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Debt Forgivness

Most consumers have experienced financial hardship at some point in their life, and this may have led to the difficult choice to stop paying credit cards for a period of time. Generally speaking, credit card companies often pursue these unpaid credit card debts internally through their collections department.

Every financial institution is different, but there comes a point where they decide to write off the defaulted amount, or in other words, enter into cancellation of debt. At this point, the debt is often sold to a third party or collection agency, and they continue to pursue it. Here’s the catch for the consumer.

What was considered uncollectible to the bank or credit card company is now viewed as income by the IRS.


After making 120 qualifying loan payments – on time and for the full amount on the bill – the federal government will forgive any remaining balance.

Debt cancellation happens when a lender forgives or discharges some or all of a debt that you owe. The process typically doesn’t affect your credit score—unless it happens in bankruptcy—but it could end up costing you. Debt cancellation typically happens in accordance with a debt forgiveness program.

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Understanding Debt Forgiveness

Debt is a slippery slope. What started as a small amount can quickly snowball due to interest and fees. This doesn’t include any additional loans or credit taken, which can make debt totals climb even faster.

Whether you’re talking about credit card debt, student debt, or even personal loans, the idea of debt forgiveness is that a creditor will forgive all or some of your debt. There are generally strings attached, but if debts are completely overwhelming you then forgiveness can be an option.

So, who exactly makes an ideal candidate for debt forgiveness? In short, anyone that’s making little or no progress on paying off their debts could be a candidate. There are of course numerous caveats that go with that.

Special Considerations

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.

Let’s take a look at some debt forgiveness options that may be available to you, and some other ways that could potentially make your debt more manageable.

  • Student loan debt
  • Credit card debt
  • Mortgage debt
  • A note on bankruptcy