Hellocredit card hardship everyone, I’m Joshua Rodriguez and thanks for swinging by to read my debut post here at Debt Roundup. Today, I’m going to talk about credit card companies and their recent willingness to help consumers who are struggling with overwhelming credit card debt. This help comes by way of financial hardship programs and after reading this article, you will know what they are, why lenders are willing to give a helping hand these days and, if your situation justifies a credit card hardship program. So, without further ado, lets get right to it!

What Are Credit Card Hardship Programs?

Credit card hardship programs are debt relief programs designed by the lender or lenders that issue your credit card or cards. Each lender that does offer hardship programs will have different terms and conditions of how the program will work. However, for the most part, the credit card will be closed and reported to the credit reporting agencies as closed by the consumer (Looks a lot better than closed due to non-payment).

Once the account is closed, a representative of the lender will ask a few questions to get a good gauge of how severe the financial hardship actually is. Based on the answers to these questions, a payment plan will be created that is agreed upon by both parties. Generally, through credit card hardship programs, the payment plans created will require a 60 month commitment at a much lower payment than the consumer is paying right now. The interest rates on credit cards that have been placed into a hardship program are generally reduced to between 0% and 5% as well.

Why Are Lenders Willing To Provide Hardship Programs?

If you think of it from the lender’s point of view, it’s hard to stomach a willingness to take such a loss to help others. So, why is it that they are willing to reduce interest rates to as low as 0% for the life of a debt, relieve consumers of annual fees and even help to structure an affordable, yet aggressive payment plan? What’s in it for the bank? Well there are a couple of things…

  • Companies willing to help a consumer in times of need is a good lender to work with. Being known as that bank will surely bring in more customers!
  • Higher Percentage Of Returned Loans – If you are facing a real financial hardship, there are only a few effective options. The easiest one seeming to be bankruptcy lately. If you file bankruptcy, the lender will have to write off your debt and, take a loss! Losing on interest and fees is much easier to stomach than losing on a principle balance!

Who Qualifies For Financial Hardship Programs?

As with any financial option, credit card hardship programs are not designed as a one size fits all answer to debt. There really is no such thing. That being said, below are the characteristics that lenders generally look for in credit card hardship program candidates. Most lenders will require that you meet all criteria below before approving you for a hardship program.

  • Loss Of Income Or Increase In Expenses – An unavoidable financial hardship can only be caused by a sudden loss of income or increase in expenses. Therefore, lenders often asked, what caused your financial hardship. They are looking for something like “I lost my job…”, “My hours at work were cut…”, “My daughter moved in and I’ve covering her expenses…” or “I’ve been diagnosed…”. There are tons of examples that I could give but, I’m sure you get a good idea from those above. If you’re not sure if your situation qualifies as a hardship, leave a comment (it can be anonymous) and I’ll give you the best answer I can.
  • Low Monthly Resources – The change in income or expenses must be enough to cause a lack of available funds on a monthly basis. To figure out if you qualify, add up all of your expenses. Now, subtract your total from your total, net monthly income. If your are left with less than $200, chances are you will qualify for most hardship programs.

What Are The Cons Of Hardship Programs

Let’s face it, there is no debt relief option that has no downside. This is no different with credit card hardship programs. The good news is, there really isn’t much to be concerned with. Because you are closing your credit card, you will notice a reduction in your credit score. The good news is, the reduction won’t be as dramatic as most other debt relief options would cause. Another thing I don’t like about most programs is that if you miss more than 2 payments through the term of the program, you will be kicked out and your card will remain closed at the old terms. But, you can generally sign up for auto pay to avoid missing a payment.

A Quick Checklist For After You’ve Completed A Financial Hardship Program

  • Open A Savings Account – Any financially stable consumer most likely has a savings account and adds to it at least on a monthly basis. This is the best place to start when it’s time to get back on your feet.
  • Open New, Positive Lines Of Credit – Positive lines of credit have been proven time and time again to help to improve credit scores. When fixing the damage caused by financial hardship programs, it’s best to start using a credit card designed for this purpose. Some examples of cards like that are the Horizon Gold card or the First Progress credit card.
  • Use Your Credit Card Responsibly – Just having a new credit card will do nothing for you. It’s important that you use the credit card responsibly and follow basic rules like “Keep your balance below 50% of your credit limit.”, “Make your payments early.” and “Try and pay off your balance completely on a monthly basis.”.

That’s All For Today, Thanks For Reading!

I hope that you’ve enjoyed my debut post! If you have any questions, concerns or even unrelated questions, feel free to get in touch by leaving a comment below or connecting with me on Google+!

Photo courtesy of CreditCards.com