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Is Credit Card Debt Forgiveness Legit and How Do I Apply?

Jessica Merritt's image
Jessica Merritt
Jessica Merritt's image

Jessica Merritt

Editor & Content Contributor

94 Published Articles 514 Edited Articles

Countries Visited: 4U.S. States Visited: 23

A long-time points and miles student, Jessica is the former Personal Finance Managing Editor at U.S. News and World Report and is passionate about helping consumers fund their travels for as little ca...
Edited by: Keri Stooksbury
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Keri Stooksbury

Editor-in-Chief

36 Published Articles 3273 Edited Articles

Countries Visited: 47U.S. States Visited: 28

With years of experience in corporate marketing and as the executive director of the American Chamber of Commerce in Qatar, Keri is now editor-in-chief at UP, overseeing daily content operations and r...

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Credit card debt doesn’t go away easily — not even when you die. While credit card debt forgiveness can be an option if you have major debt you can’t pay, it’s rare and requires getting a debt settlement agreement.

Let’s get into the details of debt forgiveness and whether it’s an option you can — or should — consider.

Is Credit Card Debt Forgiveness Real?

Debt forgiveness is real, but it sounds much rosier than it really is. The term debt forgiveness might have you thinking that credit card companies will let you walk away from debt with no consequences if you ask nicely. That’s just not happening.

The reality is that you might be able to get a debt settlement negotiation, but it will negatively affect your credit score for years — and you’ll have to pay at least some of your debt.

Government debt relief programs don’t really exist, even if you’ve gotten spammy emails offering help from one. While the Federal Trade Commission (FTC) offers extensive educational resources, fraud alerts, and advice for managing debt, you won’t find a government program for settling your debt.

There’s also the Servicemembers Civil Relief Act of 2003 (SCRA) that can offer better financial terms to active-duty service members, but it’s not a debt relief program.

While real, credit card debt forgiveness is usually not your best option for managing credit card debt. Better alternatives include using a balance transfer card or debt consolidation loan.

You could also reach out directly to the credit card issuer to ask about credit card relief programs. For serious credit card debt situations, nonprofit credit counseling or bankruptcy can offer a better way out than debt settlement programs.

What Is Debt Forgiveness on a Credit Card?

Credit card debt forgiveness is when your credit card issuer forgives some (or all) of what you owe on your credit card account. You’ll settle your account for less than what you owe and won’t have to pay the full amount.

While that sounds great in theory, the reality of credit card debt forgiveness is you’ll probably pay a lot in fees and interest, severely damage your credit history, and may never actually settle any debt.

How To Get Credit Card Debt Forgiveness

You can try to get credit card debt forgiveness if your credit card account is in bad shape. The thinking is that you get a credit card debt settlement offer — which allows you to settle your account for less than what you owe — if the creditor believes you won’t pay the full amount. It’s a strategic move by the credit card company to get some of what you owe rather than none. 

If you’re struggling with your credit card account, you can contact the credit card issuer to ask for a debt settlement offer. The credit card company is likely to offer alternatives first, such as debt relief programs that may close your account and lower your interest rate, but still require you to pay off the full balance including interest charges.

Some people will also work with a debt settlement company to negotiate debt forgiveness offers. These companies contact the credit card company on your behalf to settle your debt. You’ll usually have to enroll in a debt settlement program, stop making credit card payments, and make payments to the program for a few years before you can get a settlement offer — which may never come.

Whether you negotiate directly with the credit card company or use a debt settlement company to negotiate for you, there’s no guarantee the credit card company will accept a settlement offer. There’s a very real chance you’ll still have to pay the full amount you owe, plus any late fees and interest charges.

Hot Tip: If you’re able to get a credit card debt settlement offer, you’ll also likely have to pay taxes on the settled amount.

Do You Get Credit Card Debt Forgiveness When You Die or Become Disabled?

You’ll usually have to work pretty hard to get credit card debt forgiveness, but what about if you die with credit card debt? While your survivors are generally not responsible for paying your credit card debt, there’s no credit card debt forgiveness upon death, so your estate still has to manage those debts. 

Any credit card debt you still owe when you pass away will have to be paid out of assets from your estate before you can pass on the value of those assets to your heirs. If you die without assets or have insufficient assets to pay off all of your debt, the credit card company will write off your debt.

