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What is credit card forbearance?

Credit card forbearance programs can let you skip payments, waive late fees or lower interest rates, but you'll definitely want to consider the benefits and drawbacks before opting in.

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If you've ever struggled to pay your credit card bills on time, your card issuer may have told you about the option to enroll in a forbearance program.

Many card issuers offer forbearance programs, which act as temporary relief during financial hardships. Every forbearance program is different, but you can typically expect to receive assistance with monthly payments and maybe other benefits like lowered interest.

Forbearance programs have recently become popular due to the ongoing coronavirus pandemic that has left millions of Americans out of work or with reduced income. Credit card issuers are offering numerous relief programs, from waiving late fees to allowing cardholders to pause monthly payments.

But before you opt in to a forbearance program, you'll want to consider the benefits and drawbacks. While credit card forbearance offers short-term relief, it may increase your debt in the long-term.

Below, CNBC Select reviews the pros and cons of credit card forbearance so you can decide the best route to take during financial strain.

What is credit card forbearance?

Credit card forbearance programs are provided by card issuers to offer consumers facing financial hardship, such as recent job layoff, reduction in working hours or furlough, temporary relief.

Some common types of forbearance include:

  • Pausing monthly bill payments
  • Lowering or eliminating minimum payments
  • Waiving late fees
  • Lowering interest rates

The exact type of relief you receive from a forbearance program varies by a number of factors, such as your credit card issuer, the kind of credit card you have, your relationship with your card issuer (such as debt and payment history) and the details of your current financial situation.

If you and a friend each had the same exact credit card and both applied for forbearance, the kind of options you would receive would likely be quite different.

Pros of credit card forbearance

When you face a reduction in household income, whether because you have lost your job or your significant other has lost theirs, you can find temporary relief in credit card forbearance programs.

In this case, forbearance would offer a short-term benefit that would let you pause your credit card payments long enough to cover other bills or save money while you look for a new job. That may be toward your mortgage, auto loan or electric bills that take precedence over credit card payments until you have a predictable source of income again.

Many forbearance programs are currently offering the ability to pause payments without late fees, which can save you up to $40. And as long as you are enrolled in forbearance, your credit score won't be negatively affected by late payments.

Yet, it's important to remember that interest is not always waived along with your minimum payments. If your balance continues to incur interest charges, you may be shocked when you see how much your balance goes up during your time in forbearance. Increasing your total debt may also hurt your credit score, which we discuss next.

Cons of credit card forbearance

Forbearance may seem like a good safety net if you can't make at least the minimum payment on your credit card bill, but you should take into consideration any interest charges. If your card issuer allows you to skip monthly payments or pay a lower minimum payment with no late fees, you'll likely still accrue interest on your unpaid balances.

Those interest charges will be added to your existing balance and may cause you to fall into debt. This can result in a higher credit utilization rate (which is the percentage of your total credit you're using) and can lower your credit score.

An alternative to forbearance is to use a 0% APR card in order to avoid interest fees during the introductory interest-free period. For instance, the American Express Cash Magnet® Card offers a 0% APR on purchases and balance transfers for the first 15 months from account opening (then 12.99% to 23.99% variable APR). See rates and fees. If your credit score is good enough to qualify for this option, and you can verify some kind of income on a new credit card application (whether that be retirement distributions or a spouse's income), using a credit card with a promotional financing period can be a way to protect your score and buy some much-needed time without incurring extra debt.

Bottom line

If you have any doubt that you will be able to make credit card payments, it's in your best interest to contact your card issuer as soon as possible to discuss relief options. It's better to opt in to a forbearance program than to accidentally miss a payment and incur up to a $40 fee and penalty APR. Once you're in a better financial standing, you can work on paying down your credit card debt, but until then forbearance can be a helpful safety net.

However, if you currently have the ability to make at least the minimum payment, you should consider sticking with that option since forbearance is not without some drawbacks.

Learn more: How to delay your credit card payment during the coronavirus pandemic

For rates and fees of the American Express Cash Magnet® Card, click here.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.