As consumers, we have an interesting view of major banks. When we look at their sky rises, it’s easy to see that they are for profit companies. We often think that they don’t care about us as individual consumers; instead, they look at us with dollar signs over our heads. When the dollar sign goes away, they don’t pay attention to us and move to the next customer. However, that’s not necessarily the case. Financial hardship programs are proof that some lenders really care about their customers. We’ll get into why I say that later. Nonetheless, today, we’re going to talk about credit card financial hardship programs. I’ll answer the most commonly asked questions, explain exactly what they are and why lenders offer them, help you create a test to see if you would qualify, and give you a few tips for improving your credit scores throughout the process. We’ve got quite a bit to talk about, let’s get right to it…
What Are Financial Hardship Programs?
Financial hardship programs are payment programs offered by lenders to help those who have come across hard financial times. Under these programs alterations are made to the payment schedule of a debt to make it easier for the debtor to pay the debt back in full. The changes often include reduced interest rates and fixed payment structures. Financial hardship programs can include a change in payment structure for a short period of time or for the life of the loan.
Frequently Asked Questions About Financial Hardship programs
Will I have to close my credit card account to take part in a financial hardship program?
In most cases, the answer is yes. 90% of the time, the lender will close your account to future purchases. However, 10% of the time, the lender will put a hold on your credit line until you’ve completed the program. For instance, Discover bank offers a short term financial hardship program in which they reduce interest rates for 12 months and provide a more affordable payment. During the 12 month period, the card holder will not be able to use the card for purchases. However, after the hardship program is complete, the card will be able to be used for purchases again.
Will signing up for a financial hardship program negatively impact my credit score?
In most cases, your account will be closed. On your credit report, it will show “closed upon consumer request”; which is much better than “closed due to non-payment”. Nonetheless, there are a couple of reasons that closing a credit card would have a negative impact on your credit score. Here they are…
- Debt To Available Credit Ratio – If you close your credit card, chances are, you’ll be closing off some type of available credit. Therefore, as soon as you close your account, your debt to available credit ratio would go up. Once this ratio goes past 50% it starts to negatively impact credit scores.
- Average Age Of Accounts – If you close one of your older revolving accounts, the average age of your accounts will go down. As a result, there could be a minor negative impact on your credit score.
Now I’ve got a question for you. Do you really care? I know that credit scores are important. However, if you’re signing up for a financial hardship program, chances are you’re overwhelmed by debt. If the program you sign up for gives you a way to pay your debt off more comfortably, wouldn’t it be OK to rebuild any damage done to your credit score later? If I was overwhelmed by debt personally, I would want to get out of debt as fast as possible and worry about cleaning up the mess once I had the money to deal with it.
How much money would my monthly payments be reduced by?
To be honest, there’s really no way to tell that without actually calling your lenders. Each lender has their own terms for financial hardship programs. I’ve seen payments reduced by 10% and I’ve seen payments cut in half. The only way to really know what you qualify for will be to call your lender.
Are there any good alternatives to financial hardship programs?
Absolutely, there are alternatives to just about everything in life. When it comes to debt relief, credit card debt consolidation, home equity lines of credit, credit card debt settlement, even budgeting can all be alternatives to financial hardship programs. If you’re not familiar with all of your options, it’s best to do your research before you make a decision. It may also be a good idea to talk to a professional to see what your best option would be. If you’d like my help, scroll down to the bottom of this article and fill out the form to request a free consultation!
Do all lenders offer financial hardship programs?
Unfortunately, the answer is no. Not all lenders offer help for those who are struggling to make their monthly payments. However, most major lenders do offer these programs. In my experience, about 80% of lenders that I’ve worked with offer one form of financial hardship program or another.
How To Sign Up For Financial Hardship Programs
Although you may think that to get help from your lender you’re going to have to jump through hoops of fire, that’s not necessarily the case. Believe it or not, most lenders that offer hardship programs will bend over backwards to help you! Here are the steps you should take if you would like to sign up for a financial hardship program.
Step #1: Get Prepared – No matter what you’re doing, it’s best to get prepared before you jump into action. This is no different when it comes to credit card financial hardship programs. Getting prepared to sign up is pretty simple…
- Make a list of all of your credit card lenders. In your list, you should include the name of the lender, customer service phone number, amount owed, minimum payment, interest rate, and pay to address. Once you’ve got your list, order the entries from highest interest rate to lowest. This way, you’ll know which debt is best to start with first.