What about credit card debt forgiveness for disability? There’s no credit card forgiveness for disabled people, including disabled veterans, but you do have some protection if you receive disability income. While credit card debt will not be forgiven if you become disabled, there are limitations if you’re sued for credit card debt

For example, if you are disabled, creditors may not be allowed to get a judgment to garnish your wages or accounts or place liens on your property — or it may be very difficult for them to do so. There are also limits on garnishment if the credit card company is able to get a judgment against you. Garnishment is a court order that allows creditors to seize assets to satisfy a debt.

If you’re disabled, you may also be eligible for a financial hardship plan with the credit card company.

There is also no automatic credit card debt forgiveness for elderly people, cancer patients, or people with mental illness. However, people in these groups may qualify for protection against debt collection lawsuits if they collect disability income.

What Debt Relief Options Do Credit Card Issuers Offer?

Most credit card issuers offer debt relief programs for customers who struggle to pay credit card bills. These credit card debt relief programs may be an option for you if you’re considering debt forgiveness, especially if you’ve experienced financial disruption such as job loss, divorce, or major medical expenses.

For example, when you enroll in the American Express Financial Relief Program, you can get temporarily lower monthly payments and interest rates. Amex has a short-term 12-month benefit option or a long-term payment plan of 36 or 60 months. When you’re enrolled in the program, Amex will waive any late payment or annual membership fees.

Charging privileges are usually suspended when you’re enrolled in a financial hardship program, or you may have a reduced spending limit.

When you’re having trouble making monthly payments, you should reach out to your credit card issuer as soon as you know you’re in trouble. The earlier you get in touch, the more hardship options you may have. Ideally, you should reach out before you miss a payment, but you can still get help after missed payments.

Other major credit card issuers offer credit card debt relief programs, including:

What Happens When You Stop Paying Your Credit Card Bills?

Woman on phone looking at bill
If you don’t make your credit card payments, the credit card issuer will start collection activity while charging you interest and fees. Image Credit: wavebreakmedia via Shutterstock

When you stop making credit card payments, your credit card balance will grow, and collection activity such as phone calls, texts, emails, and letters demanding payment will start. The credit card issuer will add late payment fees to your balance and increase your interest charges with a penalty APR

When your credit card payment is far past due — such as 60 days, 90 days, or more — your account may be sent to a collection agency. Even if your account is sent to a debt collection agency, interest can still accrue.

You might get lucky and the worst thing that happens is your credit report takes a hit from all the missed payments. Or, you could be sued for past-due credit card debt, either by a debt collector or the credit card issuer. However, there is a statute of limitations that can protect you from lawsuits on years-old debt, usually in the 3- to 6-year range, depending on your state’s laws.

How Long Do Charged-off Accounts Stay on Your Credit Report?

Even if you’re able to get a debt settlement offer, the negative account may remain on your credit report with a note that it was settled for less than the full amount. Negative accounts can stay on your credit report for up to 7 years from the date of the first delinquency.

Settled debts with partial payments do not strike confidence in potential creditors looking at your credit report. They want to offer credit cards and loans to customers who will pay back all of what they owe — if you use a debt settlement offer, that’s not you.

Should You Enroll in a Credit Card Debt Forgiveness Program?

In a word, no. It’s hardly ever a good idea to enroll in a credit card debt forgiveness program. Debt forgiveness is riddled with scams — but even legitimate debt forgiveness programs are usually a terrible option for managing debt.

How debt forgiveness programs work:

  • A credit card debt forgiveness program negotiates with the credit card company on your behalf to get a debt settlement offer. 
  • If you get a debt settlement offer, you’ll make a lump sum payment for less than the amount you owe. 
  • The debt forgiveness program will typically ask you to pay the debt settlement company an amount every month that you can use to make the lump sum payment when a settlement offer comes.

You’ll probably encounter lots of questionable advice as you look for debt forgiveness. For example, a debt settlement program might advise you to stop paying your credit card bills entirely

The thought is if you stop making payments, the credit card company will be more likely to agree to the settlement terms the debt relief company proposes. While stopping payments to get a debt settlement offer can be an effective strategy, it can be very problematic. 

