Hardship programs are designed to help consumers through a tough financial time, without defaulting on their credit cards. Here’s how they work, how you can qualify and what other options are available.
If you’re out of work because of the coronavirus pandemic, sidelined because of an accident, facing a mountain of medical bills, impacted by a natural disaster or struggling financially because of a divorce, a credit card hardship program might offer you some relief in paying your bill.
“There are a lot of things that can make it difficult to pay your bills,” says Mike Sullivan, a personal financial consultant with the nonprofit consumer credit counseling agency Take Charge America. “A hardship plan can be very, very helpful to consumers.”
While you may never have heard of such a program, “most credit card companies have done this so many times,” Sullivan says.
From mid-March to mid-May, approximately 38 million Americans filed for unemployment benefits because of the coronavirus and state-mandated lockdowns.
“I imagine right now credit card companies are probably being pretty cooperative,” Sullivan says. “It’s a good thing to have in your arsenal.”
“The sooner you can get help options in place, the better prepared you’ll be when we get out of this,” adds Jeff Arevalo, a financial wellness expert at GreenPath Financial Wellness, a nonprofit consumer credit counseling service.
So what is a credit card hardship program, and how does it work?
What is a credit card hardship program?
Credit card hardship programs are designed to help consumers through a tough financial time, without defaulting on their credit cards.
That “can be very discouraging,” Sullivan says. “How do you ever catch up?”
That’s where a credit card hardship program can come in.
The programs can vary from issuer to issuer, and from consumer to consumer, says Melinda Opperman, president of Credit.org, a nonprofit consumer credit counseling agency.
Because of that, Opperman recommends getting all your terms in writing.
Under such programs, interest charges may be temporarily reduced or eliminated, payments may be reduced, late fees may be waived and payment due dates may be extended, experts say.
The changes “can save you thousands over a year,” Sullivan says.
How can you qualify?
“It’s up to a credit card issuer’s discretion” if you can take part in a hardship program, Arevalo says.
“Be honest and tell them what happened,” he says.
You can contact your credit card issuer directly and ask about its hardship program, or you can turn to a nonprofit consumer credit counseling program for assistance, Sullivan says.
But he cautions, “not everyone gets one just by virtue of asking for one.”
While anyone can request to take part in a hardship program, Sullivan says, credit card issuers may be more likely to grant the request to someone who has a solid credit history.
If you call your credit card issuer directly, you might face long wait times on the phone, Sullivan says.
And in more normal times, if a consumer contacted a card issuer directly, they were likely to be turned down on their first request. It often took getting a supervisor involved to be approved, Sullivan says.
But the major card issuers are offering relief to cardholders and streamlining their assistance programs as the COVID-19 pandemic ravages the U.S. economy.
During “normal times, clients would be required to reach out to one of our contact centers – which they can still do – but given the breadth of need at this time we created a simple process for people to request deferrals online for mortgage, credit card, small business and auto loans,” said Bank of America spokesman William Halldin.
Bank of America clients can access the bank’s help page and request payment deferral. As of mid-April, more than 800,000 credit card clients had done so, Halldin says.
What else should you keep in mind?
Because each card issuer is different, you need to be sure to understand the terms of your arrangement.
Some issuers might continue to charge interest while you are part of the hardship program, so the balance on your card may keep increasing, Opperman says.
It also might require you to set up automatic payments from your bank account so the credit card issuer knows it will be paid, she says.
If you are enrolled in a hardship program, you need to be sure you can meet the modified payment amount. If your new payment is $100 per month, be sure you have that much money available to pay the bill each month, Sullivan says.
If you take part in a program, there’s a good chance your creditor will freeze your account so you can’t ring up new charges, Sullivan says. That can be an issue if you plan to live off your credit cards during this time.
And if you plan to ask for a hardship plan from one creditor, and then continue to use credit cards from other issuers, “creditors frown on that,” he says.
Hardship programs typically last for no more than 12 months, Sullivan says, so don’t expect it to be a permanent fix if you generally have trouble meeting your bills.
What other options are there?
If you still have concerns about your financial situation, Arevalo suggests contacting a nonprofit consumer credit counseling agency such as GreenPath, which can help you prioritize expenses and help you determine if there are areas where you might be able to cut expenses, such as gym memberships and cable bills.
“It doesn’t have to be permanent,” he says.
Borrowers also shouldn’t hesitate to seek out other sources of assistance, Opperman says, such as special unemployment or other benefits from government programs.
She also recommends contacting a nonprofit consumer credit counseling organization “sooner rather than later.”
“Especially during a crisis, waiting too long to seek outside help just makes it harder for the consumer to get through the situation,” Opperman says.