How to Get Credit Card Debt Forgiveness
When we talk about debt forgiveness, this usually happens when someone you owe agrees to forgive all or part of a balance you owe them. That means the credit card debt is forgiven. However, credit card debt forgiveness might not work the same way.
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.
If you’re having trouble paying your credit card debt, you might be hopeful that your credit card issuer will forgive the debt you’re unable to pay. If you are trying to get credit card forgiveness presently, you might be wondering how you can do it and what options are available to you. Let’s consider some of them.
- How Can I Get my Credit Card Debt Forgiveness?
- Is There a Way to Get Debt Forgiven?
- Can Credit Card Debt be Forgiven After 7 Years?
- What is The Quickest Way to Get Out of Credit Card Debt?
How Can I Get my Credit Card Debt Forgiveness?
Credit card debt forgiveness is rare, but you may be able to reduce your credit card debt in other ways. Make sure you understand your options and how they could affect you in the near and long term. When you open your credit card account, you agree to the issuer’s terms and conditions, which include your promise to repay debt. Unless there is a compelling reason why you should not be responsible for your debt (in the case of fraud or identity theft, for instance) there’s little chance that your issuer will let you off the hook for your balance.
While you may not be able to have your credit card debt forgiven, there are some steps you can do to make it more manageable.
Work Directly With the Credit Card Issuer
If you are financially affected by a natural disaster or declared an emergency, or are experiencing general financial hardship, you should quickly let your creditors know what’s going on—even if you haven’t yet missed a payment.
When making contact with your credit card company’s customer service team, the Consumer Financial Protection Bureau suggests that you be prepared to provide information, including:
- Why you can’t make the minimum payment
- How much you can afford to pay
- When you should be able to restart your normal payments
- The new payment amount that would work for you, and for how long
This information may help your issuer work out a more feasible payment plan based on your circumstances. For instance, you may be able to negotiate different options like a credit card hardship plan, which can provide some financial relief while you get back on your feet.
Some options with a credit card hardship program could include negotiating a lower interest rate or minimum payment or even waiving late fees. In some cases, you may be able to pause payments without late fees, as well.
Tread carefully, though, if you’re concerned about your credit score. While temporary relief from your payments is welcome, your credit score could suffer if the arrangement lowers your credit limit or closes your account. A lower credit limit (or a closed account) can cause your credit utilization rate to jump, especially if you have high debt on other cards. Credit utilization is one of the most important factors in your score, so preserving your credit limit could help you protect it.
Finally, you should know that your card issuer is not obligated to accommodate your request for forbearance. Although some credit card companies have been accommodating these requests in recent years due to the pandemic and related recession, there’s no guarantee that you’ll have this option.
Set Up a Debt Management Plan (DMP)
You may be able to set up an arrangement known as a debt management plan (DMP). Offered by credit counseling organizations, these plans may succeed in getting your creditors to waive fees and lower the interest rate on your accounts if you agree to fully repay the debt over time.
As part of your DMP, the credit counselor you’re working with will collect a single monthly payment and distribute it to your creditors. Plans are typically structured so your debts are fully repaid within three to five years. Interest typically still accrues on accounts that are part of the DMP, but your issuer may offer a lower rate.
Downsides to using a DMP include:
- DMPs don’t cover installment debt, such as student loans or mortgages
- You’ll have to close the credit cards that are part of the DMP
- You may have to stop using credit cards that aren’t part of the DMP while it’s active
- You’ll pay a monthly fee to the credit counseling agency
Although a DMP can be a great way to get back on track with your credit card payments, it comes with some consequences that may not be ideal for you.
Work With a Debt Settlement Company
Debt settlement companies may be able to settle your debt for a lower amount. For example, if your credit card balance is $5,000, they may be able to settle it for $2,500. The strategy relies on the assumption that a creditor would prefer a portion of your debt to be paid if it would prevent you from defaulting on the account.
While it may sound like a good solution, debt settlement is typically viewed as a last resort before bankruptcy. It can be fraught with risk (and scams), and there’s no guarantee that the service you’ve paid for will be effective. As mentioned, credit card companies are not obligated to settle your debt, so you may not get the results you’re looking for with this route.
Debt settlement can also result in damage to your credit as you may be asked to stop making payments on your debt while the debt settlement company attempts to negotiate with your creditors. Instead of paying your bills, you’ll make payments toward an account the debt settlement company controls so they can offer the balance of that account in lieu of the total amount you owe. Because payment history is the most important factor in your credit score, all those missed credit card payments will likely cause your score to plummet.
Consolidate Your Debt
If your credit utilization ratio is modest and your credit score hasn’t decreased significantly, you might be eligible for a debt consolidation loan. These loans allow you to pay off your existing debt with a lower interest rate you’ll repay in fixed monthly payments.
