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Types of hardship plans - 3 Benefits and 2 drawbacks

Hardship plans or programs are often offered by the banks when consumers are unable to keep up with their payments. Banks offer hardship plans to those consumers who are facing serious financial hardships.


Check out the following sections to know more about hardship programs.

Hardship plan - What it is all about

Hardship plans or programs have developed to assist the ailing debtors. These programs help the debtors to pay off their debts at reduced interest rates. The monthly payment amount of the creditors is lowered after the debtors qualify for the hardship plan or program. The debtors can pay a fixed amount every month for a certain period of time and make the debt repayment process faster.


2 Types of hardship plans

Depending on the bank, your financial ability to commit to a payment, how far behind in payments you are, a hardship plan may look something like this:


  • Temporary hardship plans - These plans are typically set for 6 or 12 months. Your monthly payment can sometimes be reduced to 2% of your current balance. Your interest rate is reduced to anywhere from zero to 9%. Fees and penalties are often waived. When the plan expires your billing will reset to the pre-plan arrangement. This may be the temporary payment relief you need.
  • Long term hardship programs - These became more common when the economy fell off a cliff. They are still made available by many of the larger credit card issuers today. Your balance will be frozen and the account closed. Your payment will be amortized over 5 years (60 months) similar to the temporary plans of 2 to 2.5% of the current balance set as your monthly payment.

Hardship plans - Things you need to be aware of

When you're already behind in payments and you either call the creditor yourself, or pick up one of the many calls that will be placed to you in an effort to establish a payment plan, you'll be asked qualifying questions. The questions center on your monthly income and what you pay out each month for bills. You may be asked what you pay for rent or on your mortgage, what you pay for cell phone, utilities, internet etc. How you respond will impact what plan you qualify for, or whether you are offered a reduced payment plan at all. If your monthly cash flow shows no money available after essentials are met, you obviously cannot reasonably commit to any plan, no matter how good the terms. If the income and expense exercise shows too much excess and available money, the payment plan offered may not be as favorable.


Creditors offering a 5 year hardship repayment plan may require you to recommit to the plan every 12 months.


3 Benefits of hardship plans

Additional benefit to a hardship plan may include:

  1. 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 may consider removing the 30, 60 or 90 day late pays from your credit report.
  2. There are limits to re-aging. As a general rule, once your account is charge off, you will find you have reached a point where re-aging is not an option.
  3. Whether you work with a credit counseling company and enroll in a debt management plan, or work out hardship payment plans with creditors on your own, you will want to establish the plan prior to having missed 5 payments. This time frame is encouraged in order to avoid accounts charging off wherever possible.

Hardship plans - 2 Drawbacks you need to know

The 2 main drawbacks are given below:

  • Available to delinquent creditors: Hardship plans are typically only offered to those who are behind with their credit card payments. If you are current and call inquiring about a hardship plan you are basically saying you are at risk of defaulting on payments. This can result in their lowering your available credit limit or even closing the account. If you still have options to meet your scheduled monthly payments, I would not recommend calling your creditors to discuss your hardship. This strategy should be reserved for the creditors you are unable to pay on time.
  • Some creditors don't offer the plan: Some smaller credit issuers, like store and gas cards may not offer consumer hardship plans, but do allow them through a credit counseling agency. If you don't want to opt for DIY credit counseling or bank sponsored hardship plans, then enroll into a credit counseling program to solve your debt problems.
Has anyone ever been offered a hardship plan from ...
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Has anyone ever been offered a hardship plan from their credit card company? If so, how long did it take for an offer to be made? IE: how many months of non-payment? I am thinking specifically about American Express so if you've experienced offers from them, I would appreciate it if you'd share the info.




I'm assuming that you are the same Kristin who had another thread about American Express, where I posted my experiences with them. Just in case you're not the same one, I'm posting them again here.

I looked back through my notes with Amex to see exactly what they offered me. What I did was to send a letter when I knew that we weren't going to be able to keep caught up on our payments. I explained that we had experienced a loss of income and would be unable to make the payments. They ignored my letter, but when the collection calls started (at about 30 days past due), I told them that I had a hardship and had sent a letter. The collector put a request in for the hardship department to call me back. The hardship department called back the next day and asked about my situation, then offered me the hardship program. It was a six month program, with 9.99% interest rate, and $50 per month payments. My balance was only about $2000, so the payments would probably be higher if your balance is higher. I remember the gal apologizing that their programs were not as good as what Visa/Mastercard could offer and saying that they were working on trying to get better programs in place--so it's possible that they may have some better programs now.

If you aren't able to make the payments or do the hardship program, or come up with a settlement amount, you could just wait it out and see what they do. They never did threaten a lawsuit on either my husband's account ($10,000 balance) or mine, and we were about 120 days past due at the time we ended up filing BK. They did send my account to a CA at one point, but they pulled it back when I asked for the CAs address so that I could send a CD letter.