- Make an income and expense sheet if you don’t have one already. In terms of income, you should include salary, renters income, side hustles, and any other forms of reliable monthly income with the exception of any child support or alimony payments you may have. Now, add your expenses to the spreadsheet. Your expenses should include rent, utilities, secured loan payments (car, truck, motorcycle), unsecured loan payments (credit cards, signature lines of credit), insurance, medical expenses, child care, gas for your car, and any other monthly expenses you have in your household.
Step #2: Call Your Lenders – Starting with the lender that charges you the highest interest rate, it’s time to start giving your lenders a call. When you call, chances are you’ll be greeted with some sort of automated system, choose the option to speak with a live representative. Once a live representative asks how they can help, say something along the lines of “I was wondering if you offer any form of financial hardship program. I’m going through…(what caused your hardship)… and I’m doing my best to make my payments, but I don’t know how long I can continue to make payments at the current terms.” Now be quiet!!!
From here, your representative is going to do one of two things. They are either going to inform you that the lender has no such programs and give you information on other debt management programs through non-profit sources, or they will transfer you to the financial hardship department. If there are no programs offered, mark that on your list and move on to your next lender. If you’re transferred to a financial hardship department, continue to step #3.
Step #3: Working With The Financial Hardship Representative – This is actually one of the easiest steps because the representative will guide you through the conversation. The important thing here is to be honest in answering all questions the representative brings up. They will most likely ask what caused your hardship, questions about your income, and questions about your expenses. Don’t hold back, they are honestly trying to help!
Once all questions have been answered, the representative will most likely place you on a brief hold as they pull up your options. Almost every time I’ve helped someone through this process, there are 2 options. The first option is a short term program designed for those who feel the hardship will last 12 months or less. The second option is a more long term, often times 60 month payoff plan with great terms. Even if your hardship seems to be short term, there are no guarantees. So, it’s always best to choose the long term option.
Step #4: Follow Through On Your Agreement – A major clause in most hardship programs is that if you miss 2 payments throughout the process, you will be kicked out of the program and you will have to pay at the original terms of the lending agreement. Don’t let this happen. One of the best ways to maintain your lowered payments is to set up an automatic draft. Most lenders that offer these programs offer auto-drafts to give you a way to make sure you are able to stay in the program until your debt is payed off.
Building Your Credit After Completing The Program
As I mentioned in the beginning of this post, financial hardship programs do have a negative impact on credit scores in most cases. However, as you move toward the end of your program and your debt is quickly being paid off, the damage done by the program becomes minimal. It’s at this point that you want to start working on your credit scores. Here’s a quick step by step guide to help with that…
Step #1: Open A Secured Credit Card – I know, it was the use of credit cards that got you into this mess. Nonetheless, credit cards are important financial tools, especially when it comes to building credit scores. So, instead of looking at your new credit card as a spending limit, view it for what it is; it’s a financial tool and nothing more!
Secured credit cards only have one major difference from standard credit cards. The difference is that they require the borrower to place a security deposit. This alleviates the lender of some of the risk involved in loaning money to those with poor credit. Don’t worry, the deposit is refundable!
Step #2: Use Your Credit Card Monthly, But Don’t Overindulge – It’s important to use your credit card monthly so that you show constant activity. However, it’s also important that you keep a manageable balance. A good rule of thumb is “Don’t spend anything on your credit card that you can’t afford to pay back in 2 weeks.”
It’s also important to think about how your credit line affects your credit score. If you use more than 50% of your credit line, you may be giving off signs of poor borrowing practices; even if you can afford to pay it off in 2 weeks. So, it’s important to keep your balance below 50% of your limit while building your credit scores!
Step #3: Build Aggressive Payment Habits – It’s awesome to pay bills on time, but it looks much better on your credit report when you pay them aggressively. This means paying them early, often times sending in multiple payments in one month. The idea here is to make sure that you pay your balance off entirely before the grace period. In doing so, you’ll avoid any interest that you would generally be charged on the balance and shine in the eyes of credit reporting agencies!
Step #4: Maintain Solid Financial Habits – Being in debt sucks! Once you get out of debt, you’re not going to want to put yourself in that position again. Unfortunately, I’ve helped people kick their debt’s butt. 2 or 3 years later, I got a call from the same people to help with the same problems. Don’t be one of those people. Always maintain solid financial habits so that you’re never in a position of overwhelming debt again.
Are You Looking For Help?
When you’re in debt, the entire process of getting out and getting your feet on solid financial ground can seem a bit overwhelming. If you’d like help with any of this process, or would like to discuss other options you may have, fill out the form below to request a free consultation. I’d love to help!
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