And if you’re a homeowner, you may be able to tap the equity in your home and pay off your debts with a home equity loan or home equity line of credit. However, the hazard with this type of credit is that you risk losing your home if you’re unable to pay off debt.
Filing for Chapter 7 bankruptcy could discharge (forgive) all of your credit card debt. However, bankruptcy should only be considered as a last resort option due to the lasting damage it will cause to your credit. Bankruptcy will remain on your credit for up to 10 years after the filing date. Filing bankruptcy is also costly and may require you to sell possessions to cover your debts.
Is There a Way to Get Debt Forgiven?
Debt forgiveness is simple in theory: a lender forgives some or all of the debt you still owe on a loan. But this undeniably appealing concept almost always comes with strings attached.
Before seriously considering debt forgiveness as an option, keep your eyes open and avoid the pitfalls of wishful thinking. Knowing the catches of a debt forgiveness plan — and sniffing out scam artists ahead of time — can save you a lot of grief further down the line.
All of this isn’t necessarily meant to dissuade you from pursuing debt forgiveness. Depending on your circumstances and the type of debt you owe, certain debt forgiveness options may grant you access to …
- Debt forgiveness for less than the full balance
- In rarer cases, full forgiveness of some debts
Let’s take a look at some debt forgiveness options that may be available to you.
Believe it or not, credit card companies may be open to forgiving or negotiating your balances. But — are you sensing a theme here? — credit card debt forgiveness is not a magic pill and may come with some pretty serious risks attached.
Let’s look at a couple of options you should be aware of.
If you need help repaying your credit card debt, a nonprofit credit counseling agency (not to be confused with a “credit repair” company) may be able to help you find a better payment plan or even reduce part of what you owe.
Setting up a debt management plan, or DMP, often involves making just one monthly payment toward all your debt, including credit cards as well as some of your student loans and other bills, according to a payment schedule the credit counselor makes with your creditors. The credit counseling agency typically oversees a DMP, using the money you deposit with them to pay off your debts.
But this special option comes with some limitations and consequences that are important to understand.
- You may be subject to restrictions on using credit and opening new credit accounts while you’re enrolled in the plan.
- A DMP may also negatively impact your credit scores in the short term, as creditors may report that you aren’t paying back the money in the manner originally agreed upon.
Still, the long-term effects of getting out of debt and establishing financial responsibility could be worth it.
Credit card debt settlement involves negotiating with your credit card company to pay less than what you owe and is often arranged by a third party. This third party takes over communication with your credit card company and charges you a monthly fee.
But watch out — debt settlement agencies often require you to stop making your debt payments directly to your credit card company, which could negatively impact your credit reports and scores. Not only will you potentially be subject to late fees, but missing just one payment on a credit card or loan can result in a major hit to your credit scores.
Withholding payment over the long term can cause your debts to turn into collections accounts, further harming your credit and putting you in danger of being sued for repayment.
You’ll also want to be aware of these other potential downsides.
- You’ll likely be charged high fees for debt settlement services and you may be taxed on the amount of debt you don’t payback.
- Debt settlement scams abound, and some of the less reputable companies may not deliver on any guarantees they might make.
- Just because you’ve got the credit company off your back doesn’t mean you’re in the clear! Most debt settlement programs require setting aside money in a special savings account on a monthly basis. If you can’t make your monthly payments, you may end up dropping out of the program — and you’ll still be on the hook for your unpaid debts.
For many people, the benefits of hiring a for-profit third party for debt settlement don’t make it more appealing than the alternatives, for example, negotiating with your creditors on your own.
Can Credit Card Debt be Forgiven After 7 Years?
Seven years is a well-known time limit when it comes to debt. It’s referred to so often that many people have forgotten what really happens to credit cards, loans, and other financial accounts after the seven-year mark.
Seven years is the length of time that many negative items can be listed on your credit report, as defined by the Fair Credit Reporting Act. This includes things like late payments, debt collections, charged-off accounts, and Chapter 13 bankruptcy. Certain other negative items, like some judgments, unpaid tax liens, and Chapter 7 bankruptcy, can remain on your credit report for more than seven years.
Most negative items will simply fall off your credit report automatically after seven years from the date of your first missed payment. Your credit report, if you’re not familiar, is a document that lists your credit and loan accounts and payment histories with various banks and other financial institutions.
The actual debt doesn’t get erased after seven years, particularly if it’s unpaid. You still owe your creditor even when it’s too old to be included in your credit report. Because the debt still exists, creditors, lenders, and debt collectors can still use the proper legal channels to collect the debt from you.
That includes calling you, sending letters, or garnishing your wages if the court has given permission. You can even be sued for a debt if your state’s statute of limitations for that debt is more than seven years.
