Forbearance
Financial Hardship Program
Financial hardship program summary:
Financial hardship programs could help you manage your debt payments.
They may pause or reduce your payments, or modify loan terms.
Your creditor determines who is eligible and not all creditors have financial hardship programs.
Financial Hardship Program Definition and Meaning
A financial hardship program is designed to help you keep your account in good standing while you're experiencing financial hardship. Examples of financial hardships might include job loss or the loss of a family member. You may need to provide documentation to prove you've experienced a qualifying hardship.
Hardship programs are often associated with federal student loans, but other organizations may offer them, too. The IRS has options for consumers struggling with federal tax debt, and credit card companies and lenders may also offer financial hardship programs for borrowers in need.
Types of Financial Hardship Programs
Financial hardship programs offer different benefits, depending on the creditor and the type of debt. Some common options are:
Deferment: This enables you to temporarily pause your payments. Your balance usually doesn't accrue interest during this time.
Forbearance: This is similar to deferment, but your balance continues to accrue interest. So it's possible to wind up owing more than you did initially.
Reduced payments: Some creditors may let you make lower monthly payments while still keeping your account in good standing.
Loan modifications: Banks with hardship programs may modify your loan terms to waive fees, reduce your interest rate, or spread your payments out over a longer time.
Options vary by creditor. You'll likely have the best options if you contact your creditor before you fall behind on your payments.
Financial Hardship Program FAQs
Are there credit card debt forgiveness programs?
If you're struggling to repay your credit card debts, here are some options to explore:
Debt settlement or debt resolution: Negotiate with your creditors to pay less than your outstanding balance. You can negotiate on your own, or get help from a reputable organization.
Debt management plan: Work with a credit counseling agency to create a repayment plan. They can negotiate a lower interest rate with your credit card companies.
Bankruptcy: This might help you get a payment plan or get rid of credit card debt. But you may have to give up assets.
Does forbearance ruin your credit?
Whether forbearance ruins your credit depends on the terms of the program and how your credit card issuer reports to the credit reporting agency. Get the forbearance terms in writing, and check to find out if the creditor reports your account as paid as agreed during your forbearance period. If your credit card issuer still reports your payments as missed or below the minimum payment amount, your credit score could suffer. If your payments are paid as agreed, you're less likely to experience a big drop in your credit score.
Will credit card companies let you defer payment?
Yes, some credit card companies will let you skip payments for a time. However, it’s important to understand the terms. In some cases, you might still incur interest. That interest would add to your balance.
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What is student loan debt relief, and where can you find it? How student loan debt forgiveness works.
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