Credit Card Debt Forgiveness

Do you feel like your credit card debt is more than you can handle? You're not alone, and plenty of Americans struggle with how to manage their debt. 

Credit card debt forgiveness offers a solution when you're in financial hardship and need help. Credit card forgiveness allows you to get rid of debt without paying in full and move forward to a brighter future. 

Debt forgiveness has pros and cons that are important to weigh before you make a decision. Let's examine how credit card debt forgiveness works and who it may be right for. 

What is credit card debt forgiveness? 

Credit card debt forgiveness occurs when a creditor agrees to release you from your obligation to a debt. It doesn't mean you can walk away from the debt altogether, however. Typically, you agree to pay some amount toward what you owe, and the creditor agrees to cancel the rest of the debt. 

Creditors do so when they consider it better to get something rather than nothing if you've fallen behind on debt payments. It's often easier for a credit card company to forgive some of your debt for partial payment than to sue you for the entire amount. 

What are the benefits of credit card forgiveness? 

• You can get rid of debt faster if creditors agree to negotiate the cancelation of some of your debt. 

• Debt forgiveness could save you money, since you pay less than what you owe. 

• Forgiveness can reduce debt stress and anxiety so you can refocus your efforts on financial improvement. 

Creditors are not required to halt collection actions, including lawsuits, if you request debt forgiveness. However, they may agree to do so if you're able to come to terms on how much you'll pay. 

Why is credit card debt so challenging?

Credit card debt is often a challenge because it's easy to get into but difficult to get rid of. 

For example, your balance might creep up over time if you don't track expenses or you only pay the minimum amount due. Or you may have to charge an emergency expense to your card, which adds to your debt. 

High interest rates don't help, since interest charges can eat up a sizable chunk of your monthly payment. You might try a balance transfer to a card with a 0% APR but that's a temporary fix at best—not to mention the cost for transfering. 

Then there are situations where your credit card becomes a lifeline, and debt is unavoidable. 

Maybe you get laid off from work or your child develops a serious illness, and you have to leave your job to care for them. Or your spouse hits you with divorce papers, a natural disaster destroys your home, you wreck the car. These are all situations that could make you lean more heavily on your cards to cover expenses. 

If any of this sounds familiar, take a deep breath. Credit card debt forgiveness can help you find your way back to financial wellness. 

Three ways to get credit card debt forgiveness

You have some options if you're interested in credit card forgiveness. Let's look at three ways to get some of your credit card debt forgiven when a financial hardship has put a roadblock in your path. 

DIY negotiation

The first method to forgive credit card debt is to negotiate with your creditors directly. Here's how it typically works. 

1. You reach out to your creditors and explain the details of your hardship and why you've been unable to pay your debt. You may need to show evidence, such as a statement of unemployment benefits or medical bills. 

2. You make an offer to pay a reduced amount in exchange for forgiveness of the remaining balance. For instance, you may offer to pay 30% to 50% of what's owed. 

3. If the creditor agrees (in writing), you pay either a lump sum or several installment payments. You may pay via check or through electronic methods, such as an ACH transfer or a wire transfer. 

4. Once the payment is received, the rest of the debt is forgiven. 

This process requires persistence, and it generally works only when you're behind on your credit card payments. A creditor has no real reason to consider forgiveness if you're current on payments. 

You may need to make your request several times before your credit card company will consider it. As you negotiate, keep a written log of your communications in case the credit card company reneges on its forgiveness offer. 

Debt settlement

Debt settlement is similar to the negotiation process described above, with one key difference. You work with a professional debt settlement company to get your debt forgiven, versus doing it yourself. 

Here's how it works. 

1. You tell the debt settlement company details about your debt.

2. If you're a good candidate for debt settlement, the debt settlement company will set up a secure account that you'll deposit money into each month. 

3. The debt settlement company negotiates with your creditors to reach an agreement on how much debt will be forgiven. 

4. Once an agreement is reached and you approve it, the debt settlement company uses funds from your secure account to pay your creditors. The debt settlement company takes its fee from the same account.

