Does credit card debt forgiveness mean your debt is erased with no consequences? No, in fact, thinking that your entire debt will be wiped without it affecting you might get you in trouble–there are a lot of scammers out there.
That being said, it is possible to get credit card debt relief where you end up paying less than you owe. To totally erase your debt might mean taking extreme measures like filing for bankruptcy.
If you’re in a situation where you’re very overwhelmed by your debt, here’s what you need to know about credit card debt forgiveness.
In This Article:
- What is Credit Card Debt Forgiveness?
- What are the Downsides of Receiving Credit Card Debt Relief?
- How to Get Credit Card Companies to Forgive Debt
- What If I Need More Help?
What is Credit Card Debt Forgiveness?
Basically, debt forgiveness is when your lender (in this case, the credit card company) agrees to forgive part or all of the debt you owe. This can come at the cost of certain penalties, like extra fees, a damaged credit score and more. In most cases, you’ll still need to owe part of your existing balance–forgiving all of the debt is pretty rare.
Here’s how it works: You or someone you have given permission to represent you will contact your creditor or the collection agency that bought out your debt and negotiate an offer. You’ll negotiate what’s called a settlement offer where you pay a part of what you owe. In some cases, other terms may be added in like paying a fee to change the terms of your account or delete it altogether. So once the creditor receives the money you’ve agreed upon, the remaining debt will be forgiven.
What are the Downsides of Receiving Credit Card Debt Relief?
The most common downside is that your credit will be damaged. That means if you decide to go ahead with debt relief for your credit cards, this negative remark will stay in your credit report for seven years.
As a result of this negative remark, you’ll most likely have a lower credit score. That means future lenders will see this and if you decide to take out loans like a mortgage or another credit card, you may be denied. Or, if approved, you’ll only be approved for high interest rates. In this case, you can build up your score to get more competitive rates such as starting out again with a secured credit card.
Some credit card companies might end up closing your account even if you want to keep it open. That is, assuming it isn’t already closed.
How to Get Credit Card Companies to Forgive Debt
Getting your debt forgiven shouldn’t be a decision that’s taken lightly. It’s best for when you have no other options–like when your creditor has charged off your debt and/or sold it to a third-party collection agency.
If you decide to proceed, here are a few ways you can do so yourself:
- Call the credit card company to settle the debt — You can reach out to the credit company yourself to decide on how much you can pay. You can either do it in one lump sum or over a series of payments. Make sure to get it all in writing so you know your debt will be forgiven.
- Take advantage of the statute of limitations on credit card debt — Yes, you might be able to avoid paying the debt altogether if there is a lawsuit over your debt and the statute of limitations has expired. This shouldn’t be taken lightly as one wrong move could mean bigger financial trouble. Statutes of limitations can be different depending on the state, so it’s best to consult a legal professional.
- Consolidate debt — It’s not necessarily debt forgiveness, but it can mean a lower interest rate and paying less overall. However, you’ll want to do some careful calculations to see if this is the case.
- Declare bankruptcy — This is one of the most extreme options, but it does mean your debt could be discharged by the court. It could also mean even more damage to your credit and the courts could force you to still repay some of your debt over time.
What If I Need More Help?
Let’s look at a couple of options you should be aware of if you don’t think you can get debt forgiveness on your own.
These types of companies claim to negotiate with your credit card company on your behalf so you owe less. It’ll charge you a monthly fee to completely take the negotiation payment off your hands.
While there are many legitimate companies, debt settlement companies typically require you to stop making payment to your credit card company which could severely affect your credit score and report. It also means you may have to pay late fees. Plus, if the debt settlement company doesn’t do what they say, you withholding payments could mean that your credit card debt will be turned over the collections, putting you at risk for being sued.
Other downsides include the high fees the debt settlement company charges, being taxed on the forgiven debt, and the fact that the credit card company may not truly put you in the clear of the remaining balance. Keep in mind that if you can’t make the minimum payments the debt settlement company charges, you’ll be dropped out of the program, leaving you on your own to deal with the mess.
One major thing to watch out for is that there are many scammy debt settlement or credit repair companies who don’t deliver as promised. In some cases these companies charge hefty fees and run away with your money.
The good news is that the Credit Card Debt Relief Act of 2010 prevents companies from charging fees before the settlement deal is completed. So if you’re someone with more than $10,000 worth of unsecured debt looking for some relief, this act will protect you from predatory companies. Still, do your own research, as scammers aren’t the most law abiding.
A debt management program is usually run by a nonprofit credit counseling agency that works with you to reduce what you owe or figure out a more affordable payment plan. This means you’ll make one monthly payment that goes towards what the debt management counselor negotiates with your creditors. That means this counselor will oversee all your accounts.
Keep in mind that you might face restrictions on opening more credit accounts or even using existing credit cards during this time (if you can’t use cash, a prepaid debit card can be a good option to control your spending). While your credit could be negatively impacted, it might be for a short time until you start consistently paying back your debt.
Pursuing credit card debt forgiveness is a serious matter. In some cases it is the best option. Bottom line, look at all the pros and cons and speak to a financial professional before making a decision.