We’ve all been there…things seem to be going great, then out of nowhere, your spouse loses their job, or you are hit with an unexpected medical emergency. You are suddenly faced with mounting bills and late payments everywhere you turn. Sometimes you just need a little help to get your finances back on track!

What is a Consumer Hardship Program?

If you’ve been looking for options for any amount of time, you have probably heard of debt management or debt consolidation programs. But a consumer hardship or credit hardship program is actually a little different. These are programs that almost all credit card companies have in place in order to give their borrowers a little reprieve during difficult times. Usually, if you are approved for a hardship program, your interest rate and/or payments will be reduced for a specified period of time.

How to Qualify for a Consumer Hardship Program

Most companies already have these programs in place and you may even be able to find information about them on your credit card company’s website. Companies like Capital One and Discover even have sections on their websites dedicated to questions about the subject. But even if you can’t find anything on their website, that doesn’t necessarily mean they won’t work with you.

Every company is different as to what documentation they require to determine your eligibility, so it’s best to call and talk to someone in depth about your situation. Ask for your company’s hardship department and speak with someone about the requirements. Some companies require written letters while others will be able to take your information over the phone.

Depending on the program your creditor offers, they may require you to provide documentation of your circumstances. Be prepared to fax copies of medical bills or bank statements to plead your case.

How Does Consumer Hardship Affect Your Credit?

Because every creditor operates a little differently, it’s impossible to predict exactly how it will affect your credit should you choose to enroll in a hardship program. Most of the time, if you are considering entering into this type of agreement, you’ve already come to the conclusion that you don’t have a choice — that it’s either this or default on your payments. In this case, even if your credit takes a ding, it will certainly be better than a defaulted account.

The best thing to do is to find out directly from your creditor what their reporting policy is. Some creditors may require you to close your account, while others still report timely payments. Talk to them about their policy and make the best decision for your circumstances.

How to Bounce Back

Once you have everything squared away with your credit card company and have reached a reasonable agreement, you are now responsible for making sure you stay on top of things. In other words, these programs offer very little flexibility. If you miss one payment, they have the right to revoke the agreement at any time and are unlikely to renegotiate. In fact, most creditors have strict policies about only offering these programs once or twice in a lifetime to their consumers. So, be certain you have agreed to terms you can live with and do your best to stay ahead.

Credit Hardship Alternatives

When you are dealing with one or two accounts that are falling behind, it really is best to negotiate with your creditors for the best possible solutions. However, if your creditors refuse to work with you, you may be forced to find another alternative. Here are a few to consider:

  • Credit Counseling — credit counseling organizations are often nonprofit agencies that specialize in teaching consumers to better manage their finances and get out of debt. They help with budgeting and will sometimes negotiate with creditors on your behalf.
  • Debt Settlement — debt settlement companies negotiate with creditors on your behalf, working to slash your balances. They typically set up an account for you and when it reaches a certain amount, they are able to use it to settle debts. This usually means these accounts will be closed and they are settling for you in lump sums.
  • Consolidation Loans — debt consolidation programs work by negotiating with your creditors for reduced balances and then issue you a loan to pay them off. You will then be making just one payment to the consolidation company rather than multiple payments to various creditors.

Conclusion

Consumer hardship programs are developed by credit card companies in an attempt to keep their borrowers from defaulting on payments.

Just remember — when talking to your creditor’s hardship department that they would rather get some money from you rather than none. This is what gives you a little bit of an edge in negotiations.

And if you must use an alternative program such as debt settlement or consolidation, be sure to do your research and choose the one with the best terms. You are, after all, putting your credit in their hands.

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