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 programsWill 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.
How To Sign Up For Financial Hardship ProgramsAlthough 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.