When Can You Use a Credit Card Forbearance Program?

Keeping up with bills during times of financial hardship can feel overwhelming. Minimum payments add up, and you might be unsure how to meet your obligations. The good news is that help might be available through credit card forbearance.

Credit card forbearance can offer short-term relief from some of your bills and allow you breathing room to get back on your feet. Let’s look at credit card forbearance so you can decide if it’s right for you.

What is credit card forbearance?

Forbearance is a practice that allows you to skip your debt payments for a set period. It’s not just for credit cards. Other loans might also have forbearance programs. Student loans, mortgages, personal loans, and auto loans can be deferred through forbearance programs.

Credit card forbearance might also include lower payments instead of skipped payments. Some forbearance or financial hardship programs waive some of your interest, late fees, or other charges. You might also get a rate reduction when you qualify for forbearance. Many credit card forbearance programs last up to a year.

There are no federally mandated requirements for forbearance, so each credit issuer has its own guidelines. That’s why it’s important to read the agreement and make sure you understand the terms before agreeing to a forbearance program. 

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How does credit card forbearance work?

With credit card forbearance, you show that you have a financial hardship that makes it difficult to handle your bills. Hardships can be a loss of work or other big life change, or a widespread issue like the coronavirus pandemic. Because Covid-19 still impacts many people, some credit card issuers still offer programs for those affected.

To access credit card forbearance, tell your creditor that you’re facing hardship. The card issuer can then decide whether you qualify for forbearance. Depending on your situation and the program, some actions you might be eligible for include:

• Pause in payments for a specific time, usually 12 mos.

• Lower minimum payment

• Fee waivers for previously late or skipped payments

• Lower interest rate

Depending on the program, interest might continue to accrue on your balance. Some credit issuers pause interest charges while you’re in forbearance, but others will keep adding interest. If that happens, you'll owe more at the end of your forbearance, even if you didn’t spend more on the credit card.

Finally, some creditors will allow you to keep using the card while you’re in forbearance, but others won’t.

At the end of the forbearance period, your credit card terms return to their “normal” levels. Your interest rate and minimum payment go higher. You’ll need a plan to tackle the debt at the end of your forbearance period.

When to use credit card forbearance (and when not to)

Credit card forbearance can work well if your situation is short-term and you need some breathing room. However, it’s not the right move for everyone.

When to use credit card forbearance

• You have a short-term need for breathing room in your budget.

• A lower rate (or no interest) could help you tackle your debt faster.

• You might need to make smaller payments for a time due to a change in circumstances.

When to avoid credit card forbearance

• A long-term issue might call for a different approach.

• You’re worried about added interest charges increasing your balance during the forbearance period.

• The credit card issuer doesn’t let you use your card, and you still need access to funds to cover bills.

Pros and cons of credit card forbearance

Let's say you're hit with an unexpected medical expense one month, making it difficult to pay your credit card bill. As you consider your options, you wonder if credit card forbearance may be the answer you're looking for. While it's not a one-size-fits-all solution, credit card forbearance may be a helpful tool. Here, we break down the pros and cons to help you determine if it's the right choice for you. 

Pros:

1. Short-term relief: When you're granted forbearance, you get a break from paying your credit card bill. This pause may give you the breathing room you need to cover a financial emergency and pay everyday bills. 

2. Avoid late fees: When you enter into a forbearance agreement with your credit card company, the company agrees to waive late fees and penalties for the duration of the forbearance. Even though you'll eventually have to resume paying the bill, you can have peace of mind knowing that late fees and penalties haven't been tacked onto your total balance.  

3. Credit protection: Typically, a credit card company won't report missed or late payments to the credit bureaus during an agreed-upon period of forbearance. This helps protect your credit.

4. Time to reorganize: Sometimes, all you need is a little time to rework your budget, and that's what a forbearance offers. You may use this time to look into other options, including debt consolidation or reorganizing your budget. 

