What Is A Credit Card Hardship Program?

Jenn UnderwoodPersonal Finance Writer

Credit cards and banking specialist Jenn Underwood brings over 16 years of personal finance experience to the table. After a decade of teaching courses in banking, debt reduction, budgeting and credit improvement, she moved into writing content and fintech product development. Over the last four years, Jenn has contributed to Forbes Advisor and a variety of fintech companies. She has served as a UX consultant, moderated discussions on open banking and been a guest on a number of personal finance podcasts.

Jenn Underwood

Jenn UnderwoodPersonal Finance Writer

Personal Finance Writer

Caroline LupiniManaging Editor, Credit Cards & Travel Rewards

Caroline Lupini has been traveling the world with the help of credit card rewards since 2011. She has visited over 110 countries and is able to utilize her knowledge of credit cards and to make travel both less expensive and more luxurious. Caroline has over 50 credit cards in her wallet and has previously covered credit cards and travel for Business Insider, The Points Guy, USA Today, Lonely Planet, Orbitz and many others.

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Caroline Lupini

Caroline LupiniManaging Editor, Credit Cards & Travel Rewards

Managing Editor, Credit Cards & Travel Rewards

Reviewed

Updated: Nov 7, 2023, 4:07pm

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It happens. Emergencies arise, jobs are lost, medical bills occur. There are a multitude of reasons that you might find yourself unable to pay the monthly minimum on your credit card bill.

If you find yourself in this situation, reach out to your credit card company as soon as possible. Many credit card providers offer alternative repayment options such as a hardship program also known as financial relief or forbearance programs.

Why a Credit Card Provider Might Help You

Credit card providers would prefer you make some payments rather than default on that debt. While your credit card providers want you to make timely payments, it’s advantageous to them to help you in the process. If you are proactive, forthcoming about your circumstances and demonstrate a desire to pay, it’s in their best interest to work with you.

Also if you have held the credit card for several years and have a strong payment history, you’re the type of customer they want to keep. By helping you in the short-term they can ensure you remain with them and potentially develop additional customer loyalty.

What’s Involved in a Hardship Program?

The term “program” may seem like these hardship programs are clear cut and all the information for eligibility and requirements should be posted somewhere. In most cases, you won’t find a ton of details available on hardship programs. Even if your lender’s website indicates it offers financial assistance or hardship programs, the site may just direct you to call.

That’s because most hardship programs are developed based on your specific circumstances.

Which Hardship Programs Consider

Your credit card companies will likely consider a number of factors including your current income and ability to pay, as well as how much you owe. Since your credit limit is already an assessment of your ability to pay, carrying a balance less than your card limit will likely make you a more favorable candidate. In addition, the issuer will probably consider your current delinquency status and any prior enrollments in their hardship program.

How To Prepare for the Call

Review your budget. Calculate exactly how much you can afford to pay. If your shortfall is due to unexpected costs or a reduction in income, be prepared to explain your situation. If your financial barriers are due to an unexpected medical bill or a seasonal reduction in hours, inform your lender when you expect to pay off the medical bill or when your employer will restore your hours. Be prepared to offer documentation to support your claims.

Take notes. Financial hardship is stressful and can increase the emotional intensity of the conversation. Although the representatives will listen to your story, it can make the process easier if you are prepared with what you need to say. Write down the specific amount of emergency costs or reduced income. Provide a responsible estimate of when you anticipate that you can return to normal payments.

Call immediately. If possible, address the issue before you miss a payment. You are more likely to be considered committed to payment if you proactively reach out to your creditor. Once you miss a payment, your credit card company can consider you delinquent. If you are more than 60 days late, your card provider may impose a penalty APR. The sooner you ask for the help, the better standing your account will be in when the representatives consider your case.

The Consumer Data Industry Association also encourages you to have an informed discussion with your lender. It suggests you ask the following questions when considering a hardship program:

Does your company offer a forbearance/hardship program?
What are the criteria to apply for forbearance or hardship?
Is there a difference between forbearance, deferral or hardship?
How long does it take for a forbearance/hardship to take effect?
Will fees (i.e. late, overdraft) be assessed while I’m in forbearance/hardship?
How is interest being calculated while I’m in forbearance/hardship?
How is my account reported to the credit bureaus while I’m in forbearance/hardship?

Get it in writing. It’s always wise to double check your understanding of any new agreement you make with your credit card companies. Ask if you can get a copy of your new payment commitment in writing. Review it when it arrives to ensure it aligns with your expectations and keep it with your records.

Relief Can Be Offered

Credit card companies can offer a variety of support during a hardship program. They may allow you to pay a lower portion of your minimum payment at a reduced interest rate or they may waive the minimum payment requirement for a certain number of months. While you can ask for specific relief, your card provider will ultimately determine your eligibility and repayment plan.

Some credit card companies post their preferences online. American Express states that it can temporarily lower your monthly payment and interest rate. While Wells Fargo indicates that it will lower your interest rates and may reduce the minimum payment.

Some providers may offer to increase your credit limit or the amount you can borrow. Be careful about accepting this option. If you are currently unable to make minimum timely payments, extending your credit and therefore your debt may not improve your ability to make payment in the future.

How Might a Hardship Program Affect You?

While a credit card provider is incentivized to help you make payments, it will still want to limit risk. There is a possibility that your lender may no longer allow you to make additional purchases while you are enrolled in the hardship program. This policy serves to limit your debt while you are unable to pay and to minimize the lender’s additional risk.

Credit Score Impacts

Your credit card provider may report to the credit bureaus that your account is in forbearance. FICO indicates that, “The placement and reporting of an account in forbearance or a deferred payment plan in and of itself does not negatively impact a FICO® Score.” This status can actually be beneficial to your credit health. If you do not contact your creditor before missing payments, it could likely report a delinquency to the credit reporting agencies which would adversely impact your credit.

Additionally, if you are unable to pay for 180 days, and are not enrolled in a hardship program, your card provider may report a charge-off. While a charge-off may sound like a solution to your debt problems, it has a strong impact on your credit score and could haunt you for years to come.

However, if your credit provider closes your account, this could negatively impact your credit score by reducing your available credit and potentially limiting the longevity of your open accounts. When speaking to a credit card provider, clarify how it will report this to the credit reporting agencies.

Budget Impacts

If your lender offers to reduce your monthly minimum payment or defer payments for a set timeframe, this can create additional space in your budget. However, the primary benefit is avoiding late payment fees and APR penalties.

If you contact your provider before you have missed a payment and are enrolled in a reduced payment plan, you can avoid late payments, as long as you are complying with the new payment plan. In some cases, late fees would accrue each month you do not pay on time and fees may increase each time the payment is late within a six-month cycle.

You also need to be aware that even if the interest rate is reduced, interest will still accrue on your credit card balance. This will result in paying more in interest over time. Using a hardship program is designed to help you stay on top of your payments and in good standing with your credit card provider. It may help provide a buffer in your current budget, but you will incur additional costs, usually in interest, down the road.

Bottom Line

Financial emergencies happen, so know you’re not alone. As soon as you become aware of an inability to meet your minimum credit card payment, reach out to your credit providers. Each has unique requirements for enrollment in a hardship program and there is no guarantee you will qualify. But if you have a good credit history and reach out before you are delinquent, you can increase the chances they will work with you.