Summary
- Many Americans can seek debt forgiveness for various types, including credit cards, taxes, mortgages, and certain student loans.
- Debt settlement, often preferred by creditors, involves negotiating a lower payoff amount to clear outstanding balances.
- Specific credit card debt relief strategies include statute limitations, debt consolidation, or bankruptcy considerations.
- Mortgage and student loan debt options include loan modification programs and income-driven repayment plans.
- CreditAssociates® can help you save up to half of what you owe.
Debt Forgiveness Explained
The average American is $90,460 in debt, with over 80% of the nation owing some form of consumer debt. However, many of these debts can be forgiven or ‘relieved’ following a review. Credit card debt forgiveness can help people who are in over their heads financially. Additionally, tax, mortgage, and certain student loan debts can be forgiven with professional help and support.
As the debt collection process can be incredibly stressful, debt forgiveness can provide a lifeline by which you can get on top of your finances. Rather than endure the lengthy collections process, many creditors prefer to settle your debt for less than your total balance. This process is completed after both parties negotiate a sum to clear the outstanding debt.
What is Debt Forgiveness?
Also known as debt cancelation or debt relief, debt forgiveness is the process by which an organization or creditor clears all, or a fraction of your debt.
Does debt forgiveness work?
While debt forgiveness provides a financial compromise, the benefits come at a cost. Although you may relieve a portion of your debt, you could incur a fee, and your future credit score can be negatively impacted.
Types of Debt Forgiveness
Credit Card Debt
Although there is no official Credit Card Debt Forgiveness Act, many companies offer some form of credit card debt forgiveness.
To reach a debt forgiveness or ‘settlement agreement’, you must negotiate with your credit card company and decide on a sum that you’re able to pay. This figure must be paid immediately as a lump sum or over time across multiple smaller payments. Any remaining debt will be forgiven.
For debt forgiveness on credit cards, you can:
- Wait out the Statute of Limitations until your debt expires.
- Consolidate your debt
- Consider declaring bankruptcy
Mortgage Debt
Until recently, the Mortgage Debt Forgiveness Act helped homeowners to minimize or eradicate debts within the calendar years of 2007 to 2020.
Mortgage lenders are not keen on debt forgiveness; they expect you to honor your mortgage agreement on time. However, many people experience hardship at some point in their lives. For this reason, loan modification programs were invented as a form of debt relief. These programs help to renegotiate mortgage terms and payments. An alternative option is a foreclosure, where your home is placed as collateral, and the lender seizes your mortgage.
Student Loan Debt
There are multiple options for student loan debt forgiveness, two of which are:
1. Loan forgiveness programs
The Public Service Loan Forgiveness program is offered to public sector workers (federal, state, or municipality) who have made on-time monthly student loan payments for ten years, using a qualified loan repayment plan.
2. Income-Driven Student Loan Repayment Plans
IDR plans are available to federal student loan borrowers who cannot afford to pay their loans. These help relieve some debt by negotiating rates based on past, present, and future income estimates.
Private student loan debt forgiveness must be negotiated with the lender. However, private lenders will each have their own policies regarding debt consolidation. In some cases, it’s best to hire an attorney that specializes in private student loan debt relief or contact us to speak to one of our expert debt consultants.
Tax Debt
Offer in Compromise
The nearest thing to tax debt forgiveness is the ‘Offer in Compromise’ (OIC). This is a settlement agreement that must be approved by the IRS. OICs allow debtors to pay much less than the total amount owed.
Unfortunately, fewer than 25% of applicants qualify for an Offer in Compromise every year.
Currently Not Collectible
There is a small chance that you can reduce all of your tax debt without paying the IRS a cent. If there is no possibility that you can afford to pay back your tax debt, you can apply to be considered Currently Not Collectible (CNC). To qualify, your circumstances need to be such that paying any amount towards your tax debt would present you with immediate financial hardship.
Let Us Help
While personal debt can be overwhelming, there are many options available to you to help improve your financial situation. To discuss the best option for you, contact us today for a free consultation with a member of our team.
