Credit Card Debt Forgiveness – Can It Be Wiped Away?
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With debt forgiveness topping news headlines, you may wonder what this process entails. While student loan forgiveness is the latest trending topic, there are other types of debt forgiveness that you can pursue, including loan and medical debts, particularly if you pursue bankruptcy.
But what about credit card debt forgiveness? Can your credit card debt be wiped away in certain situations? While credit card forgiveness is unlikely for most Americans, there are a few rare situations where it might be possible.
Here’s everything you need to know about credit card forgiveness, when it’s possible, and alternative debt repayment strategies to explore if forgiveness is not an option for you.
In this article
What is debt forgiveness?
Debt forgiveness is when a creditor or lender forgives all or a portion of your debt. To achieve debt forgiveness, you usually have to meet strict criteria and show extreme financial need.
You often need to qualify for a special program to receive debt forgiveness. However, debt forgiveness programs are becoming harder to come by — and this type of forgiveness is typically unavailable for credit card debt. Credit card issuers will not forgive debt, nor does the government offer a debt forgiveness program.
If you qualify for debt forgiveness, it wipes away all eligible debt, erasing your balances to zero. In theory, your credit score should remain unphased, too.
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What types of debt forgiveness exist?
There’s really only one main type of debt forgiveness available and that’s in the form of student loan debt forgiveness. This type of program wipes out qualifying federal student loan debt. Borrowers with certain degrees or who work in certain positions for some time can often have their student loan debt forgiven.
Different student loan programs are available, but one of the most common is the Public Service Loan Forgiveness program. This program forgives qualifying debt for teachers, nurses, emergency responders, firefighters, and other public service officials who hold a qualifying job and make 120 on-time payments.
Income-driven-repayment (IDR) forgiveness is another type of student debt relief. After 20 to 25 years of repayment, if you still hold a balance and you’re on an IDR plan, the balance of your student debt will be forgiven.
Other types of student loan forgiveness also occur from time to time. President Biden has canceled private loans from for-profit universities accused of scamming students, for example. Many also anticipate President Biden will forgive some federal student debt to help borrowers.
Other ways to reduce your credit card debt
Since credit card debt forgiveness is generally not an option, some other debt relief strategies are worth considering to help lower your credit card debt.
Create a debt management plan
If you’re suffering from credit card debt and need help, coming up with a monthly plan to repay your debt may be all you need. First, creating a budget is important to determine how much you can pay in monthly payments. While paying the minimum will keep your credit card account in good standing, it won’t help you pay down interest effectively and can make it harder and more expensive to dig your way out of debt.
To construct your plan, list out all of your debt accounts and current balances and figure out how much money you can apply to each. Once one is paid off, roll that money into the other accounts until, eventually, you’ve paid down all of your debt. Consider the snow avalanche method, where you pay off the debt with the highest interest rate and work your way down, or the snowball method, where you pay off your smallest debt first and work your way up.
Just be sure to pay at least the minimum each month to avoid penalty interest and late fees.
Learn more about how to create a debt management plan.
Consider debt consolidation
Maybe you have too much debt or need to streamline your payments into one monthly payment. Debt consolidation is an option that lets you take out one loan to pay off your high-interest credit cards to save money in interest and consolidate your payments.
You’ll need an average to good credit score to qualify for a good debt consolidation loan, but you can complete the process entirely online (in most cases). This loan then pays off the remaining balances on your credit cards in one lump sum payment, and you repay the lender of the loan each month.
This can offer you a more predictable monthly payment while paring back your interest rate a bit since personal loans tend to have lower annual percentage rates (APRs) than credit cards.
Learn more about how to consolidate your debt.
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Transfer debt to a balance transfer credit card
Let’s say you have $10,000 in debt and know you can pay it off in a year but don’t want to acquire much more in interest. In this case, you might consider transferring your balance to a balance transfer credit card with special introductory terms, like 0% APR for 12 - 22 months.
This allows you to move your balance (or balances) onto a new card and continue to pay down your debt without worrying about interest. This can save you hundreds to thousands in interest charges as you pay down your debt.
That said, most balance transfer credit cards have high APRs once the introductory period expires, so make sure you can pay off the balance in full before applying for one. You also want to make sure you don’t use this card for purchases; otherwise, you can start acquiring purchase APR right away. Generally, it’s a good idea not to use credit cards while paying off other credit card debt.
Check out our best balance transfer credit cards.
Apply for debt settlement
If repaying your debt doesn’t seem feasible, you might consider debt settlement. This is often the last resort for many credit card debt holders (and holders of other unsecured debts) and often requires that you demonstrate financial hardship to get approved. Debt settlement allows you to pay off less than you owe to settle the debt.
Debt settlement is typically only possible if you’re behind in payments and struggling financially to pay your debts. Perhaps you recently lost your job, acquired another expense, or have inherited additional debt. Whatever the reason, you can talk to your credit card companies to work out a plan.
