- When you can no longer make payments on existing debts, you may qualify for loan forgiveness.
- A judge or creditor can grant debt forgiveness.
- Creditors often agree to concessions when it is clear you can no longer afford to pay the total amount owed.
- Loan forgiveness can enable you to pay off debt faster for less money.
Debt forgiveness sounds like an excellent route when facing large amounts of high-interest debt that continuously keeps you poor. As a substitute to making the minimum payment on your credit card bills, you convince your lender to reduce what you owe so you can pay the debt off quicker.
How does that work? Is it realistic to believe a creditor would accept new loan terms that benefit you?
Whether you are currently late on your payments or you are running out of room on your credit card limits, you may want to seek ways to reduce debts without having to pay the entire amount that you owe. Fortunately, there are times when you can qualify for forgiveness of some debts.
What Debts Will Creditors Forgive?
There are two primary classifications of debt: secured and unsecured.
Secured debts have collateral the lender can confiscate if you fall behind on your loan. For example, your home secures your mortgage, and your vehicle provides collateral for your car loan. In most cases, lenders will not forgive secured debts.
Unsecured debts do not have collateral and tend to have higher interest rates because the lender has fewer ways to collect if you are unable to pay. Some unsecured debt, like student loans, have specific programs that allow you to qualify for loan forgiveness.
Other accounts like credit card bills, personal loans, and medical debts only forgive balances if your financial circumstances prevent you from paying the debt in full.
Ways You Can Qualify for Debt Forgiveness
Bankruptcy: When you think of credit card forgiveness, filing bankruptcy is the first thing that may come to mind. The Chapter 7 bankruptcy process could allow you to eliminate debts without repayment, if you qualify. Earning above the median income in your state could mean that you must repay creditors before you will qualify for loan forgiveness, even in bankruptcy.
Bankruptcy could discharge most of your unsecured debts with court oversight.
Credit Counseling Works with consumers who can repay the full balance within five years. Once you enroll accounts in a debt management plan (DMP), you begin making payments to creditors through a credit counseling agency. Instead of forgiving existing loan balances, creditors offer to reduce your interest rate and waive late fees.
Debt Negotiation gives you more control because you (or a debt settlement company) negotiate the new account terms. To qualify, you must be late on payments and have enough money saved to offer a lump sum or series of payments. Creditors will expect you to pay off the debt within a year of accepting the new loan terms.
Debt settlement companies negotiate on your behalf and help you save the money required for the debt payoffs. You could avoid paying thousands of dollars in debt and eliminate balances through debt negotiation within two to four years.
Debt negotiation makes it possible to receive forgiveness of a portion of your debts without the stigma of bankruptcy.
Getting Help with the Loan Forgiveness Process
While the concept is simple, the process is fraught with complexities that could derail your efforts. Debt settlement companies understand the laws involved and know what actions could become roadblocks to your debt elimination journey. Companies that negotiate work with lenders regularly and understand what terms a creditor is likely to accept. The program also provides guidance on how to save enough to meet the newly negotiated loan terms required to receive debt forgiveness.