Even though debts still exist after seven years, having them fall off your credit report can be beneficial to your credit score. Once negative items fall off your credit report, you have a better chance at getting an excellent credit score, granted you pay all your bills on time, manage newer debt, and don’t have any new slip-ups.
When the negative items fall off your credit report, it also improves your chances of getting approved for new credit cards and loans, assuming there’s no other negative information on your credit report.
What is The Quickest Way to Get Out of Credit Card Debt?
Here are five easy things you can do to cut your interest costs and get out of debt faster.
1. Learn your interest rates and pay off highest-rate cards first
Almost 2 in 5 Americans with credit cards (38%) say they don’t know all the interest rates on their cards, which can cost them when they’re deciding how to pay off their balances. To save the most money and eliminate your debt in the shortest amount of time, pay off your cards in order of annual percentage rate. Make the minimum payment on each card, then put all your leftover money toward the card with the highest rate.
Let’s say you have three credit cards and can afford to allocate $150 a month to pay them off:
- Card A: $3,000 balance, 20% APR, $60 minimum payment
- Card B: $2,000 balance, 18% APR, $40 minimum payment
- Card C: $1,000 balance, 15% APR, $20 minimum payment
The minimum payments on these cards add up to $120, leaving you an extra $30 to start. If you used that extra money to pay off the cards in order of interest rate, highest to lowest, you would end up paying a total of $3,316 in interest. By contrast, if you decided to pay off according to balance — lowest to highest — you would pay $3,588 in interest. This means a savings of $272 in interest costs, just by paying the cards off in order of interest rate. The more you owe, the bigger the impact with this debt payoff method.
2. Double your minimum payment
More than 1 in 10 Americans who have credit cards (11%) make only the minimum required payment. Minimum payments are enough to cover the interest on your account, so they can keep you from falling behind, but they don’t get you much closer to eliminating your debt.
One simple way to make a huge impact is to pay double the minimum. Say you owe $2,000 on a credit card with a 20% APR and a $40 monthly minimum payment. If you could find an extra $40 in your budget and you paid $80 each month, you would save $1,727 in interest and get out of debt more than six years faster.
3. Apply any extra money in your budget to your payment
Credit card interest rates are likely to drop following the Fed’s action. Close to half of American cardholders who ever pay interest on a credit card (44%) say they would put any money they saved on credit card interest toward reducing their actual credit card debt. This is a wise use of that money because even small additions to your credit card payment can add up to big savings.
Say you owe $5,000 on a credit card with an 18% APR and a minimum payment of $100. It would cost you $4,311 in interest if you just paid the minimum. But what if you cut your monthly expenses by $25 and made a $125 payment each month instead? You would save $1,618 in interest charges and almost three years of payments. If you could find an extra $50 in your monthly budget, you would save $2,328 in interest and pay your debt off four years faster.
4. Split your payment in half and pay twice
Credit card interest isn’t calculated based on how much you owe on the due date or at the end of a billing period. Instead, if you carry a balance from one month to the next, your interest is based on your average daily balance. Because of this, making smaller payments more frequently can reduce the amount of interest you owe.
Let’s say you owe $4,000 on your card and you can afford to pay $500 a month. If you make that $500 payment on the 25th day of a 30-day billing cycle, your average daily balance would be $3,900. But if you make two payments of $250, one on the 10th day and another on the 25th day of the billing cycle, your average daily balance would be $3,775. Therefore, you would be accruing interest on $125 less than you would be if you made only one payment. The more months you do this, the more savings you’ll enjoy.
5. Transfer your balance to a 0% credit card
If you have good credit — generally a credit score of 690 or higher — you may be able to transfer your balance to a credit card with a 0% introductory rate that lasts 12 to 18 months. With no interest to worry about, you can focus on whittling down the core debt as fast as possible.
In general, you can’t transfer debt among cards from the same issuer — for example, you can’t transfer a Chase balance to another Chase card. Most cards charge a fee of 3% to 5% of the amount transferred, although a few cards don’t charge a fee for balances moved within a certain time frame.
If you choose this route, make a plan to pay off your full balance before the introductory period ends to avoid accruing interest charges.
As with many things in finance, there’s no one right way to seek credit card debt forgiveness through settlement. There are a few ways it can happen:
|Path to Forgiveness
|You contact the creditor or collector to negotiate a settlement on your own.
|Unless you’re a good negotiator, you may not get the results you want
|You hire a professional debt settlement company to negotiate for you.
|The chances for success are usually higher
|You will pay fees for each debt successfully settled by the company, based on the amount settled.
|The creditor or collector contacts you with a settlement offer.
|You know what the creditor is willing to take, so you can negotiate from there
|If you can’t pay that amount, you may be stuck
|You can get debt forgiveness by filing for bankruptcy.
|The court controls the settlement amount and decides how much you must pay.
|The court controls the settlement amount and decides how much you must pay.