Debt Relief Hardship Programs

Debt relief hardship programs are often thought of as government loans for qualified low-income borrowers. These government hardship programs are for government-subsidized student loan programs, and more recently the government initiated loan modification plans for distressed homeowners. But what about hardship programs for consumers with credit card debt?

Luckily for those with credit card debt, hardship programs are also offered by credit card companies. According to Consumer Reports, nearly 2.7 million Americans received debt relief for their credit card debt in 2008.

Does Your Creditor Have a Debt Relief Hardship Program?

A debt relief hardship program is not something a credit card company would typically advertise in their brochure, and if your company has such a program, it is not likely that you will find information about it on their web site.

However, just because the information is not readily available does not mean the credit card company does not have a debt relief hardship program. "Most creditors have some type of short-term (six months to a year or so) hardship program to help lower monthly payment amounts," writes Steve Bucci of Bankrate.com. "Some even forgive some interest, fees or principal." Usually the only way to find out is to call customer service and ask.

Your first step is to look on your bill for a statement such as, "If you're having trouble paying your bill" followed by a toll-free number. When you call, simply explain that you are having a hard time with your bill, and you want to talk with someone about making a payment arrangement.

It may be difficult to locate the right person or department, since regular customer service agents may not even be aware of such a program. They also may not recognize it by the name "hardship program" if your credit card company has a different name for it. However, these hardship programs are managed by the credit card companies themselves, not third party credit counseling or debt management services. So if they have a hardship program, someone at the company will have information that will help you.

Be persistent. You may need to talk to a few people or call back a few times before you reach someone who knows about the program. Once you do, ask them:

• How to qualify.
• How long their programs are.
• How they report it to the credit reporting agencies.
• If their programs forgive any principal, fees, or interest.

Very importantly, don't assume that their first offer is the only one. Do not enter into an agreement unless it is affordable and reasonable to you. The creditor will throw out a number—feel free to throw one back at them until you come to an agreement.

How Does Participation in a Hardship Program Affect Your Credit Score?

Naturally, many financial problems affect your credit score. How your participation in a debt relief hardship program affects your score depends on how your lender chooses to report it to the credit reporting agencies. Some lenders will not make a negative report as long as your account is not canceled during the hardship program, and others may delete negative references once you have completed the program. In addition, your credit may be restricted or your credit limit reduced. Once you are in a conversation with the right person, ask them how the company reports the arrangement to the credit bureaus and whether there will be changes made to your line of credit.

If you are looking into hardship programs, chances are your credit rating already has been negatively impacted. Although your credit score may temporarily drop because of participation, in the long run debt relief hardship programs should help improve your credit strength by helping you get back on track without canceling your credit lines completely and helping you avoid missed payments, both of which will cause further damage to your credit score.

Qualifying for Debt Relief Hardship

Each lender will have different qualification requirements, so ask them what you need to do to qualify. After you tell them you would like to be a part of their hardship program, the credit card company will want to know some essential details, including the nature of the hardship.

Be prepared with information about your income, expenses, and debts. Do not try to appeal to their sympathetic side. Stick to the facts. For example, if some unexpected medical bills put you in debt, simply state that fact, tell them how much the medical bills are, and when they need to be paid. You do not need to go into details about your operation—they are only interested in the numbers.

Finally, once you do get onto a credit card debt relief hardship program, stick to it. Make your payments on time, every time. If you miss a payment, the lender can (and probably will) revert to the original payment plan. This will not only hurt your monthly budget, it will also hurt your credit score at least for the short term.