If you are like many families, you have credit card debt. The cost of living continues to rise, while income and savings go down. If you are mired in debt, you are probably wondering if credit card debt forgiveness is an option.
Credit card debt forgiveness is not an outright wiping out of your debt. Instead, it means that your creditors work with you to negotiate a settlement payment. Often this payment will be less than the total amount that you owe. Credit card companies do this because getting some of their money is more favorable than getting none. This is known as debt forgiveness.
If you decide to do a debt settlement with your creditors, it is essential that you get everything in writing. You don’t want to assume that your debt is gone, only to have another collector show up later for the same debt. This is also essential if you need to prove that your debt is gone when updating your credit report.
Debt counselors can help determine if debt forgiveness is a feasible option for you. Be wary of for-profit debt counseling. While there are some reputable ones, others seek to prey on the financially vulnerable.
A good debt counselor will explain your options to you, and some may even be able to negotiate with your creditors on your behalf. These professionals often have a relationship with the creditors that can work in your favor. In addition, working with a counselor shows your creditors that you are sincere in your efforts to get your finances straightened out once and for all.
Be aware that if you can get your credit card companies to negotiate an amount that they will take off, you will have to report it to the IRS. It may be seen as taxable income. If this is the case, you will be responsible for the taxes on the amount that was forgiven. Be sure you prepare for this so you are not hit with an unexpected large bill. Not all debt forgiveness is considered taxable, so check with your tax professional to find out for sure.
If you have a debt forgiven, be ready for a hit to your credit score. You can expect to drop anywhere from 70 points all the way up to 150. This is significant, however, it is less than you would experience by filing for bankruptcy. If you can, try to negotiate a longer payment plan or lower interest before trying for a debt forgiveness. These will help you repay your full amount and will have less of an impact on your credit.
When it comes to getting your finances in order, your primary goal should be to get your debts repaid. However, sometimes that is not financially feasible. When bankruptcy looms close, credit card debt forgiveness is a better solution. You will still take a hit on your credit, you will be able to finally climb out from under the mountain of debt that has been weighing you down.