How to Write a Hardship Letter to Creditors

Quick Answer

A financial hardship letter is often the first step to receiving an arrangement with a creditor to help you get through a budget crisis. Your creditor may grant a temporary interest rate reduction, lower payment or a payment pause until you regain your financial footing.

Shot of a man writing and reviewing a financial hardship letter.

Despite even the most careful budgeting, most of us hit a financial rough spot at one point or another. Sometimes, an unforeseen circumstance such as a car repair, loss of income or medical emergency can strain your budget, making it difficult to meet your monthly debt commitments. Nearly two-thirds of Americans live paycheck to paycheck, according to a joint report by PYMNTS and LendingClub, leaving little left over to address a financial crisis.

Writing a hardship letter to creditors is one option when you're struggling to make payments. Here's how to write a hardship letter that can help you navigate a financial crisis.

What Is a Hardship Letter?

A hardship letter to a creditor lays out the financial circumstances that have made it challenging for you to continue making your monthly payments. The purpose of the letter is two-fold: You want to not only provide your lender or creditor with details of your hardship, including how and when it started and when you expect to recover, but also propose a mutually beneficial solution.

Depending on your situation, you might propose that your creditor help you by:

  • Lowering your payment amount
  • Temporarily pausing your monthly payments
  • Reducing your interest rate
  • Forgiving past-due payments
  • Waiving late fees
  • Modifying your loan
  • Settling your debt for less than you owe

You don't always need to write a hardship letter to request financial relief. Many lenders and creditors have their own process for their account holders facing hardship, such as speaking with a customer service representative by phone or submitting a request form online.

Chase Bank, for example, has an online process for requesting mortgage assistance, while Discover's website urges cardmembers under financial strain to work through their options with a representative. American Express also offers a hardship plan with options like temporarily reducing your payments or even pausing them for a specified period. Contact your creditor to discover your options and what is required before you write your hardship letter.

If you must send a hardship letter, be prepared to provide proof of income, tax returns, account statements and other financial documents your lender requests.

What Qualifies as Financial Hardship?

A hardship letter is a way to express to a creditor that you're facing financial challenges and seeking flexibility or changes in your terms from your lender or creditor. But what constitutes a hardship? As a general rule, creditors consider a financial hardship to be an event or circumstance that is beyond your control, such as:

  • Loss of employment
  • Reduction of income or work hours
  • Job transfer
  • Military transfer or deployment
  • Divorce or separation
  • Death of a spouse
  • Medical expenses stemming from a severe illness or injury
  • Natural disaster

Certain circumstances are typically not viewed as hardships by lenders or creditors because they are deemed preventable or within your control. Here are some examples which are generally not seen as financial hardships:

  • Voluntary change in employment
  • Luxury purchases and nonessential spending
  • Personal investment losses
  • Costs for higher or continuing education
  • Expenses for criminal legal proceedings

It's essential to be open about your circumstances so your creditors can fully understand your situation and determine the most mutually beneficial arrangement. Remember, many lenders and creditors would rather work out a payment arrangement with you than see you unable to make payments on your debt.

How to Write a Hardship Letter

When writing a hardship letter, aim to be open and honest with your creditor while maintaining a just-the-facts approach. Propose one or more solutions they can provide that would help you regain your financial footing and repay your debt. Your hardship letter should include the following essential steps:

  1. Write an introduction. Begin your letter by stating your name, account number and the reason for your letter—to request financial assistance. For example, you might start off by saying something like: "To whom it may concern, My name is (your name), and I've been an account holder (account number) for (number of) years. I am requesting financial hardship assistance with my (account type; mortgage or credit card, for example) account."
  2. Detail your hardship. In a straightforward manner, explain what caused your current financial struggles, whether it is a job loss, divorce, medical emergency or another unexpected hardship.
  3. Highlight how you're being proactive about your financial situation. It's essential to show the steps you've already taken to address your financial situation. Example: "For the past two months, I've cut all nonessential spending from my budget, sold personal items and begun working as a ride-hail driver. I've used the proceeds to make partial payments on my outstanding debt."
  4. State your request. The most critical component of your hardship letter is your request for financial assistance. As such, clearly specify exactly what it is you're seeking, such as a temporary pause in payments, a payment plan or a loan modification. Emphasize that the plan of action you suggest is necessary to restore your financial stability and ensure the repayment of your debt.
  5. Provide assurance of financial recovery. If you're confident you'll bounce back financially soon, let your creditor know. Example: "If you can grant my request to pause payments for three months, I'm certain I can pay off my emergency medical bills during that time and then resume my regular monthly payments in full."
  6. Submit supporting documentation. Provide supporting documents along with your hardship letter to help prove the legitimacy of your claim. Depending on your situation, you might submit documents such as an unemployment notice, medical bills, military orders or a divorce decree. It's also helpful to provide verification of all sources of income (paystubs, W-2s and 1099s) as well as account statements to show your current financial status.

To avoid damage to your credit, remember to continue making payments while you wait for your creditor's decision.

How to Move Forward After Financial Hardship

Once you're able to return to solid financial footing and put this difficult period behind you, it's wise to take steps to prevent future financial hardships, such as:

  • Creating a budget: Budgeting gives you control over your finances by knowing exactly where your money is going. Ideally, it helps you avoid overspending and creates room for automatic savings for emergencies, retirement and other goals.
  • Building an emergency fund: Make it a goal to save at least three to six months of living expenses in an emergency fund, which may be enough to sustain you if you face a financial crisis.
  • Paying down debt: High-interest debt from credit cards, personal loans and other forms of credit is a drag on your finances. Strengthen your financial health by paying as much as possible toward your outstanding debts. Consider following a debt repayment strategy like the debt snowball or debt avalanche method to simplify the process and help you stay on track to zero out your debt.

While improving your financial health, don't forget about your credit, which determines your eligibility and interest rates for mortgages, auto loans and other important purchases. Regularly review your credit report and credit score for free with Experian to see where your credit stands and identify potential areas of improvement. Also, consider signing up for free credit monitoring to stay on top of any credit score changes and receive suspicious activity alerts.