These programs can be helpful, but they’re not without cost.
If you’re wondering how you’re going to pay your credit card bill this month, you’re not alone. Credit card debt was a huge problem for millions of Americans even before the pandemic. And now, for many people who are out of work or managing a loss of income, paying it back has gone from difficult to impossible. But things may not be quite as bad as they seem.
A number of credit card issuers are offering hardship assistance to cardholders who are struggling to pay their bills due to COVID-19 and the recession it’s caused. These programs can be a lifeline to those without income, but they’re not without their drawbacks. Here’s what you need to know before signing up for one.
Advantages of credit card hardship assistance programs
The most obvious benefit of a credit card hardship assistance program is that you can defer payments, usually for several months, without harming your credit. As long as you’re enrolled in the program, your credit card issuer is legally required to report your account as current to the credit bureaus so you won’t have to worry about damage to your credit score.
A poor credit score can create long-term financial problems and is something you want to avoid at all costs. For example, it can make it difficult for you to secure new loans and lines of credit in the future. If enrolling in a hardship assistance program is the only way you can avoid falling behind on your payments, you should definitely do it.
Generally speaking, it isn’t too difficult to sign up for a hardship assistance program. A lot of credit card issuers have dedicated COVID-19 pages on their websites. These should tell you what you need to do to sign up.
Once you’ve enrolled, you’re free to put whatever cash you have coming in toward your other living expenses. It’s a good idea to prioritize creditors that aren’t offering hardship assistance so these accounts don’t end up hurting your credit score.
Disadvantages of credit card hardship assistance programs
Your credit card balance will likely continue to accrue interest while you’re enrolled in the hardship assistance program. This means your balance will increase, which could make it more difficult to pay back once you are ready to make payments again. You can get around this by paying the interest that accrues on your balance every month, but not everyone can afford to do so.
Some credit card issuers may also reduce your credit limit or close your account if you enroll in a hardship assistance program. This will limit the amount you can charge to the card moving forward. If you are struggling financially, it’s not necessarily a bad thing to discourage continual buying on credit. But if you don’t have another means of payment, you may have difficulty buying the items you need.
Alternatives to credit card hardship assistance
Consider opening a balance transfer credit card if a hardship assistance program doesn’t sound like a good fit or if your credit card issuer doesn’t offer one. A balance transfer card has a 0% introductory APR period that can range from six months on some cards to 18 months on others. No interest accrues during that time, so any money you pay goes directly toward paying down your balance.
But opening a new credit card might not be an option for you, especially if you’ve lost your income. Credit card companies usually ask about your income when you apply and may turn you down if you’re not working.
A personal loan is another option. It doesn’t require any collateral and it gives you a fixed monthly payment so you don’t have to worry about your balance growing over time. But again, you may struggle to secure one of these if you’re out of work.
If you do end up going with a hardship assistance program, reach out to the company and ask about any terms associated with the program. Make sure you know when you have to begin making payments again too so you don’t accidentally end up with a late payment on your report.
Credit card debt is always stressful, especially now, but you do have options. Review the suggestions above and see which one might work for you.