Will You Qualify for Credit Card Debt Forgiveness? (2024)

What is credit card debt forgiveness?

Debt forgiveness happens when someone you owe agrees to forgive all or part of a balance you owe them. Literally, the credit card debt is forgiven.

But that’s not the altruistic act that may sound like. When it comes to creditors and lenders, debt forgiveness usually comes at some cost, at least. In most cases, complete debt forgiveness is rare – and it’s pretty much nonexistent for credit card debt. In most cases, you must usually repay at least a portion of what you owe for them to forgive the remaining balance. And it often comes with penalties as well, usually to your credit.

When does credit card debt forgiveness work best?

Good: You should only start thinking about debt forgiveness once you fall behind and feel like you won’t be able to catch up. If you don’t think there’s a reasonable expectation that you can pay back everything you owe, then it may be time to seek forgiveness through settlement. A general rule of thumb is that you should be three months behind or more before trying to negotiate a settlement.

Better: A better time to pursue forgiveness is right before a creditor decides to charge off the account. For creditors, a charge-off means lost revenue – your unpaid debt becomes a loss for their company. Their only recourse if you don’t pay is to sell your debt to collector for a small percentage of what you owed. So, a creditor in this position is more likely to accept a settlement from you and forgive a portion of your debt.

Best: The best time to seek debt forgiveness through settlement is once a creditor sells it to a collector. Asking for debt forgiveness from a collector is easier because they purchased your debt for a small fraction of what you owed. So, they can turn a profit even if they accept a partial payment. Collectors are much more likely to accept a settlement making debt forgiveness much more likely once the debt goes to a third party.

What are the side effects?

The most common side effect of debt forgiveness is credit damage. In the case of credit card debt settlement, the negative remark will stay on your credit seven years. The negative item should drop off your credit seven years after the date of final discharge. You should check your credit every year to make sure old penalties drop off. Otherwise, you need to have them removed.

The effect of the negative item in your credit report is a lower credit score. This may lead to rejected loan and credit applications – i.e. lenders won’t approve you for new credit. If you do get approved, you can expect to pay higher interest rates. This effect is only temporary. In fact, it won’t even take seven years to get back to approvals at good interest rates. There are steps you can take to rebuild your credit once you’ve recovered and regained stability.

Another potential effect of debt forgiveness is that it would also close your account if it’s still open. But as stated before, forgiveness is best used once your accounts are already in charge-off status or sold to collectors. So, this usually isn’t a concern.

Who will love credit card debt forgiveness?

Credit card debt is a life-send for people who are maxed out, charged off and already facing collections. It’s ideal when you have so much debt that is so far gone, you wonder if you’ll ever be financially healthy again. Missed payments and collections have already ruined your credit. In truth, the worse your credit is, the less a single negative action does harm. You simply have less far to fall.

The credit report penalties of debt forgiveness will take seven years to expire. Just like any missed payments, charge offs and collection accounts last. In other words, the penalties will expire around the time the rest of the penalties that you’ve incurred will expire.

If you need a clean break from debt for the lowest amount possible, credit card debt forgiveness is for you.

Who will hate it?

Credit card debt forgiveness is bad if you still have good credit and care about saving your credit score. If you’re happy with where your score is at right now, this is not the solution for you. In this case, you don’t want forgiveness. You want to assure your creditors you are committed to repaying everything you owe. That’s the best way to avoid any additional credit damage beyond what you may have already suffered.

If this is the case, you need to contact a credit counseling agency. They’ll help you set up a repayment plan instead of helping you pursue debt forgiveness.

Debt solutions aren’t one-size-fits-all. Use Instant Debt Advisor℠ to find out the best solution for your debt in only three minutes. Answer a brief questionnaire about your current financial situation. Instant Debt Advisor℠ will analyze your budget and tell you the best way to get out of debt. It’s free to use, won’t impact your credit, and there’s no commitment. Take some time to mull it over and come back to it later.

What’s the best way to get credit card debt forgiveness?

As with many things in finance, there’s not one right way to seek credit card debt forgiveness through settlement. There are a few ways it can happen:

Getting debt forgiveness through bankruptcy

If you don’t want to negotiate with individual collectors and have multiple debts you want forgiven, bankruptcy may be the way to go. You’ll notice in the bankruptcy pathway in the table above, the advantages and disadvantages are the same. The court decides how much you must pay to discharge the remaining balance. That can be a blessing and a curse, and you won’t know which one it will be until you file.

If you file for Chapter 7 bankruptcy, the court-appointed trustee will oversee liquidating your assets to repay your creditors. If you file for Chapter 13, then the trustee sets up a payment plan that you must follow. In other words, even in bankruptcy you could still be required to make monthly payments to get out of debt. It’s basically a court-controlled debt settlement program.

With that in mind, it’s often a good idea to seek forgiveness through credit card debt settlement first. Try to negotiate on your own or if contact an accredited debt settlement company if you’re not confident negotiating yourself. If it doesn’t work, you don’t lose anything. You can still file for bankruptcy and go that route. But if it does work, you may end up with a better settlement than what you would get through the court. That means more debt forgiven for a lower percentage of what you owed.