Credit card debt is rising.
American credit card balances increased 13% from 2021 to 2022, or $100 billion — the biggest percentage increase in more than 20 years, according to the Federal Reserve Bank of New York.
Combine high interest rates with a hardship like a job loss, natural disaster or extended illness, and you could spiral into credit card debt in no time.
A hardship program could help.
Many credit card issuers will work with you to create a payment plan, offer a payment extension or temporarily reduce your interest rate.
Never heard of such a program? That’s not a surprise — credit card companies don’t typically advertise that you can adjust your payment plan or even stop paying your bill for a while.
But before you call up your credit card issuer, you should know that while it can help, enrolling in a hardship program can also do more harm than good if you don’t understand the terms of your arrangement.
Here’s how it works.
What Is a Credit Card Hardship Program?
A hardship program is a payment plan for your credit card. You usually negotiate terms with your card’s issuing bank, which may waive fees, grant a temporary payment pause or lower your interest rate for a certain time.
Banks may also offer hardship plans for student loans, mortgages, personal loans and other financial products.
Hardship programs vary depending on the issuer and even within the credit card company or bank itself. Some credit card issuers don’t offer hardship programs at all.
How Do Credit Card Hardship Programs Work?
The best time to use a credit card hardship program is when you are facing temporary financial difficulties with a definite end in sight.
Here are some examples of a financial hardship that might qualify you:
- Pay cut
- Job loss
- A serious illness
- A death in the family
- A natural disaster
“If you’re unable to make the payments, going into a credit hardship program or a payment plan could be a better solution than falling into a spiraling debt issue of not making payments for five, nine, 12 months — which would impact your credit score more adversely,” said Brent Weiss, a certified financial planner and co-founder of Facet Wealth.
How Can a Credit Card Hardship Program Help You?
The credit card issuer could:
- Reduce your interest rate.
- Lower the minimum payment amount.
- Adjust the payment terms (extending your grace period, for instance).
- Lower (or sometimes waive) late fees and penalties.
- Adjust the principal balance.
Hardship plans usually last less than 12 months. While you can ask for a specific type of relief, the assistance you receive is ultimately up to your card issuer.
Keep in mind: Your credit card account may be frozen while you’re enrolled in a hardship plan. You may also be required to set up automatic transfers from your bank account to the credit card issuer to ensure you make timely monthly payments.
Your credit card company may not allow you to enter a hardship plan more than once, so consider how much you really need it.
Drawbacks of Credit Card Hardship Programs
Hardship programs are not a “get out of jail (or debt) free” card, and the consequences could potentially be worse than the benefit if you’re not committed to returning to your former payment schedule.
For one, your credit card issuer will likely report your entrance into the hardship plan to the credit bureaus, which could damage your credit scores in the short term.
Also, some credit card companies won’t let you enter a hardship program until you’ve missed a payment (which also hurts your credit score).
Ask your card issuer how they will report your credit card account to credit bureaus during the hardship plan. Once you’re approved for the program, periodically check your credit report. If something doesn’t look right, call the credit card company and the credit bureaus.
If you’re certain you can make the smaller payments and emerge from the hardship program at the end of the term, the program could actually help you prove a history of on-time payments, according to Weiss.
“Long term … you’ll probably have a healthier credit score because you’ve made those payments consistently,” Weiss said.
A hardship program is also unlikely to be of much help if there are multiple lenders you know you can’t pay.
“It’s not a good solution for someone who has several outstanding credit cards,” Weiss said.
How Do You Apply for a Hardship Program?
The best way to apply for a credit card hardship program is to call your credit card company directly and speak to a representative.
Prepare an explanation for why you need the program, how long you estimate you’ll need it and how the program could help you.
“Go in armed with a couple questions and say, ‘I want to be honest with you: Here’s my situation,’” Weiss said.
If the first customer service rep you reach isn’t able to help, ask to speak to the hardship or payment assistance department.
Although a credit card company rep may be sympathetic to your circumstances, credit card companies still use cold, hard facts when deciding your eligibility for a hardship program.
There are three main factors that your lender will use to determine if you qualify:
- How long you’ve been a customer. The company will be more inclined to help a loyal (paying) customer of 20 years than someone who opened an account two months ago.
- History of on-time payments. If you call to report financial hardships on a regular basis or often miss credit card payments, the company may be less inclined to let you enter a hardship program.
- Your credit score. Credit card companies have to ask themselves, “Is this someone who could realistically repay the debt eventually?”
And the best time to call your credit card company about a hardship program? Before you need it.
“Say, ‘I believe I’m going to have trouble making my minimum payments in the months ahead,’” said Weiss, who acknowledged that calling ahead isn’t always practical advice if the situation is an emergency.
But if possible, it’s a good way to let your credit card company know you’re being proactive.
Alternatives to Credit Card Hardship Programs
A credit card hardship program is just one option if you’re falling behind on debt payments.
If you’ve been struggling with credit card debt for a while and don’t know where to turn, working with a nonprofit credit counseling agency can help.
They offer many services, including general financial advice and homeownership counseling. They can also help you create a debt management plan and help you review your credit reports.
Most credit counseling agencies offer services for free or at a reduced rate to clients whose household income is less than 150% of the federal poverty level.
Ask any credit counseling company about their fees upfront before disclosing your financial information, Weiss said.
Apply for a Balance Transfer Card
If you’re certain your financial circumstances are temporary and short-term (less than 12 months), you could apply for a credit card that offers a no- or low-fee balance transfer and 0% interest for a specified period (like, say, 12 months).
“If it’s a known period, it actually could be a better solution than either missing payments or going into a hardship program where the credit card company reports it to the credit bureaus,” said Weiss.
However, credit card balance transfers only help if you can pay off the full amount before the interest starts accumulating again.
Consider a Personal Loan
If you do have some time to prepare before the hardship hits, consider taking out a personal loan with better terms to pay off high-interest credit cards.
“But the trick is, qualifying for new debt is different than being eligible for a hardship program, so they’re going to look at your credit history, your credit score, your payment history,” Weiss said.
And if you’ve already missed a payment or two, qualifying for a loan could be very difficult.
Talk to A Financial Advisor
If you can afford the typical hourly rate, a financial advisor can design a blueprint to help you get out of debt. They can help you sort of your finances without ever having to resort to a hardship program.
Financial planners won’t negotiate your balance or interest rates, but meeting with one won’t affect your credit score either.
Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.
Rachel Christian, a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder, contributed to this story.