Understanding Credit Card Hardship Programs

For many individuals, one of the most common recurring monthly expenses is their credit card bill(s). In fact, this particular expense is so common that the average U.S. household has an estimated revolving credit card debt of nearly $7,000

During times of financial strain such as unemployment, underemployment, or inability to work due to illness, it can become difficult or nearly impossible to continue making your credit card payments. One option to better manage your debt during this time is to see if your credit card provider offers a hardship program. 

If you’re unfamiliar with credit card hardship programs, our overview will offer insight into what you can expect. We’ll review the pros and cons of this type of program so you can better determine if a credit card hardship program is right for your financial situation.

But before we dive in, let’s review the basics of how credit card hardship programs work:

Credit Card Hardship Program Overview

As opposed to debt management programs offered by third-party companies, credit card hardship programs are provided directly through your credit card issuer. If you’re able to prove financial hardship due to insufficient income, your card issuer may offer you some relief by reducing your interest rate or monthly payment, or deferring your payments entirely. These plans are often temporary, typically require you to stop using your credit card, and make consistent payments based on terms you agree upon.

Now that you know a little more about how they work, let’s dive deeper into the pros and cons of credit card hardship programs:

The Pros

Temporary Relief

When you find yourself faced with unforeseen financial circumstances, credit card hardship programs can provide temporary relief by reducing or deferring your monthly payments. With your monthly costs reduced, you’ll have some breathing room as you work to get your finances back on track. But keep in mind, with most agreements typically lasting between 3-12 months, credit card hardship programs aren’t designed to be a long-term solution.

Fairly Common Amongst Creditors

Due to the recession caused by the COVID-19 pandemic, the majority of leading credit card companies have announced that they offer some type of hardship program. Before relying on this type of assistance, you’ll want to contact your creditor for details on their policies, qualification requirements, and payment relief offered.

The Cons

Documentation May Be Needed

Once you’ve had a chance to contact your creditor and inform them of your financial hardship, don’t be surprised if they want proof. Often, before an agreement is approved, creditors may request additional documentation to support your request for relief. If you are unable to demonstrate your hardship, they most likely won’t grant you assistance. In the unlikely event that supporting documents aren’t required, you may still be asked to submit your initial request in writing that will remain on file with your creditor. 

Accounts Will Likely Be Impacted

While it may seem like your credit card issuer is doing you a favor by approving you for a hardship program, the reality is that the relief they provide now will impact your accounts later on. Although you’ve openly and honestly shared your concerns, your creditor will continue to proceed with caution due to your uncertain financial situation. 

For example, some creditors may reduce your credit limit, put a freeze on your card, or even close your account altogether. Before entering into a hardship program, it’s important to know upfront all of the associated details and impact it may have on your account.

Potential Effect to Credit Score

Depending on how your account is impacted, enrolling in a hardship program could result in a negative strike against your credit score. For example, if a creditor lowers the available credit limit on your account, your credit utilization rate will increase. This, in turn, can negatively impact your credit score. Or, if a creditor closes your account—especially an older one—your length of credit history could be affected as credit bureaus are notified of the change in status. Again, this could potentially negatively impact your credit score.

This is one disadvantage of credit card hardship programs you’ll want to consider seriously—once your credit score has taken a hit, it can take some time to rebuild.

Do I Have Another Option?

The answer is YES! While credit card hardship programs may prove beneficial for some, for those financially overwhelmed by multiple accounts amounting to $10,000 or higher, enrolling in a debt settlement program may prove to be a more viable option for relief.  

Another benefit to debt settlement is that it provides you with the opportunity to consolidate all of your current payment obligations into one affordable monthly payment. Instead of remembering multiple due dates and payment schedules, you can just focus on making the one payment monthly. Without the monthly headache of figuring out what needs to be paid, you can spend less time worrying and more time focusing on your financial goals.

At ACCS, we’re committed to helping you gain financial freedom. To learn more about our debt settlement program and whether it’s right for you, contact us today. Our debt specialists are always here and ready to help. Request your Custom Debt Relief Plan to learn more at no cost or obligation. 

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