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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 coronavirus pandemic.
But these programs can have consequences. And, depending on your financial situation, they might not always be your 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 handling debt when a financial emergency hits.
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. Companies 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.
If you don't think a credit card hardship program is a good fit for you, here are some other strategies you can try.
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 if you've lost your income.
A personal loan gives you a lump sum you can use to pay off your credit card debt. You then make set regular monthly payments going forward. You may be able to pay a lower interest rate than you would on your credit card. This is an unsecured loan, 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.
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.
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 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 a little 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).
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.
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