What are bank sponsored credit card hardship payment plans? Banks reach out through the phone and with mailers and offer a number of options to their credit card customers who miss payments. Most of the large credit card banks are willing to work directly with you shortly after you miss a payment. Hardship payment programs are a banks loss mitigation effort for credit card debts. The larger lenders have well established and effective strategies that are often fair and measured to your ability to pay. The problem is… they only offer them to you when you fall behind.
Short headline grubbing break:
There is no shortage of media coverage that touches on how difficult it is to modify an underwater mortgage; get mortgage payments reduced to a level consistent with a homeowner’s ability to pay; get approval on a short sale etc. Banks who originated, and/or service home loans people are struggling to pay are either insincere about, or ill equipped to provide, solutions to the housing implosion they helped to create.
How banks are dealing with those unable to pay credit cards is nearly the opposite.
How to get your bank to talk to you about a hardship payment for your credit card.
The first step is to talk to your creditors about your situation. Yes, the same credit card banks that may have jacked up your interest rates, or lowered your available credit limits – even when you paid them on time.
You may have already tried talking to your credit card banks about lowering your payment in the past. The hardship you explained to the customer service rep probably did not seem to matter.
That is primarily because the person you are speaking with is generally not empowered to make any changes to your payments, even if they wanted to, if your payments on the account are current. The same banks that are unwilling to work out lower and more affordable monthly payments with you when you were current are often willing to work with you if you have fallen behind.
If you are reading this section of the debt relief program after having missed credit card payments, you already know that banks start reaching out to you with phone calls, emails, and letters right away. Banks know that constant “reminders” that you are late with a payment increases their potential to get your credit card back on track with some type of payment. Many of the larger credit card issuers will reach out to you and offer lower monthly payments within days of missing a payment, while some banks won’t offer a lower payment option until you are weeks to a month or more late.
In the prior section of the our debt relief education, we covered how lower monthly credit card payments are available through consumer credit counseling services and companies offering debt management plans. More banks began making direct offers to account holders when payments were missed after the economy began dipping into recession. The payment reduction a bank may offer direct to you comes from their willingness to reduce your interest rate temporarily, or over the life of the repayment plan.
You do not need to send a hardship letter.
Drafting and sending a hardship letter to your credit card bank is totally unnecessary. Hardship letters are something more consistent with what you would include when you are looking at a home mortgage modification, a short sale, or qualifying for some type of benefit or adjustment on your home loan. Qualifying for a hardship program with credit card debt is literally just a matter of a phone call, and qualifying in your credit card banks system for the payment reduction.
How does a temporary credit card hardship repayment plan work?
Hardship repayment plans will be different from one bank to the next. How late your payments are, how much you owe, your household expenses, all will contribute to what type of lower payment the bank will offer you in one of their internal hardship plans.
Bank sponsored lower monthly hardship repayment plans are accomplished by reducing your credit card interest rates.
Some hardship payment options have a temporary timeline. The temporary plans can last as little as 3 months and go as long as 12 months. Your payment is reduced because the creditor is willing to lower your interest rate for several months while on the the temporary hardship plan. Interest rates may be as low as zero percent on up to around nine percent. The creditors will often waive or eliminate any fees and penalties that were charged to your account when you are repaying through one of their hardship plans, but only after you make several payments on time.
Some, but not all banks, will allow the account to stay open when you are on a temporary hardship repayment plan. This would mean you could resume using the card when the temporary plan is over and you successfully made all of the payments.
The temporary plans are useful to someone who is only experiencing a hardship that is not expected to continue for any significant period of time.
How do long term hardship payment plans work?
Longer term hardship repayment plans offered by credit card lenders direct to their account holders did not become popularized until the economy started to take a dive a few years ago. Those banks offering long term plans, at the time of this writing, will close your account, freeze your interest rate at between zero and 9%, and amortize your monthly payment using your current balance. Your new lower monthly payment will be the same every month over a 60 month time period.
Some creditors offered long term plans during the worst of the recession, but now only offer temporary plans.
Long term hardship payments closely resemble how your debts are paid using a credit counseling service.
These “life of the balance” repayment programs closely resemble debt management plans available through a nonprofit counseling agency. One of the differences between using a credit counseling service, and setting up the hardship plans yourself, will be how many creditors you will have to contact in order to achieve the same result. And you may not be able to get the same results a counseling agency would get for you.
The credit counselor will only have to get your account details and your income and expense information from you once in order to start setting up your debt management plan.
If you have many creditors, and some of them do not offer the longer term hardship plans, you may be better off getting the lower monthly payments through a credit counseling service, rather than making all of the efforts on your own.
Your credit card bank will have some questions for you to answer before offering a hardship program.
Making calls to your creditors, or picking up one of the many calls they make to you, and then discussing lower payment options, will involve answering some qualifying questions. The information you will be asked for will focus on your monthly income and monthly household bills. Be ready to answer questions about what you pay for rent or a mortgage, how much you pay for phone and cable (cell phones too), utilities, groceries etc. How you answer these budget questions will impact what plan you qualify for, or if a reduced payment plan will be available at all. If your monthly cash flow shows money is too tight after you pay typical living expenses , you obviously cannot reasonably commit to any plan, no matter how good the terms.
Your bank, who want nothing more to collect on what you owe, may actually tell you that they don’t want your money!
If your income and expense exercise shows you have too much money after your regular bills are paid, the lower payment plan a credit card bank offers may not be as good, or may not be made available to you at all.
Some banks that offer the 5 year long term hardship repayment plans may require that you recommit to the plan every year. At the time of this writing, Bank of America is requiring this.
Benefits to hardship payment plans other than lowering your monthly credit card bill.
Depending on how many months you have missed payments your creditor may agree to “re-age” the account after 3 or more timely payments on the plan. This means they will bring your account current in their reporting to the credit bureaus. This takes the sting off of the 30, 60, 90 and longer late pays, that may already be on your credit report, and prevents them from affecting you in perpetuity. There are limitations to the re-aging benefit. Once your account is 3 months late, some banks don’t re-age.
If your account is not charged off (typically 6 months late), you can still get lower monthly payments from banks offering them.
As a general rule, whether you work through a credit counseling service, or work directly with your bank(s) to set up a hardship payment plan, it is best to do so before you reach 90 days of consecutive nonpayment.
Post your questions about hardship payment programs in the comments below for feedback.
Continue on with the Hardship Payment Plan section of the CRN debt relief program – 3 Warnings About Hardship Repayment Plans.