If you’re experiencing a temporary financial setback and have fallen behind on your credit card debt, you’re not alone. According to Federal Reserve Economic Data, credit card delinquency rates in 2022 have increased compared to the year prior.
Having to repay credit card bills when you’re struggling financially — whether due to an emergency expense or a job loss — can be a challenging burden. In this harrowing situation, it’s worth contacting your credit card company to see if it has a credit card hardship program.
What Is a Credit Card Hardship Program?
A credit card hardship program, sometimes referred to as a credit card assistance program, is a repayment plan that’s created based on your hardship circumstances. This type of modified repayment option was commonly offered by credit card issuers for customers who were financially affected by COVID-19, for example.
However, credit card issuers aren’t required by law to offer hardship assistance programs, and not all card companies provide this option. Those that do might offer a variety of ways to temporarily ease your repayment burden, if you’re eligible. For instance, it might adjust your credit card payment due date, waive late fees that have accrued, lower your interest rate, or reduce your minimum payment required over a period of time.
Again, these changes are temporary and only designed to get you caught up on your outstanding credit card balance. Once you’ve completed the program, your original terms will be enforced if your account is still active.
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Who Is a Credit Card Hardship Program For?
Credit card hardship programs are for consumers who are experiencing an unexpected hardship. Generally, the hardship directly or indirectly impacts the consumer’s ability to make on-time credit card minimum payments.
For example, hardship assistance plans might be offered to those who are unexpectedly facing:
• An income reduction
• Job loss
• Death of a primary earner
• Natural disaster
• Severe illness
• Other emergency
Eligibility for credit card hardship programs varies among credit card companies. Generally, at the very least you’ll need to provide proof of the hardship; however, credit issuers don’t publicly share much information about eligibility since it’s approved on a case-by-case basis.
How to Apply for a Credit Card Hardship Program
If your credit card company offers a hardship program, prepare for your conversation by taking a few steps.
1. Review Your Budget
For starters, evaluate where your finances stand today. Compare your non-negotiable bills, like rent or your mortgage payments, a child’s tuition, groceries, gas, etc., against your monthly income.
Determine how much you can comfortably put toward your credit card payments. Make sure the amount is realistic since you’ll want to make positive strides toward your hardship program, if it’s available to you.
Write out your budget and the amount you’ve determined that you can reasonably afford to make toward your credit card bill each month. Have this information ready for your phone call with your card issuer in the next step.
2. Call Your Issuer
Contact your credit card company by calling the phone number listed on the back of your card. Explain your hardship situation and note that it will impact your ability to repay your outstanding credit card balance. Ask them if they offer a temporary credit card assistance or hardship program.
3. Agree Only to Terms You Can Afford
If they offer this option, this next step is your opportunity to negotiate the terms of your hardship plan. Ultimately, the company would likely rather work alongside you to get repaid, rather than risk you delaying credit card payments and later defaulting on your debt.
Make sure that any terms they initially offer are what you can realistically manage financially. If it still feels too costly, tell them that those terms don’t work for you and ask for further relief. It’s important to make sure to only agree to what’s realistic, given the consequences of credit card late payment.
If you arrive at a credit card hardship plan that you can confidently complete, get all of the terms in writing and read the agreement carefully before signing.
Factors to Consider Before Agreeing to a Credit Card Hardship Plan
One significant impact that credit card assistance programs typically have is a freeze on your credit card activity — meaning using the credit card is no longer an option. Although a credit card freeze doesn’t negatively impact your credit score, that’s spending power that you’ll immediately lose. Though, given your financial hardship, it’s a practical requirement until you can regain your footing.
Some credit card companies might even require that you close your card account entirely while participating in the program. This is what can impact your credit score the most.
Further, closing your account reduces your credit utilization ratio, which is the percentage of credit you’ve used compared to your available credit line. According to the Consumer Financial Protection Bureau, it’s best to keep this ratio below 30%. However, if you suddenly have a reduced overall credit line due to a closed account, your credit utilization ratio will increase.
