Pros and cons of credit card hardship programs.
Find the pros and cons of a credit card hardship program as well as other options to consider. These solutions tend to be focused on customers that either need more time to get back on track with their finances, or that may be faced with bankruptcy due to unpaid credit card bills.
A hardship program is really an agreement between you and your credit card company. Under the agreement that is arrived at, you will set up a payment plan with the issuer. Based on the result of this, they will sometimes lower your monthly payments, reduce your interest rates, and even occasionally eliminate or waive a portion of the principal on your outstanding credit card debt. So this is obviously a major pro to using this service.
If a lender allows the customer to enter this type of plan, then be sure to stay current and keep to the agreement of the credit card hardship program. For those that abide by all terms and stay on top of the arrangement, they can be a big help in paying off your debt.
Pros of credit hardship programs
There are many cases in which credit card companies such as Chase, Discover Card, and HSBC have agreed to hardship programs with consumers. These programs are becoming more common with the difficult economy, which is causing more and more people to not pay their debt. This then leads to banks fearing people filing bankruptcy. They want to prevent this, as if a consumer files bankruptcy, the credit card company will not receive any money, so many banks are now trying to be more flexible with credit card terms.
Probably the biggest pro of a hardship program is that most of these involve reducing the interest rate you are paying. This alone can save hundreds of dollars over the course of time that you need for paying off your debt. Some credit card issuers are more willing to completely eliminate a portion of your outstanding credit card obligation as well. So if your total unpaid debt is say $10,000, the lender may agree to eliminate $5,000 of it. More on debt elimination programs.
Another pro is that many issuers, such as Bank of America and Citigroup, will not lower your credit scores if you enter into a credit card hardship program. You will have to ask for this, but these programs do seem to have barely, or no, impact on your credit scores.
There may be cases in which they just lower your monthly payment or maybe they will adjust the minimum payment amount. American Express has been known to do this. A lower monthly payment is a huge pro. For example, they may say that your monthly payment for the next 6 months is X dollars per month. This is a form of forbearance program.
Cons of credit card hardship programs
Unfortunately some banks will not readily admit these hardship programs exist, and they are hard to find information on. A con of a credit card hardship program is that you may not be offered the program unless you are way behind on your bills, or, as scary as it seems, you may need to stop paying your monthly bill, or miss a payment, to get the banks attention. As credit card issuers do not want to give access to these deals to everyone, but they really want to focus on helping those who are truly struggling.
Another con is that you will need to negotiate directly with the bank, and many people will feel uncomfortable doing this or they may just not be any good at it. If you think you fall into this category, you should strongly consider a professional or debt settlement for help.
Alternatives to credit card hardship programs
When a hardship program isn't an option, there are still options to take. If you are rejected, or all the cons offsets any potential pros, or if your issuer doesn't have a hardship program, Then read more below for options . You should consider paying a nonprofit credit counseling agency a fee to get on a debt management plan. They may be able to get your card issuer to waive various fees, or lower your APR.
It may hurt your pride to call your bank up and ask for help, but it's a step that you need to take. If you don't get on a hardship program, you may find that you're only able to make your minimum payments each month. Before long, the interest may cause your debt to rise to even greater levels. You simply need to do what's necessary. You'll feel better when you do.
Credit Card Counseling - While credit counseling is not for everyone, and the end result may have a result in a negative impact on your credit score, there are some pros to this. A good credit counselor, with you staying involved in the process and acting as an interpreter if needed, will be able to review your financial situation and budget and they should be able negotiate a new deal or better terms with the credit card companies.
If they are successful, this could result in a lower balance, waived fees or charges, and you paying even lower interest rates on your credit card debt. The truth is, with a dedicated professional, many times a credit counselor can do things that you and I can’t. One major pro is that they have experience in entering into hardship plans and have experience when it comes to credit card negotiations and they can be successful. More on credit counselors.
Increase your income - While everyone understands that it is hard to tell a family or individual that is struggling or behind on their bills that they need to take on another job, it will make a difference. The the bottom line is that just one other person taking on an additional, even part time job making a few extra bucks per week will allow them to get out of debt that much faster. However a con to this approach is it can still be challenging to find a decent paying job. Find part time jobs that can help.
Use a Balance Transfer - If you still have somewhat decent credit scores, you should be able to transfer the unpaid, high interest rate balance on your current credit card to a new card with a lower interest rate, or maybe even zero interest rate. This can be a backup plan if the hardship request was denied. The pro of transferring a balance from say 15% interest, to a zero or low rate card, even for a short period of time is it can save hundreds of dollars.