More than half (56%) of credit card holders in the U.S. have carried a balance for more than a year, according to a 2019 survey done by CreditCards.com.
The same survey showed that more than one-third (37%) have carried a balance for two years and nearly one-quarter (23%) haven’t paid off their credit card debt in more than three years!
In short, there are millions of customers who could use some help getting control of their credit card debt. What they don’t realize is that many card companies offer (very quietly) hardship programs that could bail them out.
“American Express is always ready to assist card members who are facing financial difficulties,” Kirsten Anne Schmitt, manager of corporate affairs and communications for American Express, said. “We work with members to find the most equitable solution for their particular situation, which can include financial relief through reduced payments and interest rates and the waiver of certain fees.”
Bank of America spokesperson Betty Riess laid out a similar plan.
“Our objective is to help customers who may be experiencing financial hardship and we provide a number of tools to assist customers, such as lowering the interest rate and reducing payments or eliminating fees,” Riess said.
Some of the unpaid are just slackers who probably could take care of the problem, but aren’t motivated to do so. Most, however, are low-to-middle income people who hit a financial wall and don’t have the resources to climb over it.
Card companies know that, but they’re not all that interested in telling customers about the hardship programs. American Express and Bank of America were the only companies to respond to repeated inquiries about financial hardship programs.
What Are Credit Card Hardship Programs?
The responses from American Express and Bank of America very nicely describe what hardship programs do for financially-troubled consumers:
- Reduce interest rates
- Reduce monthly payments
- Waive late fees
It’s the corporate answer to debt management programs offered by nonprofit credit counseling agencies. The card companies take a look at your income and debts and try to figure out how much you can comfortably afford to pay every month, until you eliminate all of your debt.
They help consumers get there by lowering the interest rate on debt from 20%-30% down to 7%-8%. In some cases, they might drop the rate down to O% so you can at least pay down the principal.
That reduces your monthly payment and, if you’re serious about this, should be a motivation to pay off the debt in full.
What Qualifies as Financial Hardship?
To be fair, not every struggling card holder qualifies for a card company’s program. Skipping payments for a month or two isn’t going to get you in a hardship program.
The usual reasons for qualifying are pretty obvious: Job loss; long-term illness; severe accident and subsequent medical bills. Few people are prepared to confront those situations, especially those living week-to-week or even month-to-month.
When money gets tight, credit cards come out to cover everyday expenses like food, housing, transportation, utilities, etc., and the balance grows so quickly that there seems no chance of catching up.
How Do I Sign up for Financial Hardship Program?
It should be a simple as calling the customer service number on your credit card and telling the representative your situation. You may have to submit documentation to prove the point that you’re desperate, but it usually isn’t necessary to begin the process with a letter to the creditor asking for help. One phone call should do the trick.
As mentioned, card companies don’t give away these opportunities easily, which could be why they don’t promote the programs. They’d rather not have to verify information with employers and doctors in order to get paid what they’re owed, but they will do it if the situation warrants.
Before making the call for the hardship program, be prepared to document the circumstances that put you in a bind. Do some budgeting work that shows, with a little help, you could solve this problem. Show them you’re ready to take advantage of the concessions they’re making.
Basically, there needs to be a good enough cash-flow in your budget to afford the monthly payment that will come out of your bank account. You should be operating from an austere budget, one that no longer includes unnecessary expenses like cable TV, visits to restaurants or clothes-buying sprees.
The biggest change will be no longer using your credit card until you pay off the balance. That is meeting the card company halfway in terms of making a concession to solve the problem.
“This is a program for people who are already in temporary financial hardship,” Schmitt said of the American Express program. “A card member will not be able to put additional charges on their card while they are participating in the program.”
How Hardship Programs Affect Credit Scores
Hardship programs have an impact on your credit score that’s good and bad.
The good news is that if you make on-time payments to reduce or eliminate your debt over a sustained period of time, your credit score can actually improve.
The bad news is your credit score is going to suffer for a while, at least until you’ve shown progress at paying off your debt.
The major impact comes from suspending or eliminating use of your credit card. Either one adversely affects your credit score. If the card is closed, you will see your score drop immediately. Closing an account affects four major areas of your credit score: payment history (35% of FICO score) credit utilization ratio (30%); length of credit history (15%) and mix of credit (10%). If you
If your card is suspended, it means it will be declined the next time you use it, but the account is not closed, which is a good thing. It’s an attempt to keep the consumer from going further into debt and a reminder to pay down the balance. Pay heed to the reminder.
The best outcome is if the card company “re-ages” your account, which would help repair your credit score. The “re-aging process” begins after you have made at least three on-time payments on your account. Re-aging will bring the account current with the three major reporting bureaus.
Be aware that re-aging may not be offered if the account is more than 90 days past due.
Other Types of Credit Card Assistance Programs
Hardship programs are nearly identical to the debt management programs offered by nonprofit credit card agencies like InCharge Debt Solutions. Both programs make it easier to afford the monthly payments by lowering interest rates and eliminating fees.
There are, however, some differences that should be considered before deciding between the two.
- Debt management plans are 3-5 years long, which helps lower the monthly payments to affordable levels. The card companies would like the debt paid off in 6-12 months, though they can extend the time frame, if they choose.
- Most consumers have multiple credit cards, which means they would have to call and negotiate a deal with each card company. If you only have one or two cards, that might be doable. However, if you have three or more cards, it’s probably best to let the nonprofit agencies step in and do the negotiating for you. They work with the card companies on and know how far to push.
- The debt management programs have a monthly service fee of $20-$60, depending on what state you live in. The card companies don’t charge a fee. They want you to pay off the balance as quickly as possible.
- The debt management programs are designed to help you get on an affordable budget; increase your financial literacy and pay off your debt. The card companies primarily are interested in getting your debt paid off.
“Generally, we evaluate the individual customer situation and propose an appropriate, customized solution, BoA’s Riess said. “We also may refer customers to non-profit credit counseling agencies that provide a more holistic solution if the customer has debt with multiple issuers.”