficult to confront, it'll only become direr if you start missing credit card payments and take a hit to your credit score.

What does a hardship program mean? ›

Using a hardship program is designed to help you stay on top of your payments and in good standing with your credit card provider. It may help provide a buffer in your current budget, but you will incur additional costs, usually in interest, down the road.

Is the hardship program legit? ›

The email claims to be from a government agency or organization that offers financial assistance to those in need. The email says you have been approved for financial support and to call a phone number to finish enrolling in the program. However, it is all fake.

Does hardship arrangement affect credit score? ›

Being in a financial hardship arrangement won't impact your credit score. However, repayment history information can be included in the calculation of your credit score, so if you're under a temporary financial hardship arrangement and you miss a payment under the arrangement, your credit score might be impacted.

What qualifies for hardship? ›

Understanding 401(k) Hardship Withdrawals

Immediate and heavy expenses can include the following: Certain expenses to repair casualty losses to a principal residence (such as losses from fires, earthquakes, or floods) Expenses to prevent being foreclosed on or evicted.

Do you have to pay hardship back? ›

If your Universal Credit has been cut because of a sanction or penalty for fraud, you might be able to get some emergency money to help you cover household expenses like food and bills. This is called a 'hardship payment'. A hardship payment is a loan, so you'll usually have to pay it back when your sanction ends.

Does the government help with credit card debt? ›

But the good news is that credit card debt forgiveness does exist — it's just not government-sponsored.

How to stop paying credit cards legally? ›

Legal Ways to Cease Credit Card Payments
  1. Debt Settlement. Debt settlement is a process that involves negotiating with creditors to pay less than the full amount you owe. ...
  2. Debt Management Plan (DMP) ...
  3. Bankruptcy.
May 31, 2024

How to wipe credit card debt? ›

Outside of bankruptcy or debt settlement, there are really no other ways to completely wipe away credit card debt without paying. Making minimum payments and slowly chipping away at the balance is the norm for most people in debt, and that may be the best option in many situations.

Does hardship show on credit report? ›

Being in a credit card hardship program may temporarily negatively impact your credit scores. However, participation in these types of programs, as well as any missed payments, can still be reported to the three credit bureaus.

What is the National debt relief Hardship Program? ›

National Debt Relief, a debt settlement firm, negotiates with creditors to reduce consumer debt. They offer free consultations and will customize plans to make debt payoff affordable. Depending on factors like your debt size, budget and negotiated amount, you could pay off your debts within 24 to 48 months.

Are financial hardship loans real? ›

A medical emergency, car accident or unplanned travel can make it hard to cover your monthly bills. Fortunately, many lenders offer hardship loans that can provide a financial assist during challenging times.

How to prove financial hardship? ›

Information that is relevant would include:
  1. Details of your income.
  2. Details of your expenses.
  3. The cause of your financial hardship (and evidence of the cause if available, for example, a medical certificate)

What is a hardship for debt? ›

Demonstrate a genuine financial hardship: This may include job loss, reduced income, medical expenses or other unexpected financial emergencies. Provide documentation: Cardholders will need to submit proof of their financial hardship, such as pay stubs, medical bills or unemployment documents.

What is an example of a credit hardship letter? ›

Because my income has dropped considerably I can no longer afford the terms of the original loan. As a loyal customer of your financial institution, I'd like to ask for the following: ▪ A lower interest rate amount of NO MORE THAN 6% ▪ Accept lower payments of $ _________ per month.

Are hardship loans a good idea? ›

A hardship loan provides funds that can help you get by during a difficult financial time. This loan can help bridge an income gap or cover an emergency.

Does a hardship withdrawal affect credit? ›

The act itself of signing up for a hardship plan has no effect on your credit. However, once you enroll, your credit scores could be indirectly affected because of the way the program works. First, your credit card issuer may put a note on your credit reports regarding your participation in its hardship plan.

What happens if you claim financial hardship? ›

This is called a hardship notice. When you give a hardship notice (for the first time in any three-month period) the lender must stop further enforcement or legal action until it responds. This requirement does not apply if the creditor has a court judgment . Your creditor can ask you for more information.

Why am I getting calls about a hardship program? ›

A malicious scam has been surging lately, as reported by TNS' Robocall Protection team, targeting individuals who carry debt and are looking for a lifeline. Callers claiming to be from a 'financial hardship loan center' are attempting to steal victim's information or worse, digging them deeper into debt.

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