To give an easy example with numbers, let's say you’re wondering how to pay off $10,000 in credit card debt and you’re a bit behind on your payments. With credit card debt forgiveness, you would negotiate a deal with a debt collector to pay off $8,000 in either monthly payments or a lump sum and the remaining $2,000 left would be forgiven. That’s right, you won’t have to pay the remaining balance on the debt that is forgiven. However, it may be easier said than done.

How Does Credit Card Debt Forgiveness Work?

When looking to get some of your debt forgiven, it usually ends up that you’ll negotiate directly with your credit card issuer to get the balances lowered. In most cases, the credit card issuer will need to see that you’re not able to make the payments for your credit card debt due to illness, losing your job, or other financial hardships. Not all credit card lenders offer debt forgiveness, and if you do get some or all of your debt forgiven, it can have a negative impact on your credit score. With that being said, it’s important to weigh the pros and cons before going ahead with debt forgiveness.

Pros and Cons of Credit Card Debt Forgiveness

Just like any financial decision you make, or decision in general for that matter, choosing to go with the credit card debt forgiveness route will come with both advantages and disadvantages. 

Advantages of credit card debt forgiveness:

• Reducing debt: Credit card debt forgiveness programs can help significantly reduce the amount you owe. You can also restructure the debt and make it easier to pay off.

• Less stress: Getting your credit card debt forgiven can help reduce stress and anxiety. This “fresh start” can change your mindset moving forward in regards to how you view your finances. 

• Quicker way to pay off debt: The variety of credit card forgiveness plans can expedite the time it takes to pay off your debt and become debt-free.  

• Possibility to negotiate your debt: Different repayment plans allow for negotiation with creditors which can provide more favorable terms to you for your payments. 

Disadvantages of credit card debt forgiveness:

• Still can be taxed: Even if you wind up not having to pay $5,000 in debt, that money may still be considered taxable income which is something that you will still have to account for.

• Impact on your credit score: Credit card debt forgiveness can have a negative impact on your credit score. This can remain on your credit score for up to 7 years, which will make it difficult for you to borrow money in the future.

• Fees and costs: There may be a fee associated with partaking in debt forgiveness programs or you may be required to pay for professional services, minimizing overall savings.

• Cooperation from creditors: Some creditors may not participate in debt forgiveness programs or be willing to negotiate, so you may be out of luck. 

What Are The Different Credit Card Debt Forgiveness Plans

As we already mentioned, there are different options when it comes to debt forgiveness. Having a better understanding of each of them will help you to make an informed decision about what’s the best route for you.

1. Debt Settlement Programs: Debt settlement is when you negotiate with your creditors to pay less than what you owe in exchange for them forgiving the remaining debt. In these instances, the borrower usually pays a lump sum to settle the debt. It's important to note that debt settlement is not a guarantee, and it typically requires you to be behind on your payments. Keep in mind that going this route, the forgotten debt may still be taxable and you would have to report it on your tax return.

2. Debt Consolidation Loans: This involves combining multiple debts into a single loan with a lower interest rate than what you were paying. Debt consolidation allows you to simplify your repayment option by having only a single monthly payment instead of multiple debts to pay off. The overall debt burden can be reduced significantly.

3. Debt Management Plans: These plans are generally made between you and a credit counseling agency. Debt management plans are made to aid in getting reduced payments on your debt. The agency will help you create a budget as well as negotiate with creditors to get your lower interest rates to help with your payments. With the guidance of an agency, you can help improve your finances going forward.  

4. Bankruptcy: Filing for bankruptcy should be considered as a last resort since it’ll have the most impact on your creditworthiness. Declaring for bankruptcy legally states that you don’t have the ability to repay the debts and court will discharge some or all of those debts, giving you a fresh start. However, your damaged credit can play a role in the future when you’re looking to do certain things involving your credit and financial record.

Is Credit Card Debt Forgiveness Right for You?

If you’re somebody who is struggling to pay their debts, whether it's due to a lost job or being on a joint credit card account with your loved one and calling it quits, then credit card debt forgiveness can provide you with relief. However, it’s important to weigh the pros and cons and explore all your options before opting for debt forgiveness. Seeking advice from a financial advisor can put you in a better position to achieve debt relief and financial freedom than doing it alone. Remember, good financial habits such as budgeting, discipline, and saving money can help you avoid falling into debt in the first place and staying on track financially.