Four years of careless spending led to $8,000 in credit card debt for Wilmington, Delaware, resident Florence Weathers. At times, the 59-year-old was unable to make payments to her five creditors. “I know I created that debt. I prayed about it and I wanted to be debt free,” says Weathers, a former home health aide. Today, Weathers has to make payments on only one of those five cards, and it will be paid in full by year’s end. She has paid on her combined credit card debt for the past three years and had arrangements for zero interest on a couple of them.
Weathers’ saving grace was the debt management plan she’d developed through Novadebt, a nonprofit consumer credit counseling organization. But in recent years, more cardholders have turned to a little-known alternative called a credit card hardship program, which is offered by most creditors such as American Express and JPMorgan Chase.
Unlike debt management plans offered through credit counseling agencies, which assist with consolidating payments, a hardship program allows you to make arrangements directly with your creditors. An internal program of credit card issuers that may vary by name from one creditor to another, it helps cardholders who are struggling to make minimum payments but who wish to avoid defaulting on their debt.
A phone call to your card issuer is the first step to getting enrolled in a credit card hardship program that will, depending on your circumstances, lower your monthly payment, reduce your interest rate, or suspend fees and penalties. While enrolled, you will be denied charging privileges. Upon completing the program, some issuers allow use of the card, sometimes with a lowered credit limit.
American Express offers its cardholders several options: a short-term customer assistance program (up to 12 months), a long-term consumer debt management program (more than 12 and up to 60 months), or collections, says Marina Hoffmann Norville, the company’s director of public affairs and communications, risk and information management. With a short-term agreement, a customer’s monthly payment is reduced by “as much as 57% for up to a year, depending on particular circumstances,” says Hoffmann Norville.
“Cardmembers who are current, in addition to delinquent members, may be eligible.”
Before you enroll, “Find out how this will appear on your credit report,” says Barry Paperno, consumer operations manager for myFICO.com. The way a hardship program is labeled could affect your credit score. Two credit report labels that could lead to a lower credit score are “partial payment plan” and “settlement,” says John Ulzheimer, president of consumer education at SmartCredit.com.
With American Express, members on a short-term plan aren’t reported negatively, says Hoffmann Norville. But those enrolled in a long-term program will find the same canceled/collections notations on their credit reports as they would if they were in collections. For long-term programs, customers might be referred to the National Foundation for Credit Counseling, which may, in turn, connect them with not-for-profit agencies that manage long-term arrangements on behalf of the creditor. “Since a long-term program is more than one year, during that time the customer would be canceled and not able to use their card, and also in collections,” Hoffmann Norville explains. “So they would be reported as ‘canceled/collections.’ If possible, try to get the more favorable notation ‘account payments managed by financial counseling program.’ ”