What Is a Credit Card Hardship Program?

If you're struggling financially and worried about damaging your credit or paying late fees, a credit card hardship program could help. These hit the mainstream in 2020 as millions of Americans faced credit card hardship due to the COVID-19 pandemic.

But taking advantage of these programs can have consequences. And, depending on your financial situation, they might not always be the best way to handle your credit card debt. Here's a look at the pros and cons of credit card hardship programs -- as well as other strategies for dealing with debt when a financial emergency hits.

What is a credit card hardship program?

A credit card hardship assistance program is a plan designed to help you avoid falling behind on your payments if you're experiencing financial hardship (such as the loss of your job). Credit card issuers that offer them may lower your interest rate, waive fees, or even enable you to defer your credit card payments, possibly for several months at a time.

Advantages of credit card hardship programs

There are several distinct advantages to using a credit card hardship program:

• You won't incur additional fees or damage your credit history. If you take advantage of one of these programs your card issuer is legally required to report your monthly payment status to the credit bureaus as current as long as you're enrolled.
• They're usually pretty easy to enroll in. Most credit card issuers have dedicated pages on their websites regarding their financial hardship programs. And you can always contact the issuer directly if you have questions about how the hardship plan works.
• Once you're enrolled, you can use your remaining cash to pay other bills. It's smart to prioritize paying bills owed to companies that don't offer any type of hardship assistance. That way, those bills won't ruin your credit and hurt your ability to open new loans or credit cards in the future.

Disadvantages of credit card hardship programs

But hardship programs come with a couple disadvantages as well:

• While you're enrolled in hardship assistance, your balance usually continues to accrue interest. This can make it more difficult for you to pay the lender back what you owe when you do have to start paying again. You could avoid this by paying the interest that accrues every month, but not everyone can afford to do so.
• Your credit card company may also reduce your credit limit or close your account if you enroll in its credit card hardship program. This isn't necessarily a bad thing, though it could be problematic if you don't have another means of payment for your other bills.

Alternatives to credit card hardship programs

If you don't think a credit card hardship program is a good fit for you, here are some other strategies you can try.

Use a balance transfer card

A balance transfer card has a 0% introductory APR -- so your balance won't accrue interest until the introductory period ends (usually 12-18 months). Every payment you make during that period will go toward paying down your debt.

However, there's usually a fee for transferring a balance. Also, you may not be able to open one of these cards if you've lost your income.

Take out a personal loan

A personal loan gives you a lump sum you can use to pay off your credit card debt. You then make regular monthly payments going forward. You may be able to pay a lower interest rate than you would on your credit card. Most personal loans are unsecured loans, which means you don't need to put up any collateral -- the bank can't take your home, car, or other possessions if you can't pay. If you stop making payments on a personal loan, it will tank your credit score, however.

But, like balance transfer cards, you may have difficulty getting a personal loan if you don't have a steady source of income right now. You'll also need a strong credit score to qualify for a personal loan with an interest rate much lower than the average credit card.

How to negotiate debt settlement on your own

If you don't have any other options, you can negotiate your debt with your creditors.

The credit card settlement process usually involves you explaining your situation and telling your creditor how much of your outstanding debt you're able to pay. If your creditor agrees to this amount, it will forgive the remainder of your debt and report the settled debt on your credit report. This is not as good for your credit as paying off your debt in full, but it's better than accumulating late fees.

You can do this entirely on your own, but if you're not sure how to settle credit card debt by yourself, you can enlist help. Private debt relief companies will negotiate with creditors on your behalf. The industry has a reputation for being shady, however, so make sure you research the company carefully first. Look at customer reviews and ensure it's appropriately licensed with your state Attorney General (if your state requires this).

Find a strategy you know you can stick with

It's best to review all of your options before deciding whether to enroll in a credit card hardship program or try one of the other debt management solutions listed here. Financial emergencies often strike without warning, but with the above options, you can start working toward a better situation.