Cons:

1. Interest continues to add up: You may not be making payments during forbearance, but your interest will continue to pile up.

2. Not a permanent fix: Forbearance is strictly a short-term solution. At some point, you'll  have to start making payments again. Now that more interest has been added to your total balance due, you may find that your new payments are higher than they were before you went into forbearance. 

3. Possible credit impacts: Forbearance doesn't typically hurt your credit. However, future lenders can see that you've been in forbearance and may assume that you're having financial trouble, even after you've straightened things out. 

4. Limited new credit: Once a future lender realizes that you've been in forbearance, it may be less willing to extend credit. It may even view your credit application as high risk. Before going into forbearance, consider whether you're planning to apply for new credit in the near future.

How to apply for credit card forbearance: A step-by-step guide

Once you determine forbearance is the right move, the next step is applying for it. Here's a step-by-step plan to ease the process. 

1. Check your finances:

Take one last look at your budget. Make sure there's not another option that would work better for you, like adjusting your budget (even temporarily) or looking into debt consolidation. 

2. Call your credit card company.

Contact your credit card issuer. You'll find their phone number on the back of your credit card, on your card statement, or on their website. Simply explain what you're up against financially and ask about their forbearance programs. As intimidating as the process may feel, don't be nervous! Credit card companies deal with the question every day and know how to handle it professionally. 

3. Get your documents ready:

Have your documents ready. You can never be 100% sure of what a credit card company will ask to see, but you can make a fair guess. For example, if your financial difficulty stems from a job loss, you might include a termination or layoff letter. If it's due to an unexpected medical expense, gather proof of that expense. In short, be prepared to provide the company with the documents requested. The faster you get evidence to them, the faster they can process your request. 

4. Understand the terms:

Make sure you fully understand the details of the forbearance program by asking the representative to spell them out for you. You'll want to know how long the forbearance will last and how interest will be handled. Also, ask how much your payments will be after forbearance ends so you're ready to resume payments when the time comes. 

5. Get it in writing:

Once you agree on terms, ask for a written copy of the agreement. This document should outline the details of your forbearance and will serve as an official record of your agreement with the credit card company.

6. Stay in touch:

Keep the line of communication open. If your financial situation changes, give the credit card company a call to let them know. Perhaps your situation suddenly improves and you're ready to restart regular payments. Or, maybe another emergency has arisen and you find yourself struggling. Let them know as soon as possible. They may have other ways to help.

7. Plan for the end of forbearance:

Plan ahead. Budget for the return of your credit card payments. Remember to factor in any extra amounts due to accrued interest. 

8. Monitor your credit report:

Regularly check your credit report. What you're looking for is assurance that the  forbearance is reported correctly. You can order free weekly online credit reports from the three major credit bureaus by visiting AnnualCreditReport.com.

Consider other debt-relief options 

While forbearance can be one way to get help out of a sticky financial situation, it’s not the only option available. While credit card forbearance provides temporary relief, you might also benefit from other debt solutions.

• Debt consolidation: Get all your debts under one umbrella. You make one payment each month. Depending on the situation, your total monthly payment might go down with debt consolidation, providing a way to manage your debt.

• Debt settlement: When overwhelmed, debt settlement can help you get out of debt for less than you owe. It’s a process where you offer your credit card issuers less than you owe, and they accept it as full payment.  

• 0% APR balance transfer: You can move your credit card balances to a new credit card with a promotional interest rate. Since you’re not accruing interest, every penny you pay reduces your balance.

• Credit counseling: Working with a credit counselor can help you improve your budget and create a debt management plan. Depending on your situation, credit counseling can help you use various tools to get out of debt.

• Bankruptcy: Bankruptcy is the right solution in some situations. If you’re choosing between debt relief and bankruptcy, it mostly comes down to a financial decision. It’s not a moral failing.

No matter your situation, there are debt relief options that might work for you. Understanding your debt solution options can help you make the best choice.