Money Health

Are You Still Not Using a Hardship Program for Your Loans?

Financial Hardship Programs
Pin to Pinterest Share on LinkedIn

As the year winds to a close, many Americans are still struggling with financial hardship and uncertainty about their finances. If you are struggling with this situation, it’s important to remember that financial hardship doesn’t necessarily equate to financial irresponsibility. Sometimes there are circumstances beyond your control – like the pandemic and recession – that can set you back.

In a 2020 Freedom Debt Relief survey, 90% of respondents said their financial situation has been impacted by the coronavirus pandemic. Even though there are assistance programs, extended unemployment benefits, and a round of stimulus checks, it hasn’t been enough to help everyone.

Forbearance and hardship programs are probably more accessible than they have ever been, but only 4.64% of people are using them for help with auto, bankcard, mortgage, and personal loan accounts. Financial hardship assistance could be a way to get temporary relief from financial pressure during a difficult time.

If you are facing financial hardship or unsure of how to cover your bills, there are several options that can help. Let’s go over what financial hardship is, and whether or not you should be taking advantage of these programs.

What is a financial hardship program?

First, what is a financial hardship program? Financial assistance programs have been a large part of many pandemic conversations, but the programs vary in what they offer to help people who are struggling. A financial hardship program is a plan offered by your loan provider or creditor to temporarily ease your financial burden, including:

  • Deferred payment – the ability to skip a payment (or several)
  • Forbearance – a temporary pause on payments
  • Lower interest rate – reduced interest rate to lower your overall payment
  • Smaller minimum payment – reduced monthly payment

This year, increasing numbers of Americans have enrolled in financial hardship programs for various loan products. Starting in March, the number of accounts in financial hardship – including auto, personal, and credit cards — has grown. For example, as of June 2020, 7% of auto and personal loans were in a financial hardship program, compared to just 0.3% of those same accounts in 2019, according to TransUnion.

Accounts in Financial Hardship

Source: TransUnion, Monthly Industry Snapshot June 2020 and TransUnion, Monthly Industry Snapshot April 2020

Despite the growth in numbers, many who could benefit from these programs may still not be using them.

Should you consider a financial hardship program?

Financial difficulties can happen at any time, not just during an economic downturn. Some might experience hardships simply because their paychecks barely cover expenses. According to CareerBuilder, 78% of Americans live paycheck to paycheck which means many are just one check away from falling behind financially. If you have experienced any of the following, you could consider a financial hardship plan:

  • You lost your job
  • Reduction in work hours or pay
  • Medical illness or injury
  • Death of a spouse or partner
  • Divorce

If you decide to use an assistance program, follow our step-by-step guide on how to talk with your creditor. Take the time to prepare what you want to say and how to ask for assistance. Being prepared can give you the confidence to ask for what you need without feeling anxious.

What you can do if you are facing financial hardship

The good news is you can use financial hardship programs as a tool to help you manage your finances during a difficult season. Many lenders have provided forbearance and deferment programs during the pandemic. In many cases, all you need to do is call or opt-in to the program online.

Once you have set up a new plan with your lender, use this time to really take control over all of your finances. That means looking through your monthly income and expenses, removing unnecessary spending, and building up your savings. Here are some ways you can this opportunity to reset your priorities:

  • Make sure basic living needs are met – including utilities, child-related expenses, food, and gas.
  • Build up an emergency fund – work on saving at least 2-3 months of living expenses.
  • Take care of immediate needs – have you been putting off a needed car repair? Cash freed up by your financial hardship program can go towards things like a car repair or doctor’s appointment.

Keep in mind, these programs are not permanent. After your hardship program ends, you are will have to meet your debt obligations. If any of your debts were in forbearance, understand what happens when that forbearance period ends. And as your financial situation takes a more positive turn, take the opportunity to pay down interest and get ahead of your payments.

Current financial hardship plans available

From federal student loan forbearance to deferred car payments, there are many financial hardship plans available. Make a list of the most pressing bills and apply for assistance in order of priority.

Federal student loans

Now through December 31, interest on federal student loans is waived. Once you have paid all accrued interest, the rest of your payment is applied to the principal balance. Here is some additional good news: If you have federal student loans, those loans were put into automatic forbearance in March and some people saw an unexpected uptick in their credit score as a result.

Mortgages

A recent announcement by the Department of Housing and Urban Development provides homeowners who have mortgages with the Federal Housing Administration the opportunity to request forbearance through December 31. The Federal Housing Finance Agency also extended other support including alternative appraisals and assistance with loan closings.

Auto loans

Many auto loan providers are continuing to offer deferment if you can’t make your regularly scheduled monthly payments. For example, Wells Fargo is offering deferred payments up to three months, even if you have previously received a deferment. Interest still accrues during deferment, but it could give you the temporary relief you need.

Personal loans

Check with your personal loan provider about potential assistance measures. Citibank is offering deferment of payment and late fees are waived for two payment cycles. Make sure to ask if or how this information is passed on to the credit bureaus – late payments may impact your credit score.

Financial hardship program vs. debt settlement program

You might be wondering how a financial hardship program is different than a debt settlement program. The main difference is that a financial hardship program is offered directly through your lender, and a debt settlement program is offered by a third party who works with creditors on your behalf.

Not sure which program might help you? Here’s a look at some of the key differences.

Financial Hardship Program Debt Settlement Program
Ability to work with a debt consultant X
Settles your debt X
Offers financial relief
Allows you to work directly with your lender X
Ability to pay all enrolled debts in one monthly payment X

When debt feels out of control

If debt feels insurmountable and you can’t seem to get ahead of it, you’re not alone. There are several options to manage your debt load so you can create a better financial future. Freedom Debt Relief is here to help you understand your options, including our debt relief program. Our Certified Debt Consultants can help you find a solution that can help you move from overwhelmed to clarity. Find out if you qualify now.

Learn more:

Justine Nelson is the founder of Debt Free Millennials, an online community to help millennials eliminate debt and live a debt free lifestyle. As a freelance writer and YouTuber, Justine enjoys creating upbeat and educational personal finance content. This Midwest millennial paid off $35k in student loan debt and now resides in San Diego with her husband.