A hardship letter to a creditor explains why you have fallen behind, or are about to fall behind, on your payments. The point of a hardship letter is to show the creditor that you want to, but are not able to, meet your financial obligation. It may also explain what the creditor can do to help you repay the debt to avoid charging off the account. There are no figures available to show how often hardship letters work, because no one agency or organization collects such data from individual creditors. However, experts, including LoanBiz columnist Gabriel Traverso, agree that harship letters often help consumers find relief from creditors.
Why They Work
If you completely stop paying back your debt, the creditor has no choice but to initiate collection proceedings, which cost it money. And if it charges off the debt without collecting, it is essentially taking a loss. Thus, creditors realize that by showing consumers who have fallen on hard times but genuinely want to repay their debt some leniency, they can get back at least some of the money they're owed.
Creating a Hardship Letter
A hardship letter should state any negative changes to your financial situation, such as a job loss or unexpected medical bills, as well as how you expect the situation to persist. Depending on your analysis of your situation, you might want to ask the creditor to lower your interest rate so that more of your monthly payments go toward paying down the debt. Or you might ask that the account be closed so that no new interest accrues, allowing you to make lower monthly payments. Creditors are sometimes even willing to forgive part of the debt in exchange for a lump-sum payment.
Follow-Up
If you do not hear back from the creditor within a reasonable amount of time, call to ask whether the letter was received and if your proposal was considered. If the creditor offers you assistance, whether in the form of a reduced interest rate or an affordable payment plan, ask to have this information in writing.
Tips for Success
The key to a successful hardship letter is to be as clear and honest about the situation that is preventing you from paying your debt. Don't exaggerate your hardship; your creditor might ask for proof of the hardship, such as an unemployment check stub or a copy of your monthly bills. If possible, provide such proof with your hardship letter so your creditor doesn't have to ask for it and create an extra step in the process.
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