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Growing credit card debt is always a concern, most notably when facing other acute financial situations like job loss or onerous medical bills. Just getting some temporary relief can make the difference to help you begin the road to paying off debt entirely. Many credit card companies offer hardship programs to provide a way for customers to receive temporary assistance. This guide explains credit card hardship programs and their potential for debt relief.
How do credit card hardship programs work?
A credit card hardship program is a temporary agreement between an issuing bank and you to briefly reduce interest rates or suspend fees for a given amount of time. Typically, you can expect the program to last up to 12 months.
Other benefits may be available, such as lowering minimum monthly payments or fixed payments. The goal is to help users get back on their feet, avoid default, and limit the impact on your credit.
Every credit card company operates its hardship programs differently, but each company requires certain basics to proceed. You will need to contact the bank and explain your situation, then ask to join the plan.
How to apply for credit card hardship programs
It’s uncommon for a credit card company to publicly communicate the specific details of their hardship program. You will want to call the company to identify what terms it can offer and how it can help.
In most cases, people facing dire circumstances can reasonably qualify for a hardship program. Instances where you may qualify include:
- Job loss
- Ongoing divorce proceedings
- Burdensome medical bills
- Natural disaster
Expect to provide specifics as to why you feel you should qualify for hardship. They may require proof of the need for enrollment in the program, such as notice of job loss or bills you’re facing. It’s also fair to assume that the bank may ask for a detailed budget to get a clearer picture of your finances.
Be prepared to discuss your finances with the representative, as they will use the information to present an offer to you. It’s possible you may be able to negotiate some of the terms.
Once an agreement is finalized, the credit card company may require you to complete a contract that outlines your responsibilities. Make sure to abide by the contract terms. Failing to comply may remove you from the program and be potentially harmful to your finances.
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Pros and cons of credit card hardship programs
Sometimes, debt becomes problematic, and you need some help to manage credit card payments. Here are some ways a credit card hardship can help.
Pros
Lower monthly payments: Certain programs may reduce your minimum payments, making it easier to stay current on payments.
Waived fees or reduced interest rates: Late fees and interest can make it challenging to repay credit cards. Many hardship programs pause fees or lower rates, allowing you to focus on repayment.
No need for new loans: Debt consolidation is a common solution people use to pay off credit cards. That requires a new loan, though. Hardship programs provide relief without borrowing more.
Avoid collections: Credit card companies appreciate it when users manage challenges head-on by contacting them. Enrolling in a hardship program may allow you to avert defaulting or going to collections. Asking for help shows you’re sincerely wanting to repay the indebtedness.
Cons
Credit card hardship programs may not work for everyone. Here are some drawbacks to pursuing hardship programs.
Interest is still a problem: Hardship programs don’t eliminate interest; they just may lower your rate. Worse yet, interest still accrues during the program, so it’s fair to expect it to hit your balance once you exit the program.
Account freeze: Some credit card issuers may freeze your account during the program, making it impossible to use the card.
It’s a temporary solution: Hardship programs may only last up to one year. If you’re facing significant long-term financial problems, it likely won’t resolve the situation.
Possible credit score hit: Being in a hardship program isn’t necessarily bad, but actions by the credit card company could impact your credit score. If the issuing bank closes your account, reduces your credit limit, or reports your account as in hardship, your credit score could suffer.
Alternatives to credit card hardship programs
Hardship programs aren’t an across-the-board solution for everyone facing credit card debt. You may not qualify for a plan or may face other circumstances. If that’s your situation, you may want to contemplate other options to find relief.
Balance transfer credit card: If you’re not behind on payments but need interest rate relief, a balance transfer card can be a good alternative. Balance transfer cards let you reduce interest to 0%, for up to 21 months with some offers, helping you focus on paying down the principal. Be aware that a good credit score is often required, and if you don’t repay within the promotional period, the interest for the entire time will hit your account.
Ask for a lower APR: It’s not uncommon for credit card companies to reward good customers. If you have a good history with the bank, call and ask for a temporary reduced interest rate. It likely won’t last forever, but it can provide relief.
Debt consolidation: Managing multiple monthly payments can be burdensome. If your credit score is relatively good, a debt consolidation loan may offer help. You may get a lower rate than your cards and one monthly payment instead of multiple payments.
Analyze your budget: Regardless of your credit score, reviewing your budget is always good when facing credit card debt. Cuts don’t necessarily need to be permanent. Identifying several hundred dollars a month to apply toward the indebtedness can maximize repayment efforts.
Bankruptcy: Bankruptcy is a serious decision and shouldn’t be trivialized. However, if you’re in dire straits and have no way out, bankruptcy might offer a way to get a fresh financial start.
Frequently asked questions about credit card hardship programs
Determining the best way for you to handle credit card debt is key. No two situations are the same. Here are some common questions people have when considering hardship programs.
Does credit card hardship hurt your credit?
Yes, it is possible that credit card payment plans can negatively impact your credit score. The company may report your account as in hardship, close your account, or reduce your available credit. All these actions can hurt your credit. It’s best to ask the representative if the credit card company will report anything and be sure to receive everything in writing.
Does Capital One have a hardship program?
Yes, Capital One does provide hardship programs. Capital One doesn’t publicize ways it helps, so contact them directly to learn more.
Does Discover have a hardship program?
Yes, Discover does offer credit card hardship programs. The bank doesn’t disclose what it can do to help, so it’s best to contact them directly.
The bottom line on credit card hardship programs
Credit card debt can often feel suffocating, especially when you’re dealing with trying financial circumstances. A credit card hardship program is one tool people can use to manage debt and get back on track financially. Programs aren’t a permanent solution, but in the right circumstances, they can provide temporary relief to begin the road back to debt freedom.