5. After the creditor receives payment, the rest of the debt is forgiven. 

Debt settlement companies charge a fee for this service, which is only paid after they negotiate an agreement on your behalf, you approve it, and at least one payment has been made to the creditor. Having expert help to negotiate with creditors may make the fee worth it. 

Whether you settle debts yourself or with the help of a debt settlement company, you can expect some negative impacts on your credit standing. The biggest impact comes from missing payments. If you have late payments or collection accounts, they’ll factor into your credit score for seven years from the date of delinquency. Also, settled debts are reported as “settled” on your credit reports. This is less favorable than “paid as agreed” but better than a collection account. 

Most people are already behind when they begin debt settlement negotiations, or they are about to be. To be able to afford setting aside money for offers, many people choose to stop making payments against their debts. 

Creditors may not negotiate unless you're behind. When you fall behind, it’s a clear sign that you’re struggling. If you can afford to save money and pay off your debts, you might not look like a good candidate for debt settlement. 

Even so, you’re never required to stop making your debt payments so you can negotiate with creditors. There are situations where you could still present a strong case. For example, your spouse dies suddenly, you’re in a community property state, and you believe you’re responsible for a debt. 

Bankruptcy

Bankruptcy is a legal process to eliminate or restructure debt. You have two options to choose from:

• Chapter 7 bankruptcy can eliminate your debts. In exchange, you may have to give up some of your assets to the court. The court uses those assets to pay your creditors.

• Chapter 13 bankruptcy allows you to restructure and pay off your debt over three or five years. You don't have to give up any of your assets. 

Eligibility for Chapter 7 is based on your income, expenses, and household size. There's no minimum amount of debt needed to file bankruptcy. When debts are discharged (forgiven) in Chapter 7, you no longer have to pay them. 

Chapter 13 eligibility is based on how much debt you have and your income. The bankruptcy court requires you to propose a payment plan, which must be approved by your creditors. 

Bankruptcy can stop creditor lawsuits and other collection actions. It's often seen as an extreme or last-resort option but for some people, it's the best way to manage excessive debt. Like collection accounts and late payments, bankruptcy does have a negative effect on your credit standing. But over time, your scores can recover. 

How to qualify for credit card debt forgiveness

Your eligibility for credit card debt forgiveness is usually determined by your circumstances. Credit card companies generally need to see you have a significant financial hardship that prevents you from paying. 

Examples of hardship that could qualify you for debt forgiveness include:

• A job loss that cuts your household income in half

• Serious illness, injury, or disability that keeps you from working

• Loss of the primary breadwinner due to death or divorce

• Natural disasters that affect your ability to earn an income

You may need to show bank statements, copies of bills, collection notices, or other documents to prove your hardship. Forgiveness is often granted on a case-by-case basis. Take the time to fully explain your situation so the credit card company understands why you can't pay. 

The amount of debt you owe can also make a difference if you want to get help from a professional debt settlement company. You may need $7,500 or more in unsecured debt to get help. Unsecured debt means debt that isn't guaranteed by any collateral or assets of value. Examples of unsecured debt include credit cards, medical bills, and personal loans. 

For bankruptcy, the main yardstick is something called a means test. This test looks at how much income you have, your expenses, and household size, and how much you can afford to pay toward your debt. 

Alternatives to credit card debt forgiveness

Credit card forgiveness can offer relief from debt, but it's not the only option you have. You might consider these alternatives to deal with your debt. 

• Consolidation. Debt consolidation means you get a new loan to pay off your debts, so you have just one payment to make each month. A consolidation loan could help you streamline your debt and potentially reduce the amount of interest you pay.

• Balance transfers. Credit card balance transfers let you move money from one card to another, ideally at a lower interest rate. For example, you might have a card that offers a 0% APR on balance transfers for 18 months. That could give you time to pay down what you owe without interest piled on. 

• Credit counseling. Credit counselors can look at your budget and debts to propose a repayment plan. You could also talk to a credit counselor about whether debt forgiveness is a possibility or if bankruptcy might make sense. 

All of these options have risks and rewards, and for the most part, none are free.

It’s a good idea to talk to a debt expert about the best way to proceed, possible costs, and what effect your choices could have on your credit standing.