How to Apply for a Credit Card Hardship Program

A credit card hardship program can help you deal with mounting credit card debt. This guide walks you through these programs, including what they are, how they work, how to apply, and their effect on your credit score.

No matter how particular you are with your budget, life can always knock everything off-kilter. Illness, injury, job loss… all of these have the ability to impact your monthly income. This makes it difficult to meet your financial obligations, including minimum credit card payments.

So, what can you do when credit card bills keep coming but you’re having trouble making payments? This is where a credit card hardship program can come into play.

What It Is

Some credit card companies make hardship programs available to their customers in times of need. These programs allow you to temporarily reduce monthly payments to a manageable level if you are having trouble paying your bills due to unforeseen circumstances.

Credit card hardship programs typically last somewhere between six months and a year. They don’t allow you to bypass monthly payments altogether. But they will often involve a lowered interest rate, altered repayment plan, or a combination of the two. Some companies will even offer to waive certain fees for late payments, over-limit charges, and the like.

So, why would credit card companies even offer these types of programs? Well, at the end of the day, it’s really a mutually-beneficial relationship. The consumer is able to continue managing their debt. This means they avoid defaulting on the account. The company will continue receiving a monthly payment, even if it’s a smaller one. And it doesn’t have to worry about chasing the customer down, sending the account to collections, or even charging off the debt.

Who It’s For

If you are struggling to make your credit card payments each month and have some sort of hardship going on in your life, you may be eligible to enroll in this type of program. Eligible hardships could include situations such as:

• A serious illness or injury
• A death in the family
• Divorce
• Losing your job
• Being affected by a natural disaster

If you feel your circumstance is compelling enough to warrant enrollment, give the company a call. But don’t simply contact them with woes of accidentally overspending this month. These programs are meant to be a last resort for those who have tried every possible way to make their payments on time.

Of course, a hardship program shouldn’t be your first option for managing monthly expenses. In fact, it’s far-from-ideal. We’ll talk more about the impacts in just a moment.

If you’ve exhausted all other avenues, though, including cutting your monthly expenses and implementing a bare bones budget, a credit card hardship program could be next on your list.

Before Enrolling

If you are thinking about enrolling in a hardship program, it’s important to have a come-to-Jesus moment with your finances first. And you’ll want to do it before you get behind on payments.

Sit down and look at your situation. How much are you obligated to pay each month? How much are you realistically able to afford at the moment, due to the situation at-hand? Could you do more to trim expenses to a more manageable level each month?

Ask yourself whether there is an end in sight to your hardship. If you recently lost your job, can you reasonably speculate that you will indeed find a suitable replacement at some point, bringing relief to your financial crisis?

If your struggle is due to an illness or injury, do you expect another source of income to arrive in the future? Perhaps you are applying for Social Security Disability or other needs-based programs. In that case, you can estimate a timeline for your financial hardship.

Once you have a good idea of where you stand (and how long it will continue), you can lay out your situation to the credit card company. This way, you’ll know how much you can realistically offer to pay through a hardship program.

How to Enroll

These types of programs are far from advertised, so you will have to work at it if you want more information. After all, credit card companies aren’t keen on telling customers that there are ways to not pay their full bill each month.

Chances are, the average customer service representative won’t be able to give you all the information you need, if they know about the program at all. Call customer service and ask to speak with someone in the customer hardship department or a customer assistance representative. You may be able to look on the credit card company’s website to find a directory of departments, as well.

When you call, explain that you would like more information on any available hardship programs. Don’t immediately dive into your story or tell the company that you “can’t afford to pay your bills.” That will raise some serious red flags and could prompt the company to lower your limit or make other credit-impacting changes. Instead, simply ask for information and see what the representative offers.

They will likely ask what your situation is that warrants enrollment in such a program. This is the uncomfortable part. You’ll need to give them a rundown of what’s going on in your life and why you are suddenly unable to pay your bills in full.

While you do need to make your case for hardship eligibility, be sure to still keep some of your cards close to the chest. Give the basic facts about your situation, but let the representative do most of the talking. That way, you can hear a solid, neutral overview of the program and how it would look.

Then, once you’ve gotten the specifics about the program – the duration, how it works, your new interest rate, what the approval process is – it’s time to hash out what you’ll actually pay.

The Terms

At this point, the representative will likely ask you what you can reasonably afford each month. This is where your previous calculations will come into play. Let them know that you’ve crunched the numbers and believe that you can successfully manage XYZ payments.

No, the company may not accept your offer as it stands. However, crunching the numbers beforehand allows you to know how far off their proposed payment schedule may be from your bottom line.

The most important thing to remember here is to be cautious of what you say. For example, don’t propose a payment schedule that you aren’t sure you’re able to pay for the duration of the agreement.

As mentioned, also don’t zero in on a flat-out “inability” to pay on your debt. This can spook the credit card company. In turn, they could lock your card, limit your access to the account, or even drop your credit limit without notice. You don’t want to add insult to injury by negatively impacting your credit in additional ways.

Will a Hardship Program Hurt My Credit?

While we’re on the subject, let’s talk about how a credit card hardship program will impact your credit in the end.

Every credit card company approaches a hardship arrangement differently. It’s important to ask exactly how your creditor plans to report your enrollment in the program, if they report it at all. If possible, get a copy of this policy in writing before you move forward.

Some companies will report your account negatively to the bureaus, even though you’re paying each month. This can include notations such as “paying partial payment agreement” or that the account balance is “settled.” Neither of these will help your credit score. In fact, they may set up red flags for lenders in the future.

Also, many creditors require you to close the existing account in order to move forward with a hardship agreement. You won’t be able to make new charges on the card, of course, but this will also impact your credit report.

Closing an account will negatively affect your average age of accounts and total credit limit. They should typically be avoided. But in this case, you may have to grin and bear it. However, be sure to ask how the closed account is notated.

Will they report your account as “closed by consumer” to the bureaus? If so, you’re good to go. However, if they report it as “closed by creditor,” you’re looking at another negative impact that may not be worth it to you in the end.

Moving Forward

Deciding whether or not to enroll in a hardship program is, in the end, contingent on your exact situation. Are you feeling an uncomfortable pinch due to your unforeseen circumstances, or are you truly at the end of your financial rope and in need of a life raft?

If the former, it might be worth looking into other ways to put more wiggle room into your budget. This may include a 0% balance transfer offer, a short-term personal loan from family, or even just cutting all unnecessary expenses for a while.

If you’re truly in dire straits, though, a hardship program can save you from defaulting on your debt. Be sure to seek out as much information as you can about the program beforehand, and get it in writing if possible. Figure out what you can actually afford each month before making your offer to the creditor, and then be sure to keep up with those payments.

Before you know it, you’ll have paid off your debts and (hopefully) your hardship situation will have improved.

Pro Tip

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(Personal Capital is now Empower)

Have you ever considered–or enrolled in–a credit card hardship program? What was your experience?