Credit card forbearance programs help with piling bills — but should you use them?

If you’re struggling to make the monthly payment on your credit card, you may be eligible for relief from your credit card company. (iStock)

If you’re struggling to make the monthly payment on your credit card, you may be eligible for relief from your credit card company. Credit card forbearance programs provide some temporary relief for cardholders who are experiencing financial hardship.

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If you’re eligible, you may be able to delay monthly payments for up to a few months with some benefits. However, there are also some disadvantages to consider.

Should I consider a forbearance program?

Forbearance is a common term in the lending industry, and it’s typically reserved for borrowers who are struggling financially. Unemployment, medical bills, disability or death can all wreak havoc on your financial life and make it challenging to make even the minimum monthly payment on your credit cards.

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“Each creditor has different policies in place, and some offer more flexibility than others,” said Michael Sullivan, a personal finance consultant at Take Charge America, a nonprofit credit counseling and debt management agency. “Creditors are handling forbearance requests on an individual basis.”

Forbearance programs may be necessary if you have no other way to meet your financial obligations. But there are some potential pitfalls to watch out for, so it’s important to understand both the benefits and drawbacks before you submit your request.

“Some of the benefits of a credit card forbearance program may include a deferred payment, partial payment, reduced interest rate, waiver of late or over-limit fees,” said Sullivan. The card issuer may also choose not to report your delayed payments as late to the credit bureaus, which shields your credit score from the negative impact of a missed payment.

Forbearance isn’t the same as forgiveness, though. While you won’t have to make payments for up to a few months, nobody’s making them for you. What’s more, interest from this “bad debt” will continue to accrue on your balance, which means that your balance at the end of the forbearance period will be higher than it was when you filed your request. If your situation hasn’t improved, you could end up worse off than you were at the start.

“The obligation to repay your debt will catch up to you sooner or later,” said Sullivan. “If your financial hardship goes on for an extended period, you might want to explore long-term solutions like a debt management plan or bankruptcy.”

Does forbearance hurt your credit?

Depending on your credit card company, a forbearance plan may or may not affect your credit score. In some cases, the lender will report your payments as if they were paid on time, but others may mark your account as delinquent.

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“Be sure to ask your creditor how forbearance will impact your credit rating so you can weigh the pros and cons as they relate to your immediate needs,” said Sullivan.

Even if it doesn’t hurt your credit, getting a forbearance program with your credit card issuer could flag you as a risky borrower. To prevent potential default, the card issuer may freeze your account, so you can’t make any more purchases or close it altogether. Ask about these potential consequences before you submit your forbearance request.

How do I apply for forbearance?

Every card issuer has a different process and criteria for determining who qualifies for forbearance, so the best thing you can do is call the number on the back of your credit card and ask about your options. Explain your situation and be patient, as you may deal with long hold times and more than one representative.

In addition to forbearance programs, you may also consider some other options to get help with your financial situation. For example, if you’ve already missed some payments or you don’t anticipate your financial situation changing anytime soon, it may be worth consulting with a credit counselor to see if a debt management plan is a good option for you.

Debt management plans help consolidate your unsecured debts into one monthly payment, which you pay to the credit counseling agency. These agencies may also be able to negotiate lower interest rates and monthly payments with your creditors, which can help you pay off your debt faster. Even if a debt management plan isn’t right for you, a credit counselor may be able to provide free debt counseling sessions to give you more options based on your situation.