5 Common Myths and Facts about Credit Card Hardship Programs

In times of economic hardship it happens many times that people loose their income and are not able to pay their regular credit card payments. Luckily, bankruptcy is not the only way to get rid of all this.

Many lenders offer credit card hardship programs for individuals and families that suffer from any financial stress. These lenders includes Discover, American Express, Bank of America, Chase, Capital One, Citi, HSBC, and GE Money.

What is a Credit Card Hardship Program?

Basically a credit card hardship program is a debt settlement agreement between you and your credit card issuer.

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Owing to this agreement they may lower your APR, reduce your monthly payments to a level that is affordable for you, and they may also delay your payments for a fixed period of time (typically, 6-12 months).

Be Aware of the Myths and Facts of credit card hardship programs

However, there is nothing in this life that is all perfect. There are several potential downsides that are associated with the credit card hardship programs. So before that you rush to call your bank representative and ask them for new terms, make sure that you are aware of the difference between common myths and their facts.

Myths and Facts about credit card hardship programs

Myth # 1: Any cardholder having a large debt is eligible for a hardship program.

Hardship programs are designed particularly for hardship situations, like temporary loss of job, medical problems, divorce, death of a spouse, a death in the family that caused unexpected significant expenses, etc.

In order to qualify for a hardship program you have to explain your bank the reason that why you can’t afford your existing terms.

If just that you have a huge debt or you have exceeded from your card limits and you don’t like your high interest payment, then don’t think that it is a guarantee that you will be able to negotiate a hardship program with your lender. There should be a particular reason for this type of negotiation, as mentioned in the lines above.

Myth # 2: You would be able to reduce your credit card balance up to 50%.

There are no possibilities that your lender will reduce your balance as part of a hardship program – unless they analyze your situation and conclude that you are heading towards bankruptcy.

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There is a simple reason behind this and that is credit cards are unsecured loans. What it means is that if a bankruptcy is declared by you, the credit card company won’t get paid at all. While in rest of all other cases your lender will reduce your monthly payments and interest, but not your debt and you still have to pay off your debt in full.

Myth # 3: Your credit score won’t get hurt by a hardship program.

If you are trying to settle your credit card debt, your credit score won’t be damaged but it will be damaged by defaults on your account. You do not become eligible for many lenders unless you’ve been missing several payments in a row – at least 60 days late. Definitely It will take your points away.

Second thing is that, on your credit report enrolling in a hardship program can be noted, for instance, “in order to make partial payments arrangements made with credit card issuer ”.  This statement will lower your credibility in the eyes of potential lenders.

Myth # 4: Your credit card account won’t be affected by a hardship program.

Do you think that you would be able to use your credit card with a zero balance after you have made all payments? No this is not the case. When you have entered into a hardship program then it closes your account, so your card will be nothing but a useless piece of plastic.

That’s the part of the deal! Banks are not interested in lending money to those people who are not able to make full payments. So don’t be surprised when you get your new credit report and see that your lender has closed all your credit cards accounts that entered into a hardship program.

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Myth # 5: You may forget about any credit card debt that a lender has canceled.

You may receive 1099-C “cancellation of debt” tax notice, if in case you settle your credit card debt for a lesser amount than you owe. Are you surprised to know that? It is due to the reason that any lender who agrees to accept at least $600 less than the original credit card balance has to file 1099-C forms. IRS considers this forgiven debt as an income. For this reason your beneficial lump-sum settlement doesn’t mean that all issues are resolved – don’t forget to consult with a lawyer.

Take a look at all pros and cons of a credit card hardship program before enrolling

For borrowers who can’t make even the minimum payment due to the missed work or unexpected medical bills, a  credit card hardship program may be a good solution . Under that agreement, your bank may lower your interest rates and monthly payments to a reasonable amount that you can afford to pay off.

However, remember that credit companies are businesses, so they are aimed at keeping your account in good standing to get their money back. So before getting enrolled in a credit card hardship program take a deep look at all the pros and cons of this program.

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2 Responses to “5 Common Myths and Facts about Credit Card Hardship Programs”

  1. PS:Have you thought putting video to this blog to keep the people more interested?I think it works.

  2. Nice info- it is important that people know the difference between common myths and facts.
    I agree that it is important to look at pros and cons of a credit card hardship program before enrolling!

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