Personal Finance

Credit card hardship programs: Little-known alternative for debtors

Having trouble with your credit card debt? Your card issuer likely has a little-publicized option for you: a credit card hardship program.

These are not the well-known debt management plans offered through nonprofit credit counseling agencies. These are the card issuers' own internal hardship programs.They typically include the ability to lower the interest rate, lower the minimum payment or reduce fees and penalties. They're either short-term (often six months to a year), or permanent (until the card balance is paid).

Issuers "want to help the consumer, but are also helping themselves by having them," says Sandy Shore, a supervisor with Novadebt, a nonprofit credit counseling agency in Freehold, N.J. "Lots of people have had unfortunately things happen in their lives."

The hardship secret handshake If you have a credit card, chances are that issuer has a hardship program. "All of the creditors have them," says Shore.

Don't be surprised if you haven't heard about it. "They don't advertise the programs, they see them as proprietary," says Travis Plunkett, legislative director of the Consumer Federation of America.

"Most creditors will have a number right on the statement," says Shore. It won't be obvious, but look for language along the lines of, "If you anticipate problems paying your balance, call this number." The number could ring the hardship department or, more likely, a customer service department that will screen you.

And if you get that customer service agent who tells you "we don't have a hardship program," that's a signal to hang up and call back later.

Issuers call their hardship departments by a slew of different names. If you have a general number, your goal is to get to an agent who has the power to offer a hardship program.

"What I'm finding is that they have special departments to handle these things, but they won't give out the numbers," says Linda Sherry, director of national priorities for Consumer Action, a San Francisco-based advocacy group. "They want customers to call the main numbers."

Say something along the lines of, "I'm having difficulty and want to talk to someone about customer assistance," says Betty Riess, spokeswoman for Bank of America. The information you want to have at your fingertips: your real income and expenses.

If the agent tries to take the call himself and the terms he's offering aren't what you need, be prepared to say "thanks, but no thanks" and call back.

Once you get in Once you get to the right person or department, keep the conversation polite and factual, says Shore. Explain that you are having problems and why (cutbacks, layoffs, recent or upcoming medical bills, etc.).

"Remember that these people are listening to this all day long," says Shore. Accept responsibility, express that you want to repay the balance, and explain your current financial problem, she says.

One strategy is to make an offer. "Be very specific," says Plunkett. "And don't be shy about telling them, 'This is what I can afford.'"

Some card companies have several programs. So if what you're hearing doesn't go far enough, either keep negotiating or call back.

While the issuer itself might really want to help its customers, that attitude may or may not have made it down the personnel ladder, says Sherry. The phone agent may not have a lot of decision-making power.

Some card issuers won't consider you for hardship if you're current on your bills. Others offer better deals if you are current. And for some, it's not an issue.

What a hardship will do to your card If you call asking about hardship programs, watch what you say. The Credit CARD Act of 2009 limits the circumstances under which a card issuer can raise your APR, but doesn't prevent it.

"They're going to know something's up," says Sherry. Even so, "It may be the best way to go."

Issuers probably won't cut credit limits just because you ask about hardship programs, says Nessa Feddis, vice president and senior counsel for the American Bankers Association. "That would discourage people from calling," she says.

Merely inquire, though. Don't go a step further and admit you're having trouble paying your bills. "Just inquiring about our hardship programs will not trigger an action," says Marina Norville, director of public affairs for American Express. "However, if a customer indicates that they are unable to pay what is owed, which could happen in the same conversation, then we may restrict their ability to use their accounts."

But they could also do the same thing if you miss payments or start making just the minimums, Feddis says. "Usually when they see someone's just paying the minimums, they know something's up."

And if you apply for a hardship program, your charging privileges will be suspended, temporarily or permanently. Some cards have hardship programs that reinstate the card (possibly with a different credit limit), when you complete the program.

A smart question to ask: "What happens to my credit card if I successfully complete the program?"

Hardship's impact on your credit, credit score So what is a hardship program going to do to your credit score?

"As with anything FICO-score related, it depends on how it appears on the credit report," says Barry Paperno, consumer operations manager for FICO, the company that pioneered credit scoring.

How that issuer will report your agreement to the credit bureaus "should be one of the first questions you ask," he says.

But figuring out how the program will impact your credit while you're in it (and after), can be tricky. Sometimes the agent you're negotiating with honestly doesn't know how the program is reported. Others will be able to tell you exactly how it is noted.

"We don't report negatively to the credit bureaus, as long as they're not canceled while in the program," says Norville.

In some instances, negative references will come off your report if you complete the program. But you need to get a thorough understanding of what's going to happen, who's making the promise and what you can do if it doesn't happen automatically.

And information on how issuers report hardship programs to the credit bureaus will likely not be included in the written hardship agreement you receive from your issuer, says Feddis.

So how do you decide if hardship is the right move? Not easily.

"If you can muddle through, you want to muddle through," says Gail Hillebrand, senior attorney with Consumers Union. But, she says, if that merely delays when -- not if -- you need help, then you're better off acting sooner."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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