Drowning in credit card debt? Here are your options

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When you have credit card debt, just the words “credit forgiveness” can inspire hope of relief.  But will credit card companies forgive debt? Yes — but in most cases, you will still have to pay at least a portion of your debt. In reality, debt forgiveness is not as simple or easy as it sounds, and it has important consequences both positive and negative.

Read on to learn more about credit card debt forgiveness and how to get credit card debt forgiven, as well as other options you may consider to tackle your debt.

Related: Should I pay off debt before buying a house?

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What Is Credit Card Debt Forgiveness?

Credit card debt forgiveness is when a credit card issuer agrees to forgive all or part of a customer’s outstanding balance. While that may sound great, it’s very unusual that a credit card issuer will forgive your entire balance. And even though a portion of your debt will be forgiven, there can still be consequences to your credit history, credit score and tax liability.

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How Credit Card Debt Forgiveness Works

The first step toward securing credit card debt forgiveness is to check your credit card statement balance and find out how much you currently owe. Then, you or someone representing you can contact the credit credit card issuer.

Note that if your credit card debt has been purchased by a debt collector, you or your authorized representative will need to contact the company that bought the debt. Once you or your representative has contacted the company that currently holds your credit card debt, you can ask to speak to the hardship department and explain our current situation.

From there, you may be able to negotiate your options, which could include a settlement offer like a one-time lump sum payment or installment payments on an amount that’s lower than what you technically owe, which is a divergence from the way credit card payments work usually.

When you reach an agreement, it’s critical to make sure to get it in writing. Once a settlement is reached and the creditor receives payment according to the arrangement you agreed upon, then the remaining debt is forgiven. Keep in mind, however, that it can still be reported to the three major credit bureaus.

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How Credit Card Debt Forgiveness May Affect Your Credit

Credit card debt forgiveness can have serious consequences for your credit history and credit score. When a credit card issuer writes off your debt, it will add that information to your credit history, which is considered to be negative.

This is also true when the credit card issuer settles the debt for an amount less than what you owed. This negative information will hurt your credit score for as long as it remains in your credit reports, which is typically seven years. This is on top of any negative information that’s been reported as a result of missing payments or having a very high debt-to-credit ratio from the debt you’ve accrued, which is one of the key factors that affect your credit score.

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When Companies Offer Credit Card Forgiveness

One of the ways to get credit card debt forgiven is to go through a professional debt settlement company. There are debt settlement companies that exist to help consumers negotiate with credit card issuers and other creditors.

However, these companies will charge fees that can range from 15% to 25% of your debt. And while these companies are no longer legally allowed to accept fees in advance, they will ask you to put funds into a settlement account.

The aim of these debt settlement companies is to get credit card issuers to accept less than the full amount you owe, and in the meantime, they will request that you stop making any payments. Once reached, the settlement can come as a lump sum or as a structured settlement. Either way, your credit history and credit score will suffer during the time that you don’t make payments on your debt, and as long as that information is in your credit reports.

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Other Options for Debt Relief

While credit card debt forgiveness can be an option for those with large amounts of debt, there are still other choices to consider.

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1. Debt Management

Debt management plans are offered by non-profit credit counselors to help return consumers to a financially sustainable condition. A financial counselor works with you and the credit card companies to set up an agreement to repay your debt, which can result in some credit card interest charges and fees being waived.

But unlike professional debt settlement companies, all of your payments go directly to the credit card companies. A debt management plan can even help you to improve your credit score over time. There’s no credit check conducted before you enter debt management, and regular payments will boost your credit score.

What’s more, a financial counselor can also give you some broader financial advice that could prove helpful going forward, such as a better understanding of how credit cards function and of important credit card terms.

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2. Government Help for Credit Card Debt

While there isn’t a government program for credit card debt forgiveness, you can access a number of resources through the government that can help you as you navigate your options for credit debt forgiveness. For instance, both usa.gov and the Consumer Financial Protection Bureau (CFPB) offer resources discussing how to deal with your debt and how to avoid scams in the process. If you’re a military member, there also may be debt management resources available for you through the Servicemembers Civil Relief Act.

Additionally, if you run into any issues with debt collectors or creditors as you’re dealing with your debt, you can submit a complaint through the CFPB.

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3. Credit Card Debt Consolidation

Another potential option when you’re staring down a mountain of credit card debt is credit card consolidation, where you transfer all of your existing debt into a new balance transfer credit card, ideally one with a lower APR or, even better, a 0% APR introductory period.

Keep in mind, however, that your credit will still need to be in good shape in order to qualify for those offers. If you are able to qualify, though, you could save money on interest — plus the time and hassle of keeping track of numerous credit card payments.

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4. Declaring a Chapter 7 or Chapter 13 Bankruptcy

Once you’ve exhausted other options, you may wish to consider bankruptcy. Chapter 7 bankruptcy involves having the court appoint a trustee to sell off all of your non-exempt assets to raise cash and make payments to your creditors. This is sometimes referred to as liquidation. In many cases of Chapter 7 bankruptcy, there are no assets to be sold, and the court discharges most debts. However, there can be some debts like child support and taxes that are considered to be non-dischargeable under this law — consult your attorney for more information.

With Chapter 13 bankruptcy, a person with a regular income enters into an agreement to repay all or a portion of their debts as monthly payment over a three to five year term. This agreement is approved by the court and is sometimes referred to as a wage earner plan. The advantage of this type of bankruptcy is that non-exempt assets aren’t sold off. But if the payment plan isn’t successful, the bankruptcy can sometimes be converted to Chapter 7.

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Compare Credit Card Options

If you’ve amassed a mound of credit card debt, you do have options — including the possibility for credit debt forgiveness. Just keep in mind that this doesn’t mean all of your debt will be wiped out, and there will likely still be consequences for your credit.

A big part of avoiding overwhelming amounts of credit card debt is to find a credit card that works for you rather than against you. When you’re searching for a credit card, this means weighing credit card rates and other factors to find a credit card that will be a boost to your financial situation as opposed to a burden.

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