In a recent piece, we wrote about how studies show that nearly 80 percent of all American workers live on a paycheck-to-paycheck basis. That’s about four out of every five workers, and what’s more is that this reality doesn’t discriminate based on age, gender or how much you earn.
Now, every worker is likely to face some tough financial times at some point in their life. In fact, nearly 800,000 are currently in the midst of said tough times. For example, federal workers missed two paychecks in January. Other difficult financial times may include instances where people have been laid off, let go or forced to take a significant pay cut.
Obviously in tough times, it can be difficult for people to make ends meet. Yes, tapping into a savings or a rainy day account is an option, but being that about 80 percent of all workers live paycheck-to-paycheck, sufficient emergency funds may also be hard to come by. This may lead people to use credit cards for utility bills, groceries, and phone and Internet bills, while saving unemployment or severance benefits for things like mortgage and auto payments. However, if you’re currently working your way through difficult financial times, it is possible to do without destroying your credit score – even if your credit card debt increases.
Credit Card Hardship Plans
It’s very likely that you’ve never heard of a credit card hardship plan. That’s because while most credit card companies offer it, they typically don’t advertise it. So if you see your credit card debt on the upswing due to some challenging times, don’t be afraid to pick up the phone and ask about how a hardship plan may be able to help you.
Hardship plans are also known as “credit card repayment plans.” Specifically, they’re custom designed situations to help save you money while also getting you out of debt. And unlike some of the credit counseling services you see advertised on TV, with a hardship plan you’re working directly with the credit card company – not a third-party company.
While every credit card company’s hardship plan works a little bit differently, they all consist of the same general philosophies, which include:
- Lower interest rates
- A lower minimum monthly payment
- Lower overall fees
- A custom-designed fixed payment plan
One of the best things about credit hardship plans is that enrolling in one won’t have a direct effect on your credit score. The plans, however, may have an indirect effect because potential lenders could see that you’re on such a plan. This may make them weary of issuing you a loan. Secondly, if the hardship plan closes or suspends your credit card, your length of credit history, credit mix and credit utilization ratio may be impacted in a way that lowers your score. However, it’s worth noting that after you’ve met your hardship plan obligations, this should all go back to normal rather quickly. So, even if there’s a modest decrease in your score, it will be easy to amend once you get back on your feet.
Other Ways to Help Keep Your Credit Intact
Aside from enrolling in a credit hardship plan, there are a few other tactics you can administer to ensure your credit doesn’t suffer as you look to get back on your financial feet.
For instance, be sure to pay all of your bills on time. It can be easy to forget about paying bills when money is tight, but this can be a major credit killer. That’s because payment history accounts for about 35 percent of your credit score. Late or missed payments will cause your score to dip.
Another tip is to try to keep your credit utilization ratio – or debt-to-credit ratio – at or below 30 percent. Any ratio beyond 30 percent may negatively impact your credit score. We get how you may fall back on your credit cards during trying times, but do your best not to exceed 30 percent.