Sub: #1 posted on Mon, 08/04/2008 - 03:37

alias1958 alias1958

(Posts: 1230 | Credits: 79.88)

thanks alias1958. how do I find the address for amex? all I have is the billing address. I checked the creditors list on the link side. Do I just pick the one for amex that includes my account numbers?

Sub: #2 posted on Mon, 08/04/2008 - 03:48

Unregistered


On the back of my bill, on the right hand side, is a list of phone numbers and addresses. I just used the Customer Service address. You could try using that address and putting it to the attention of the Hardship Department. (At the time that I sent my original letter, I didn't even know that there WAS a separtate Hardship Department!)

Good luck! :)

Sub: #3 posted on Mon, 08/04/2008 - 03:53

alias1958 alias1958

(Posts: 1230 | Credits: 79.88)

thanks so much!! I already sent one letter, certified return receipt. I used the billing address though and marked it attn: Account Management. I will send another one through the customer service dept. I did get my return receipt back but who knows where my letter is now.

Do you think if I call them and tell them I won't be paying on time, they won't call me after 2 weeks asking about the payment? Or, can I tell them to not call me at work? That happened once before when I accidentally missed a payment so it was 2 weeks late. (It really was an accident!)

I can't send a cease and desist letter until they start hounding me, right? I'll go find links to that next. :-)

Sub: #4 posted on Mon, 08/04/2008 - 04:25

Unregistered


Original creditors don't have to obey a cease and desist, unless you live in one of the few states that have laws to the effect. I live in California, which is one of those states, but I don't know about yours. I think though (but I'm not certain, so maybe someone else can verify) that you still have the right to tell the OC not to contact you at work. In my expereience, even if you tell them you can't pay and tell them why, they will still keep calling you pretty regularly.

Sub: #5 posted on Mon, 08/04/2008 - 06:31

alias1958 alias1958

(Posts: 1230 | Credits: 79.88)

It was a six month program, with 9.99% interest rate, and $50 per month payments. My balance was only about $2000, so the payments would probably be higher if your balance is higher
Do you mean you only had to pay $50 for 6months and thats it ? What about the rest of the balance?

Sub: #6 posted on Tue, 08/05/2008 - 00:49

virtualdeal virtualdeal

(Posts: 99 | Credits: 14.12)

After the six months, the card reverted to the previous terms. The remaining balance would still be there, the interest rate would return to the previous rate, and the minimum monthly payments would return to the previous amount. Hardship programs, for the most part, are just temporary solutions for temporary situations. If your situtation is not temporary or you can't do anything to change it within the six months to one year that most companies offer, then you have to look for a more long-term solution.

Sub: #7 posted on Tue, 08/05/2008 - 01:13

alias1958 alias1958

(Posts: 1230 | Credits: 79.88)

The reason that creditors offer hardship programs is that they hope you will be able to turn things around, start paying your bills again, and therefore, they keep earning money off of you!

Sub: #8 posted on Tue, 08/05/2008 - 01:14

alias1958 alias1958

(Posts: 1230 | Credits: 79.88)

When you placed you amex on a hardship program, were you still able to use your card or did they shut it off?

Sub: #9 posted on Thu, 08/20/2009 - 22:53

Unregistered


I was paying $400 in interest every month for years . It was a business account. I had $40,000 open and I owed about $30,000 when my husband got cancer. He was out of work and even though we had insurance medical bills piled up. I used Amex to explain my business a dumb move. I had stopped using the card and was paying it off.

I asked for a hardship program. I figured I had paid twice the principal in interest and never was late . Then this month I had trouble with my payment. They still wanted $580.00 the regular payment with 0 interest. I know that sounds good and for the past five months I was able to do it. This month I cannot. I asked if I could pay $100 a week and they said no I was going to be taken out of the hardship program. They were not nice.

So now I have no choice but to relinquish the hardship program . We are so close to getting a Making Homes Affordable loan which will cut our HP in half but I must not miss a HP. I told them that. I was working with my bank since April and now everything falls apart.
In weeks I may get my loan from my bank.

If I pay them their money I won't be able to make my HP. I have been on such a tight budget. I am very depressed at how they are treating me.

By the way I am in CA and I said my phone number is business and it is and so they cannot call me. If you put it in writing that you will not take calls at home or work they must obey.
A person can lose their job because of these calls and there are class action lawsuits concerning these harassing calls.

Right now I have money owed by my business accounts and I must wait for it. Amex will not .

I also had my credit limit dropped by Amex and then my other creditors followed suit. They started the whole downward slide They make it look as though you charged all available credit when they lower your AC that way.

I don't know one person who is happy with Amex. I suspect some who say wonderful things are with the company or else very wealthy.

Sub: #10 posted on Thu, 09/24/2009 - 01:51

Unregistered


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