Credit card debt can be a significant financial burden, but it’s one that many Americans are carrying. Not only does the average cardholder have nearly $8,000 in credit card debt currently, but the average rate on that card debt is close to 23% right now. And with rates that high (or higher), it’s easy for any revolving credit card balance to become problematic over time.
That’s why it’s so important to pay off what you owe on your credit cards as quickly as possible. If you let the balance carry over month after month, it will balloon due to compound interest charges. And, if you’re only chipping away at it with minimum payments each month, it could take years or decades to get rid of.
But it doesn’t have to take that long. If you’re facing high amounts of credit card debt, there are a few routes you can take to have your credit card debt forgiven. Below, we’ll detail what to know.
Learn how debt forgiveness (and other debt relief options) could benefit you now.
3 ways your credit card debt can be forgiven
If you want to have some or all of your credit card debt forgiven, consider these options:
Debt settlement through a debt relief agency
One option you have for pursuing credit card debt forgiveness is to enroll in a debt settlement (or debt forgiveness) program with a debt relief agency. When you enroll in this type of program, you work with experts to negotiate with your creditors to pay less than the full amount owed on your credit cards. If negotiations are successful, the credit card companies effectively forgive a portion of your debt. Here’s how it works:
- You enroll in a program with a debt relief agency and the experts you work with will analyze your debts and income to determine the right path forward.
- The agency advises you to stop making payments to your creditors and instead send in monthly payments based on what you can afford to pay. That money is then saved in a dedicated account.
- Once enough money has accrued in that account, the agency negotiates with your creditors to accept a lump sum payment that’s less than your total debt.
- If the creditor agrees, you pay the settled amount, and the remaining debt is forgiven.
There are a few potential benefits and downsides to consider with this option, though:
Pros:
- Can significantly reduce the amount you owe, sometimes by up to 50% or more
- Provides professional negotiation expertise, which can result in better outcomes in certain cases
- May have established relationships with creditors, further increasing the chances of a positive outcome
- Can resolve debt faster than making just the minimum payments
Cons:
- Fees charged by the debt relief agency are typically 15-25% of the enrolled debt
- Significant credit score drop is likely due to missed payments
- Creditors are not obligated to negotiate or accept settlement offers
- Forgiven debt may be considered taxable income by the IRS
- Risk of lawsuits from creditors during the non-payment period
Direct negotiations with your creditors
You don’t have to work with a debt relief company to try and get your creditors to forgive a portion of your balance. If you’d prefer to avoid the fees tied to debt relief agencies or have strong negotiation skills, you can attempt to negotiate debt settlement directly with your creditors instead. Here’s how it works:
- You contact your creditors directly and explain your financial hardship. You may need to show proof that you’re unable to maintain your payments or pay off what you owe.
- During this process, you offer a lump sum payment that’s less than the full amount owed.
- If the creditor agrees, you pay the negotiated amount to settle the debt.
The potential benefits and downsides to consider with this type of debt forgiveness include:
Pros:
- No fees to debt relief agencies, potentially saving you money
- More control over the negotiation process
- Potential for immediate resolution if you have funds available for a lump sum payment
Cons:
- Requires strong negotiation skills and knowledge of debt settlement practices
- Time consuming process, especially if dealing with multiple creditors
- Still carries a potential credit score impact and tax implications
Bankruptcy
Bankruptcy is a legal process that can lead to the forgiveness of credit card debt through either discharge (Chapter 7) or restructuring (Chapter 13). It’s generally considered a last resort due to its long-lasting impacts. Here’s how it works:
- Chapter 7 Bankruptcy:
- Liquidates your non-exempt assets to pay creditors
- Most remaining unsecured debts, including credit card balances, are discharged
- Typically takes 4-6 months to complete
- Chapter 13 Bankruptcy:
- Establishes a 3-5 year repayment plan to pay off some or all of your debts
- Remaining unsecured debts may be discharged at the end of the repayment period
As with the other debt forgiveness options, there are benefits and downsides to consider with bankruptcy, including:
Pros:
- Can provide a fresh financial start
- Automatic stay stops creditor collection activities
- Can discharge most unsecured debts, including credit cards
Cons:
- Long-term impact on your credit score
- Can make it difficult to obtain credit, housing or employment in the future
- Often requires an attorney to help navigate the legal process
The bottom line
Credit card debt forgiveness can provide a path to financial recovery if you’re struggling with overwhelming balances, but each method comes with its own set of advantages and drawbacks. That’s why it’s essential to carefully evaluate your specific financial situation before deciding on a course of action. And remember, the best approach to credit card debt is prevention. So, no matter what route you take, developing sound financial habits and using credit responsibly is necessary to avoid the need for debt forgiveness in the future.
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