Additionally, a closed credit card can lower your score since you’re losing the benefits of a matured credit card account. For FICO credit scores, for example, the average age of all of your credit accounts makes up 15% of your score.
Finally, closing your account can also impact the mix of credit in your credit profile, especially if you’re losing your only revolving account, which is what a credit card is. Having a mix of installment (e.g. car loans, mortgages, etc.) and revolving credit (e.g. credit cards) comprises 10% of your FICO score.
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Pros and Cons of Credit Card Hardship Program
There are a handful of benefits associated with a credit card hardship program. However, you should also consider the drawbacks before moving forward.
|Advantages of a Credit Card Hardship Plan||Disadvantages of a Credit Card Hardship Plan|
|Might help credit long-term by potentially avoiding default||May end up losing access to your credit line|
|Positive hardships payments are reported to credit bureaus||Might adversely affect your score in the short-term|
|Allows you to rework repayment features so they’re manageable||Requires proof of hardship and possibly additional paperwork to get a plan|
|Offers temporary financial relief|
Alternatives to Credit Card Hardship Programs
If a credit card assistance program isn’t right for you, there are a few other options for getting through financial hardship.
Balance Transfer Credit Card
If your credit is still in good standing and your account isn’t delinquent yet, consider a balance transfer card. It lets you transfer one or more credit card balances onto a low- or temporarily 0% APR card. A balance transfer fee might apply.
Debt Consolidation Loan
This option lets you combine multiple debts — installment and revolving — into a new installment loan. Ideally, the debt consolidation loan offers a much lower APR with one simple payment to help you chip away at payments. Fees might apply.
If you’re struggling with other payments as well, you could consider another type of loan — a hardship loan. While this could help you continue to make your rent or mortgage payments or stay on top of other necessary daily living expenses, be mindful before assuming additional debt.
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Debt Management Plan
Debt management plans are typically offered through credit counseling organizations. A credit counselor facilitates an agreement with your creditors on a payment plan.
Generally, a debt management plan requires you to make monthly payments to the counseling service, which will then make payments to your creditors on your behalf. It’s best to work with a nonprofit organization, such as the National Foundation for Credit Counseling.
Recommended: Credit Card Debt Forgiveness: What It Is and How It Works
Don’t wait if you anticipate being late on your credit card payment. A credit card hardship program can help lift you out of spiraling debt and avoid future default. Remember, you still owe the debt, but it’s worth talking to your credit card issuer to see how it can help you through this difficult period.
After successfully completing a credit card hardship program — and regaining financial stability — your card issuer might offer to unfreeze your credit card account, based on your hardship agreement.
If your account was closed and you feel ready for a new card, look for a card with reward perks and low fees. The SoFi Credit Card, for example, doesn’t charge foreign transaction fees, plus you can earn up cash-back rewards for each dollar you spend. Learn more and weigh whether to get a credit card with SoFi today.
Do credit card hardship programs affect your credit?
Credit card hardship programs, in and of themselves, don’t directly affect your credit. However, the requirements to participate in a hardship program, like closing the impacted account during the hardship plan, or other credit reporting might have an adverse effect on your credit score.
Does credit card debt count as a hardship?
No, credit card debt doesn’t typically qualify as a hardship. Uncontrollable factors like a major illness or injury, disability, sudden unemployment, loss of your household’s primary earner due to divorce or death, or other high, unexpected expenses typically fall under hardship.
What are my options if I can’t pay my credit card?
If you can’t pay the minimum amount due on your credit card bill, contact your card issuer to learn more about your repayment options. Based on your unique situation, it might offer a manageable path forward to repay your debt, whether that’s simply changing your monthly due date or putting you on a credit card assistance program.
Can you ask for forgiveness of credit card debt?
You’ll unlikely be able to secure debt forgiveness on the total outstanding credit card debt that you owe through your card issuer. Some credit card companies might be willing to settle the debt at a lower amount, which you’ll need to pay in a lump sum. The remainder of the debt is then “written off.”
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