If you’re struggling under a mountain of credit card debt, you might understandably be wondering how to get out of it. Maybe you’ve heard that your credit card debt can be forgiven. Credit card debt forgiveness is in fact a real option under certain circumstances, but it isn’t your only option for getting out of credit card debt.
Credit card debt forgiveness is possible—but it does carry a number of consequences, and lenders will only resort to forgiveness in certain situations. Let’s take a look at what credit card forgiveness is, how it works, and other options you have for getting out of credit card debt.
Is it Possible to Be Forgiven of Credit Card Debt?
Yes, credit card debt forgiveness is a real thing. Basically, what happens is that your creditors decide that if they can’t get what is owed to them in a certain timeframe, they will collect what they can and forgive the rest. By agreeing to this, they are making the most of an unprofitable situation.
For example, if you are several months behind on your payments and $16,000 in debt, your credit card company—or debt collector, if the debt has gone to a collection agency—may agree to accept $10,000. This sum might be paid all at once or in agreed-upon installments. The remaining $6,000 of debt will be forgiven—but, keep in mind, the IRS considers forgiven debt to be taxable income, so you may need to pay taxes on it.
Even if your creditor agrees to credit card debt forgiveness, your debt won’t completely be wiped away. You should get at least 30% of your debt forgiven, up to 80% in some situations.
What Are Some Other Options for Managing Credit Card Debt?
Credit card debt forgiveness isn’t the best or only way you can get your credit card debt under control. You also have the following options to consider.
Consolidating Credit Card Debt
Consolidating credit card debt with a personal loan or balance transfer card won’t erase your debt, but it can reduce your interest and make it easier to pay off. If you have good credit, you may even qualify for a balance transfer credit card that offers a 0% interest introductory rate. If you don’t qualify for a balance transfer card, look for a debt consolidation loan that offers lower interest rates than you’re paying now.
With this approach you still pay the full amount you owe, over a three-to-five-year period, but with reduced or no interest. This type of program is available through a debt management company, who will negotiate with your creditors on your behalf.
Also known as debt resolution, this is one of the most effective ways of reducing credit card debt. Instead of working with your creditors directly, you ask a debt resolution company to negotiate on your behalf for a reduction in your credit card debt. The company will help you create a payment plan to pay back a reduced amount of debt.
Are you struggling with overwhelming credit card debt? Find out how CreditAnswers can help.