Understanding Credit Card Hardship Programs

March 13, 2019

Financial

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It’s not uncommon for modern consumers to have some trouble paying off debt. In fact, the average U.S. household has around $15k in credit card debt alone. Credit card hardship programs offer a practical solution to getting out of debt and back in the clear financially.

How They Work

Most debtors begin trying to tackle their credit card debt by looking for interest rate reductions. Unfortunately, credit card companies are often hesitant to reduce the principal on loans, but they might be willing to change interest rates on defaulted loans. This can make payments much more manageable for debtors who are struggling to keep up as it will allow them to start paying off their principal balances instead of just their interest.

How They Affect Credit Scores

The effects of enrolling in credit card hardship programs on credit scores vary based on how the enrollment is reported. Some credit card companies won’t report requests for enrollment as negative items as long as debtors don’t cancel their cards. Others will report the negative information immediately, but it may be removed from the consumer’s credit report once he or she has completed the program.

How to Review the Agreement

Once a debtor applies for entrance into a hardship program, he or she will be sent an agreement in the mail. It should be reviewed very carefully prior to signing, and consumers should never hesitate to call the credit card company if they are uncertain about any of the details. It’s important that debtors know what they are signing up for and understand how their credit scores and their interest rates will be impacted.

What are the Alternatives?

Alternatives to enrolling in a credit card hardship program include taking out a debt consolidation loan, settling the debt, or declaring bankruptcy. These options are not all created equal, though, as some of them come with fees and others have a dramatic negative impact on consumers’ credit scores. Hardship programs have no fees for service, offer ongoing credit maintenance, and tend to come with lower payments than taking out new loans, which allows debtors to improve their scores and get out of debt faster and easier.