Credit card debt can become challenging to manage before you fall behind on payments. Small budget increases, like higher grocery bills or unexpected car repairs, can make it tougher. If you’re already carrying a balance, the average credit card rate of 22.15% makes matters worse.
If your budget tightens, falling behind on payments isn’t the only option. Many credit card issuers offer hardship programs for those struggling due to job loss, income reduction, or other financial difficulties. These programs may offer temporarily reduced interest rates, lower monthly payments, or waived fees, depending on your circumstances.
The Impact of Enrolling in a Hardship Program
Enrolling in these programs can provide breathing room, but it also impacts how you use your card. Before enrolling, understand the implications for your account and consider if short-term relief outweighs any restrictions.
Will Your Credit Card Company Close Your Account?
Credit card companies can close your account when you enter a hardship program, but it’s not automatic. The outcome depends on policies, the offered hardship option, and your financial situation.
Some plans allow accounts to remain open but may suspend your ability to make new purchases. Others close the account and modify repayment terms for the remaining balance.
Closing the account or limiting card use makes sense for issuers. It prevents further debt accumulation while offering relief. A closed account means you still owe the balance, with payments according to hardship arrangements, often with lower payments or interest rates.
This account closure can affect your credit. It reduces available revolving credit and may increase your credit utilization ratio, especially if you have balances on other cards. Previous payment delinquencies may linger on credit reports.
Ask detailed questions before enrolling in a hardship plan. Determine if your account will be closed, if your credit limit will change, the program duration, new payment terms, and post-hardship conditions.
Considering Other Debt Relief Options
If a hardship program only offers temporary relief, explore other debt relief options to prevent accounts from falling further behind. A debt management plan, for instance, may consolidate payments and reduce rates or fees.
A debt consolidation loan rolls multiple high-rate balances into one with a generally lower rate. Debt settlement aims to negotiate a reduced debt amount, typically decreasing debt by 30% to 50%, ideal for serious financial hardship, but with risks.
The best option depends on your financial state. If temporary payment reductions are enough, start by working with your issuer. If those don’t suffice, consider broader debt relief strategies.
Conclusion
Entering a credit card hardship program might not lead to account closure, but be prepared for that possibility. Your card could be frozen or restricted while you repay the balance. Terms vary by issuer and program. Before enrolling, clarify the effects on your account and credit line, the duration of terms, and monthly obligations. If the hardship plan is inadequate, explore sustainable debt relief options.