In most cases, if you’re months behind in paying your credit cards, your account will be sold off to a collection agency that will then try to negotiate a payment with you. While having a credit card account go to collections can hurt your credit score, in many cases it’s easier to negotiate with a collection agency. So if one of your accounts goes to collections, talk to the collections agent and find out if debt settlement is possible.
Check out our list of debt settlement companies to consider.
As a last resort, file for bankruptcy
While I recommend trying one of the above options first, bankruptcy may be the most financially beneficial step in some cases. You shouldn’t enter into a decision to file for bankruptcy lightly — it will make applying for new credit accounts nearly impossible for several years and can set you back financially.
However, if you’re at a loss for how to repay your debt or cannot come to a debt settlement agreement, bankruptcy can help you restart and get back on your feet.
There are two types of bankruptcy: chapter 7 and chapter 13. Chapter 7 bankruptcy is designed for those who cannot pay off any of their debts, while chapter 13 bankruptcy will reorganize your debts and may lower them in some cases.
Your debts are effectively wiped out with Chapter 7 bankruptcy, though not all debts qualify. Student loans cannot always be eliminated with this type of debt cancellation. Credit card debt, however, can be wiped away.
You’ll need to qualify financially for bankruptcy, and your taxable income must be under a certain amount. You could also lose some of your property or even your home in some cases to help pay off your debts. Again, it’s not a step to be taken lightly, and I recommend talking to a credit counselor or lawyer before pursuing this route.
Watch out for credit scams when seeking debt forgiveness options
Consider many legitimate credit counseling agency options if you need help finding the best path to debt repayment or settlement. The United States Department of Justice lists vetted and approved credit counselors on its website.
You can typically identify a scam company as requiring an upfront or monthly payment to boost your credit score or quickly reduce your debt. In many cases, these companies may dispute errors on your credit report or provide options for boosting your credit score — all steps you can take on your own. However, you may be charged a high fee with little to no results — meaning you could end up paying even more over the long term by working with one of these companies.
Do your research to ensure you’re working with a reputable agency. Look for reviews, scan the recommendation from the DOJ, and know that if a service sounds too good to be true, it probably is.
The Consumer Financial Protection Bureau also has a list of guidelines to keep in mind when choosing a credit counseling service.
Learn more about how to know if a debt collector is a scam.
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- Relieve $25k+ in credit card debt or personal loan debt with this special relief program.
- TurboDebt has a Trustpilot rating of 5/5 based on 1288 reviews
- Subject to qualification and approval. $1,500 monthly income required.
- Apply in 5 minutes. If you qualify, chat online with a friendly online debt representative.
FAQs
Debt forgiveness and taxes
Although debt forgiveness typically doesn’t apply for credit card debt, if you do receive another form of debt forgiveness, it’s important to know that the amount forgiven is added to your taxable income at the end of the year. So, for instance, if $30,000 of debt is forgiven, this would bump up your income on your taxes by $30,000. So if you make $40,000 a year, your income would bump up to $70,000, pushing you into a higher tax bracket and making you responsible for paying more taxes that year. This is important to note if you’re used to getting a refund because you could be stuck with a tax bill instead. However, this does not apply to forgiven student loan debt through 2025. There was a provision put into Biden's American Rescue Act that eliminated taxes on forgiven student loan debt through 2025.
Can mortgage debt be forgiven?
The 2008 housing crisis led many lenders to forgive mortgage debt. As a result, protections have been put into place that prevents most borrowers from having mortgage debt forgiven. Although possible, it’s rare and not a type of debt forgiveness you should count on.
Since mortgages are a secured type of loan, it’s more likely that your lender will come up with a modification plan instead that reduces the amount you owe or reconfigures your monthly payment. If you're seeking mortgage forgiveness, you might instead consider refinancing your home loan into one with a lower interest rate and more flexible terms.
Is bankruptcy the same thing as debt forgiveness?
No. While bankruptcy and debt forgiveness can both wipe out your debts, bankruptcy severely jeopardizes your credit score and will cause it to plummet. Debt forgiveness usually does not impact your credit score. In addition, bankruptcy typically wipes out credit card debt (at least a section 7 bankruptcy will), while credit card debt forgiveness isn’t really an option.
The bottom line
Credit card debt forgiveness may sound appealing, but the truth is, there aren’t any programs in place to eliminate your credit card debt without going to a drastic measure like bankruptcy. Instead, it’s a good idea to try to work out a repayment plan, consider transferring your balance to a debt consolidation loan or balance transfer credit card, or apply for debt settlement. And be sure not to use your credit card while you’re focusing on repayment.
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Writer
Courtney Johnston is a freelance writer, specializing in finance, travel, and health. She has written for The Chicago Tribune, Benzinga, BestReviews, Mashvisor, Fundera, MoneyGeek, and The Culture Trip. She also teaches writing instruction at the University of Indianapolis. Courtney currently resides in Indianapolis.
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