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Debt Forgiveness: Possible? Yes. Easy? No.

Debt forgiveness

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The internet is rife with companies that claim they can get you debt forgiveness. Some may be able to help, but others can’t, and in fact, they don’t even try to. They just want some of your money too.

Some of these companies are fly-by-night, but don’t be fooled if you find one that’s been around a few years. That doesn’t make them legitimate. If you don’t carefully study the contract and read the fine print, you may not realize you’re signing up for empty promises. And that’s how they get away with violating the law.

These scam artists prey on people in debt, not because they think they’re stupid enough to fall for the scammers’ tricks, but because they know some feel so desperate they’ll believe anything.

Debt Can Make You Sick — Literally

“Mired” is a term often used with debt. It means to be hopelessly stuck, like in mud, and you know that this is what being deeply in debt can feel like. The greater the debt, the worse the psychological impact. Everyone knows debt can give you anxiety and cause you to have trouble sleeping. But in turn, these effects of living with debt can cause real, physical health issues.

Debt.org cites a Psychology Science study that said people who are unemployed are more likely to buy over-the-counter painkillers. Mental pain can lead to physical pain. A recent CBS news report said that the stress of being in debt raises the risk of many illnesses such as diabetes, heart disease, back pain, ulcers and headaches and can even give you more colds.

Debt problems can lead to problems elsewhere in your life, so it’s important to make a plan to get out.

Debt Forgiveness Solutions

You may have heard of debt forgiveness programs and thought they sounded too good to be true. Who doesn’t want their debts forgiven?

It is possible, but make no mistake, it isn’t easy, and anyone who tells you it is lying.

Debt forgiveness is different from declaring bankruptcy. While this option also wipes out your debt, it comes with different rules and different strings attached. It can take longer than bankruptcy as well, plus it doesn’t stop the harassing phone calls the way bankruptcy does.

Bankruptcy is overseen by the court system. It can be harsh — and scary — but you can at least feel confident the judicial system isn’t scamming you. With a private company you may never heard of, you don’t get the same peace of mind.

Debt forgiveness
Average student loan debt for those graduating in 2016 was $37,172.

Student Loan Debt Forgiveness

Student loans are notorious not just for their staggering amounts, but because it’s almost impossible to get rid of them. Declaring bankruptcy doesn’t wipe away student debt. Defaulting on the loan doesn’t get you out of paying; it only makes the fines, interest, and penalties balloon out of control.

Federal Student Aid, which is part of the Department of Education, outlines some ways to get your student loans forgiven.

One is through public service. With this program, you apply to work full-time for one of their approved employers — generally a government agency or nonprofit — and agree to make 120 payments on your loan. The balance is then discharged.

Do the math on this one — 120 loan payments is 10 years of paying. While this can be a deal for some, they don’t make it easy. And what if you lose your job at the qualifying employer? Or what if you make a late payment?

Ten years is a long time for nothing to go wrong.

Student Debt Forgiveness and Teaching

Another way to get student loan debt forgiveness is through a teacher program. To take part, you must work as a teacher at a school in a low-income area or at an educational service agency for five years in a row.

To be considered eligible for the program, you must be a “highly qualified” teacher — a designation that comes with a host of requirements. These include holding certain certifications, undergoing competency testing and more.

And completing this program won’t erase your student loan debt — the max forgiveness amount is $17,500. To get this top amount, you must either teach math or science in a secondary school or work as a special education teacher with students with disabilities in elementary or secondary school.

If you don’t work in either of these capacities, the most you can get forgiven is $5,000. You could probably make that much checking out groceries at Costco in one summer, so weigh your options carefully here.

Also understand that if you get to the finish line and some of your debt is forgiven, the IRS counts this as income that you have to pay taxes on.

Debt forgiveness
Credit card debt for the average U.S. household is about $16,000.

Credit Card Debt Forgiveness

Credit card debt forgiveness is a process that usually won’t haunt you as long as student debt forgiveness, but it can drag on for years.

You can legitimately negotiate a settlement with your with a credit card company. Let’s say you owe $20,000 and you offer to settle for $10,000. The company is already concerned that you won’t pay any of it, so they might be tempted by the $10K offer. But — and there are a lot of buts — it’s not as simple as having your parents write them a check.

First, you must be at least three months behind on your payments in order for the credit card company to even consider negotiating with you. Being this far behind in paying your debts is a credit killer. If you are already in this spot, you have nothing to lose. But if you plan to stop making payments for several months as part of a strategy you are using to secure credit card debt forgiveness, it’s not worth it.

There is no guarantee they will accept your settlement offer. And even if they do, a debt settlement on your credit report will seriously harm your credit score.

How Credit Card Debt Forgiveness Works

According to the Federal Trade Commission, these companies frequently advise you to stop making monthly payments on your credit card debt and instead put the money into an escrow account that they will use to pay your settlement at the end of a specific time period, often 36 months. The FTC warns that consumers frequently have trouble making these payments. You could end up losing the money as well as the settlement deal and be in an even worse position because you’ve racked up more interest and done more damage to your credit score.

Further, the FTC says that debt settlement companies often negotiate smaller debts before larger debts. This makes them look legit and successful, but it hurts you financially because the larger debts are growing and accruing more interest and fees. And in the end, the credit card company may not even agree to a settlement, leaving you with even more debt.

Further Caveats

Keep in mind that if you hire an agency to negotiate a settlement on your behalf, you will have to pay them as well. However, the FTC says that it is against the law to collect this fee before a debt is settled when the company is engaged in telemarketing. If you make a deal via mail, in person or using another method, the same protections may not apply.

The FTC warns consumers against any debt forgiveness company that makes guarantees, talks about new government programs that will wipe out your debt or tells you to stop making payments on your debt without explaining the consequences to your personal financial reputation and credit score.

Debt can feel like a heavy weight, and it affects many facets of your life. One way to get out of debt is to pursue a debt forgiveness program. But despite its name, this too comes at a cost. Weigh your options and consult a reputable professional to help you come to a decision about the best way for you to get out of debt.


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