If you're struggling to make payments on your bills, you may not know that you have options – including what's typically called a hardship repayment program. These are programs that banks may offer directly to you, their account holder, if you express how unaffordable payments have become (vocally with a phone call, or behaviorally by missing payments).
These repayment plans are typically something you see with credit card bills. And the benefits from them are primarily related to your interest rate being lowered temporarily — or for the life of the balance as long as your payments are made on time.
I've watched this process evolve over the years. At the onset of the recent recession, many banks, which had never really made wholesale efforts to offer their struggling cardholders these lower payment options, quickly began to warm to the concept. Prior to this period, lenders would more often encourage you to talk to a nonprofit agency about consolidating your credit cards in order to achieve the same benefit – more affordable monthly credit card bills.
At the height of the economic downturn, many banks saw record-setting default rates on credit cards. In order to help minimize losses on credit cards, it is no surprise that banks would make direct lower monthly payment plans available to their cardholders. But in many instances, these same account holders would not be able to qualify for a similar lower monthly consolidated payment through a counseling agency. This is often because the bank is primarily concerned with payments they received from you, not whether your other creditors get paid. And credit counseling agencies must concern themselves with your whole debt and income picture. A credit counselor taking a deeper dive into your finances is more likely to determine whether you can afford your bills, or when you should compare alternatives to credit counseling.
Why is this worth pointing out?
Credit card default rates have stabilized. And while a couple of the largest credit card banks still extend great rate reductions, others no longer provide the same lower monthly payment options, or may not extend the reduced payment plan availability beyond several months to a year's time. (You can use this calculator to see how long it will take to pay off your credit card.)
Negotiating Lower Payments
If you need to get more than even one credit card lender to agree to a monthly payment reduction, this type of trend change can impact you in the following ways:
- You may have creditors who will limit the monthly payment reduction to a few months, or for a shorter time frame than your fluid budget situation calls for.
- One or more of your creditors may not extend interest rate concessions to you more than once. This is problematic when your financial situation remains unstable for longer than you anticipated, and can be compounded across multiple accounts.
- You can often find no traction enrolling in a hardship repayment plan unless you miss payments, and sometimes must fall behind enough for that to cause late payments on your credit reports.
- Some of your creditors may not offer you a hardship payment program at all, but would reduce your payments if you were working with a nonprofit credit counseling company.
Those reasons, and a few more, can mean you may be better situated with lower monthly payments by working with a credit counseling company in order to reach a long term solution to paying off credit cards and other unsecured debts.
I am speaking with more people who find something I have said about hardship plans in previous articles wondering why one of their creditors was quick to offer a five-year repayment term at a reduced interest rate, but their remaining creditors either tell them there is nothing they can offer until they stop paying, or who respond by providing the direct number to a credit counseling agency.
Working With a Creditor vs. a Credit Counseling Agency
One gentleman I spoke with the other day had talked with a national nonprofit counseling agency about a lower monthly payment plan quote. Shortly after speaking with the counselor he was able to secure a lower interest rate and monthly payment for the life of the balance from a major credit card bank. He then told me how quickly he became frustrated with how bad a time he was having trying to duplicate that success with three of his other creditors, two of which were his largest balances (each over $10K).
Working with one of many counseling agencies around the country, he would likely not experience the 13 phone calls to one creditor — to finally be told there was nothing they could offer him — and to check back after missing payments. He would likely not have had to make any calls to his creditors.
These cautions about enrolling yourself in a temporary hardship repayment plan may not sound all that impactful. But they can be when the plans run the time limits, and you find you would prefer, or needed to be back on, the more affordable payments.
Make no mistake; hardship payment programs with your credit card bank can often be just what you need. The fewer accounts you have to juggle and the shorter the duration of any financial pinch you are in, the more speaking with your creditors about your concerns will makes sense. And there are certainly warnings to avoid credit counseling programs when you are not a good fit. But understand the risks and rewards of hardship payment programs, and get informed about other options to resolve your debts, before taking action.
If you want to see how your debts and payment history are affecting your credit, it's a good idea to periodically check your credit reports and credit scores. You can get a free annual credit report from each of the major credit reporting agencies through AnnualCreditReport.com, and there are many resources where you can get your credit scores for free, including Credit.com.
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