Are you facing challenges keeping up with your credit card payments? Your financial circumstances might have shifted since you made those purchases, leading to difficulty in meeting payment deadlines. Unexpected events like medical emergencies, divorces, or natural disasters can exacerbate these challenges.

Feeling overwhelmed by credit card debt can be stressful, especially considering the potential impact on your credit score if payments are missed or delayed.

Fortunately, there are avenues available for individuals struggling with credit card debt. One such option is a credit card hardship program. These programs offer structured solutions tailored to help consumers at risk of defaulting on their credit card payments.

The average credit card interest rate surpasses 20%, and coupled with hefty penalties for late payments, it’s a tough situation for financially struggling borrowers to break free from the cycle of mounting debt, especially during times of financial hardship.

Financial hardship arises when unexpected setbacks make it challenging to meet financial obligations. Common triggers include illness, divorce, accidents, or job loss. A credit card hardship program is a financial arrangement enabling those facing such circumstances to negotiate more manageable payments on their outstanding credit card debt.

The specifics of a hardship program vary depending on your credit card issuer and financial situation. It may include temporary measures such as due date extensions, lowered interest rates, pauses in payments or interest charges, reduced minimum payments, and waived late fees. These modifications, allowed under a credit card hardship program, can lead to significant savings, potentially amounting to thousands of dollars in interest and fees. However, it’s crucial to note that credit card hardship programs typically have a limited duration, often expiring after three to 12 months.

Unlike debt consolidation, where debts are consolidated into one, a hardship program enables you to retain your existing cards and payment structure until you regain financial stability.

Individuals facing genuine financial hardships, such as sudden job loss, significant loss of income, medical emergencies, or unforeseen events causing increased expenses, may qualify for a credit card hardship program.

According to Jon Morgan, CEO of Venture Smarter, these programs aim to provide relief to those encountering genuine hardships, including serious illness or injury, divorce, family emergencies, or natural disasters.

Eligibility requirements for credit card hardship programs vary among issuers. As noted by personal finance expert Andrew Lokenauth of TheFinanceNewsletter.com, common criteria may include maintaining current payments for at least six months, having a favorable credit history, and demonstrating financial hardship.

To qualify, documented proof of hardship is typically required, such as termination letters, medical bills, or financial statements. Laura Sterling, vice president of Marketing for Georgia’s Own Credit Union, mentions that many institutions may also mandate meeting with a credit counselor or completing a debt management program as part of the qualification process.

A credit card hardship arrangement has benefits and potential drawbacks.

“As a benefit, you may qualify to pause or reduce your payments. Your interest rate could be temporarily decreased. You might be allowed to make reduced monthly payments without incurring late fees. And importantly, it could prevent significant damage to your credit score,” explains Lokenauth. “Most significantly, it provides additional time to help you regain financial stability.”

Other advantages include avoiding default or bankruptcy and alleviating financial strain.

To illustrate the benefits of a credit card hardship program, consider a scenario where you have a credit card with a $5,000 balance and a 20% interest rate. Due to job loss, you can no longer afford the minimum monthly payment of $200.

“Through 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,” explains Morgan.

In another scenario, suppose you encounter unforeseen medical expenses totaling $3,000, charged to your credit card with an 18% interest rate. After enrolling in a hardship program with the issuer, your interest rate is reduced to 8%.

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

Participating in a credit card hardship program might result in a temporary dip in your credit scores since such programs, along with any missed payments, can still be reported to credit bureaus.

There are several other potential drawbacks to consider:

  • Your credit card account could be frozen during enrollment, limiting your access to the card for essential expenses.
  • Interest charges may continue to accrue during the program, increasing your overall balance.
  • Extending your borrowing terms through the program could result in paying more interest over time.
  • Setting up automatic payments from your bank account may be required, adding complexity to managing your finances, especially if funds are limited.

To inquire about and enroll in a credit card hardship program, reach out to your credit card issuer to see if they offer such assistance.

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

However, these programs are not typically advertised, so you’ll need to initiate the conversation.

“Credit card issuers don’t usually promote credit card hardship programs, even if they have them. So if you’re experiencing hardship, it’s best to contact your issuer directly to inquire about available assistance,” advises Sterling.

Once you’ve contacted your issuer, be prepared to follow these steps:

Document your hardship. Gather and provide documentation demonstrating your financial difficulties, such as a termination letter if you’ve lost your job or medical bills if you’ve experienced an illness or accident. Negotiate and agree to terms. Discuss available options with your bank, which may include reduced interest rates, waived fees, lower monthly payments, or a temporary suspension of payments. You may need to sign a program contract to enroll. Comply with program requirements. Make your new monthly payments on time, adhere to the agreed-upon terms, and meet any program obligations. Be mindful of the program’s expiration date.

Entering a credit card hardship program is just one potential solution among several alternatives:

  • Apply for a balance transfer credit card: Consider transferring your existing card balances to a new card with a 0 percent introductory APR, typically lasting 12 to 24 months. This can save substantially on interest payments.
  • Look into hardship loans: These loans may offer lower interest rates for those recovering from financial difficulties. They can be particularly useful during crises like the COVID-19 pandemic, providing relief when businesses were forced to close.
  • Explore debt consolidation loans: Consolidate multiple debts into a single loan with a lower interest rate, potentially reducing overall interest charges.
  • Pursue credit counseling: Seek guidance from certified counselors who can assist in creating a personalized budget and exploring debt management options, available through both for-profit and nonprofit organizations.
  • Investigate debt settlement: Negotiate with creditors, either independently or through a settlement company, to pay off debts for less than the owed amount. Be cautious, as this approach could affect your credit score.
  • Consider bankruptcy as a last resort: While filing for bankruptcy can provide relief from overwhelming debt, it has long-term consequences on your credit score and financial future.

Facing financial hardship due to mounting credit card debt can be incredibly stressful. However, enrolling in a credit card hardship program can offer relief by providing more manageable repayment terms while you navigate through your challenges.

“Before committing to a credit card hardship program, it’s important to thoroughly research and consider all available options,” advises Lokenauth. “Take the time to carefully review the terms and conditions to ensure you fully understand the program before making any commitments.”