Hardship Programs vs. Debt Management Plan | Which is Right for You?


Stretching the almighty dollar across expenses can be a challenge, especially if a financial emergency gets thrown into the mix. 

If you are finding that your money is controlling you vs. you controlling your money, you may want to consider a Hardship Program or Debt Management Plan to help get you back on track and meet your financial goals. 

But, which one is the right fit for you?

Hardship Programs

If your income has recently changed and you are unable to financially support the lifestyle that you have become accustomed to, a hardship program may be the answer

Hardship programs are when you contact your lender or credit card company and provide them with information about the life-changing event that has created has crippled your financial circumstances.

The financial institution will typically offer a payment plan that does fit into your budget with a start and end date and as long as you keep to the payment terms, they may waive fees and lower interest to ease the burden of the debt. 

These repayment terms are often in a short duration, like 60-90 days, which is enough time to get back on your feet and resume normal activity.

Pros and Cons of a Hardship Program

Each institution is in control of its own specific hardship program and limitations on how much they can negotiate. 

There are benefits to utilizing hardship programs such as:

  • Smaller payments
  • Lower interest rates
  • Allows time to restructure your life and budget
  • Continued relationship with the company
  • No third-party costs such as a credit counselor

This all sounds delightful, right? In the best-case scenarios where you have an established relationship and history with your creditor, it would seem like the ideal resolution to your problem, and it can be. 

However, some side-effects that you should be aware of:

  • Your creditor placing a note on your credit report affecting purchase power
  • Your creditor may suspend, lower the limits, or close your account
  • If you have a lot of creditors, your credit could take a lot of hits

Discussing these concerns with your creditor will help decide your best course of action. 

When to Use a Hardship Program

Hardship programs are designed to help you through a rough patch, a hiccup in an otherwise impeccable history of payments. If you have:

  • Trouble keeping to a budget
  • Do not have a sufficiently good credit history with the lender
  • Trouble staying organized
  • Permanent life change of more than 60-90 days
  • Owe several creditors

A hardship program may not be the ideal answer for you. In this case, you may want to look into a Debt Management Plan.

Debt Management Plans

With a debt management plan, you work with a credit counselor who will:

  • Analyze your income
  • Analyze your debt
  • Negotiate with creditors on your behalf
  • Set you up on a payment schedule
  • Pay your creditors per the payment schedule

With debt management programs, you rely on your counselor’s negotiation prowess with your creditors to:

  • Waive fees
  • Lower interest rates
  • Negotiate balance settlements

The counselor will create a payment schedule for you. In that scheduled payment will be the counselor’s fee and portions to be disbursed to the creditors to pay the debt off. 

Pros and Cons of a Debt Management Plan

Using a debt management plan has the benefits of:

  • You do not incur additional debt with a loan to pay off current debts
  • One payment to your counselor helps you organize your budget
  • Your bills are paid timely by the counselor
  • Helps you achieve your financial goals and live within your means
  • Making timely payments improves credit scores over time
  • You can be debt-free within 12-24 months depending on accumulated debt

Outside help that comes with professional advice on how to avoid overwhelming yourself in the future is ideal for those that need help with organizing and prioritizing. So, what’s the downside?

  • Paying fees to cure your debt
  • The plan won’t contain certain debts such as student loans
  • Closing credit accounts and not using open ones while on the plan
  • Limited spending
  • Credit score fluctuations

Final Thought

Knowing the pros and cons of Hardship Programs and Debt Management Plans will help you select what works better for you—read more on this from Debt.org. Whichever you decide, you will be better off for it.