Dragging that debt around has worn you out, and you need to do something – fast. You’ve been mulling debt forgiveness but you’re unsure what all the strategy entails. Well, you’re in luck: here’s the truth about debt forgiveness.
What Is Debt Forgiveness?
On a basic level, debt forgiveness is when a lender forgives a portion or all of what you owe. Let’s examine some of your debt forgiveness options.
Student Loan Debt
Loan forgiveness or cancellation here hinges upon your earnings, your line of work, and how much you owe. For some programs, you need to be in certain fields such as public service or education. Other programs are for specific situations including bankruptcy.
If you have a federal student loan, you could get relief through a direct consolidation loan, which rolls multiple loans into one, streamlines repayment, and usually gives you better rates and terms.
Also, the Education Department has repayment options that are based on your income, how much you’re deemed able to pay, and your family size. Note, though, that potentially lower payments and longer repayment periods may mean that you’ll fork over more in interest over the long haul.
Credit Card Debt
Such forgiveness is when your credit card issuer pares the amount you owe, usually because you’ve ceased making payments and, well, something is better than nothing.
You may wonder how credit card debt relief works. One approach is a debt settlement agreement in which you negotiate with your card issuer on an amount you can pay, and the balance is forgiven. While you can handle this by yourself, it’s best to hire an experienced company such as Freedom Debt Relief to represent you.
You can also try a balance transfer, which involves shifting your credit card balance to another card, but one with an introductory lower interest rate – ideally zero percent. You must pay a fee, though, and you should first determine whether you can pay off your debts before the promotional period – usually about a year – is over, and rates shoot back up.
Debt consolidation is also an option with credit cards. While this strategy won’t necessarily forgive your balance, it can stop gratuitous interest from piling up while you clear what you owe. You can consolidate your debt through a personal or home equity loan.
You may not be able to get a personal loan that can save you money if your credit is bad, however. A home equity loan is like a personal loan, but your property will be used as collateral. While you’ll likely get a favorable interest rate, your house is on the line should you default.
You can also consider bankruptcy, a process through which some or all your credit card debt could be legally discharged. You still may be required to give up some assets or repay your obligations over time, depending on what kind of bankruptcy is employed. This is a last resort strategy since the filing will stay on your record for a decade and your credit score will suffer.
In Chapter 7. Under this process, the court will discharge your credit card debts. However, a portion of your property will be sold, with the proceeds going to your creditors.
In Chapter 13. Here, your obligations aren’t discharged right away. Instead, you’ll have a three- to five-year payment plan. The court also has the option to lower the total amount you must pay.
Now you know the truth about debt forgiveness. Your main takeaway should be that, if you’re up to your ears in debt, you shouldn’t put off planning. The sooner you put together a plan of action, the sooner you’ll be on the road to a debt-free future.