You are at your wit's end. You were already in debt and struggling to make ends meet. Bills were piling up. Now you have suffered a large financial setback that threatens to push you over the edge. How can you possibly pay your credit card bills?
Before considering drastic moves like allowing accounts to go delinquent or declaring bankruptcy, check with your credit card issuer to see if they offer a hardship program. Credit card companies would prefer that you avoid delinquency and may be willing to give up something in the process.
Of course, to qualify for a credit card hardship program, you must have an actual hardship. "I spent way more than I should have" is not a hardship – that's just bad judgment. A hardship refers to a significant, unexpected, and generally short-term situation that makes it nearly impossible for you to meet your financial obligations. Suitable examples include a sudden job loss or an unplanned medical situation.
Look for information on your card issuer's website about hardship program terms and conditions, but details may not be easy to find. It is not in your card issuer's best interest to advertise that they might be willing to make payment concessions. If no hardship contact information is available, try the main customer service number. Be patient. It may take multiple transfers or even several calls to find the right person.
Before you call, do a true assessment of your situation to determine how much monthly relief you will need. Have a realistic offer in mind – for example, lowering your interest rate for a certain amount of time, altering your minimum required payment, or waiving fees. Realize how much you can realistically afford to pay, because failing to meet the terms of a hardship program will seriously diminish your credit.
During the conversation, ask about the specifics of the program before providing the details of your situation and the terms that you are willing to accept. You don't want to imply that you are unlikely to be able to pay your bills and then reject a hardship offer because you don't like the terms – that raises a red flag with your creditor.
Be sure to consider the effect of a hardship program on your account and your credit in general. If you have just expressed an inability to pay your existing bill because of a hardship, your credit limit might be lowered or you may have limits placed on your account that reflect the extra risk of default that you now pose. Your account may even be closed as part of the settlement. All of these outcomes can affect your day-to-day ability to buy on credit.
Your credit score may also suffer if you enter a hardship program. A lowered credit limit raises your credit utilization (the amount of credit you are using compared to your total credit limit). In turn, that will lower your credit score. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.
Your creditor has options when reporting the hardship action to the credit bureaus. Verify that the positive aspects, such as meeting all hardship repayment terms in full and on time, will be properly reported. If the account is closed in the process, try to limit the damage by asking the creditor to report the account as "closed by consumer" instead of "closed by creditor." The latter implies lower creditworthiness.
Even if you are in serious debt and suffering a short-term setback, a credit card hardship program may not be your best choice. Find out your options with your creditor and evaluate the pros and cons to make the best decision for your situation – then embark on your journey towards financial recovery.
If you want to reduce your interest payments and lower your debt, try the free Debt Optimizer by MoneyTips.
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