Debt Moratorium
Financial Hardship Meaning & Definition
Financial hardship summary:
Financial hardship is a financial setback due to unforeseen life events like job layoffs or a major injury.
Anyone can experience financial hardship through no fault of their own.
You have rights and resources that might help you get through your financial hardship.
What Is a Financial Hardship?
Financial hardship occurs when you struggle to keep up with debt and bill payments because of unexpected circumstances or life events. It’s a situation that often calls for some form of debt relief.
Some common situations that can lead to financial hardship:
Job loss/layoff/redundancy
Divorce or separation
Serious illness
Major accident or injury
Death of a parent or spouse
Natural disasters
Mental health problems
What Kinds of Financial Hardship Resources Exist?
A variety of local and federal government resources can help people experiencing financial hardship. These can include:
Food assistance programs (SNAP or WIC)
Unemployment benefits
Welfare or Temporary Assistance for Needy Families (TANF)
Emergency housing assistance
Rental assistance
Utility bill assistance
Home repair assistance
You can also check with local nonprofits and groups that specialize in helping people get through financial hardship. Search online, using specific language to describe the type of help you need and what area you’re in. For example, assistance for homeless single parents in [your city].
What to Do if You Can't Pay Your Bills Due to Financial Hardship
Contact your creditors as soon as you realize you'll have problems paying your bills or debts. The sooner you get in touch, the more options you'll likely have to work out an amicable solution.
Hardship program options you may be offered could include:
Payment forbearance or deferral. Loan or credit card forbearance can let you skip, postpone, or reduce the amount of your payments for a set period of time.
Reduced interest rates. Some lenders or credit card issuers may agree to reduce your interest rate, which can lower your monthly debt payments.
Late or overdraft fee waivers. Many creditors are willing to waive late or overdraft fees, especially if you’ve kept your account in good standing in the past.
Payment plans or extensions. Creditors might help you set up a repayment plan based on your ability to repay your debt.
Debt forgiveness. In some cases, financial hardship could qualify you for full or partial debt forgiveness, which means your debt goes away.
If you haven't yet fallen behind on your payments, you can also ask that your creditor not report late payments to the credit bureaus. This could help protect your credit standing. Always make sure that you get any agreements in writing, even if your negotiations were done over the phone. This will ensure everyone is on the same page and give you a physical copy of the plan in case you need to double-check any details.
Financial Hardship FAQs
You may be eligible for debt settlement if you're experiencing a financial hardship that makes it impossible to repay your full debt balances. Most debt settlement programs require you to have at least $7,500 to $10,000 in unsecured debt.
You also need to be able to make a monthly payment into a settlement account. Many people choose to stop making payments to creditors when they enroll so they can save up for settlement.
Hardship loan lenders usually want some kind of proof that you’re facing financial hardship. They might ask to see a written list of your monthly income and expenses (i.e., a budget). You might need to show a layoff notice, for example, or a hospital bill if you or someone you’re caring for is very ill.
Forbearance is the broader term describing any temporary agreement to modify your payment obligations.
A hardship program is a specific type of forbearance that credit card companies offer to customers facing documented financial difficulties.
Think of hardship programs as structured forbearance arrangements that issuers have formalized to help customers systematically. Both terms essentially refer to the same concept: temporary payment relief during financial hardship. When speaking with your credit card company, you can use either term, though specifically mentioning "hardship" may help direct you to the right department.
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