Why It’s a Mistake to Stop Credit Card Payments

When you stop making credit card payments, all of those late and missed payments will go on your credit report and plague your credit history for up to 7 years from the date of your first missed payment. 

A few missed payments over the years won’t completely tank your credit score, but it’s a different story if you’re systematically missing multiple payments in a row and then settling the debt for less than what you owe.

You might walk away with a credit card debt settlement offer when you use this strategy, but you may find it difficult to get decent offers for a credit card, loan, or any other product that relies on good credit for the next few years.

The other problem with this strategy is it opens you up to a lawsuit from the credit card company. When you stop making credit card payments, the credit card company is within its rights to collect payment from you, up to and including taking you to court. 

If the credit card company is able to get a judgment in their favor — which shouldn’t be difficult with financial documentation — you could see paychecks, tax returns, and other income garnished to pay the judgment. They could even put a lien on your home. And at that point, you won’t just pay for your original debt. You’ll pay for late fees, court costs, and other penalties that can majorly inflate the bottom line of what you owe.

Need more information about why debt forgiveness programs are generally bad news? The FTC warns against the following risks of working with a debt settlement company:

  • You may have to make payments to the debt settlement company for 3 years or more before you can settle your debts — and some people drop out of the program before that point.
  • Even if you’re working with a debt settlement company, your creditors can always say no and refuse to let you settle your account for less than what you owe.
  • Stopping payments to creditors can have a negative impact on your credit report, add penalties and late fees to your debt, and put you at risk of a lawsuit that could result in wage garnishment or a lien on your home.

Hot Tip: With all the fees and extra charges you rack up from missed credit card payments and debt settlement programs, the savings you see from a settlement may be negligible.

Watch Out for Debt Settlement Scams

The FTC also warns against debt settlement scams, which may include guarantees that aren’t based in reality, like promising to settle your debt for a certain amount or telling you that all collection calls will stop once you sign up for the program.

A dead giveaway you’re dealing with a debt settlement scam is any mention of a “government debt relief program” — which doesn’t exist. However, there is the 2010 Credit Card Debt Relief Act that stops debt settlement companies from charging upfront fees, so if you’re asked to pay fees before you get a settlement offer, it’s probably a scam.

Bottom Line: For most people, working with a debt settlement company to get credit card debt forgiveness isn’t worth it.

Alternatives to Debt Forgiveness

Filing for Bankruptcy
Bankruptcy is an alternative to debt settlement programs. Image Credit: Minerva Studio via Shutterstock

Debt forgiveness programs are usually not the best option available to you. Consider these alternatives that could give you a better way to get out of credit card debt:

  • Balance Transfer Cards — If you think you can pay off credit card debt within about 18 months, a 0% interest balance transfer card could be a great option. You’ll need to get approved for a balance transfer credit card that offers a high enough credit limit to move your existing credit card debt and be sure to pay off the balance before the promotional 0% interest rate expires.
  • Debt Consolidation Loans — Dealing with more debt than you can handle with a couple of years of payments? A debt consolidation loan is a more long-term solution that can help you pay off debt with predictable payments — with no revolving balances on credit cards.
  • Credit Card Relief Programs — Contact your credit card issuer to talk about the debt relief options available. They may be able to enroll you in a program that helps make payments more manageable. For example, the issuer might close your account to new charges and lower your interest rate so you can pay off the balance easier.
  • Credit Counseling — Credit counseling might sound similar to debt relief programs, but it’s not the same thing. A reputable nonprofit credit counseling service can help you sort through your financial situation and make a plan to deal with credit card debt and other financial issues. Credit counselors may also offer pre-bankruptcy counseling to help you decide if bankruptcy is the right option for you.
  • Debt Negotiation — You don’t have to use a debt settlement program to negotiate a debt settlement offer from a credit card company. Although debt forgiveness programs may have more experience and tricks up their sleeve than you do, there’s nothing a debt forgiveness company can do that you can’t handle on your own without paying hefty program fees. You can always contact your credit card issuer directly to try and negotiate a debt settlement offer.
  • Bankruptcy — Bankruptcy is intimidating, but it can be a brave choice that sets your finances straight. It’s a far more clear-cut option than debt forgiveness programs and could get your finances to a better place more quickly, rather than spending years treading water with unmanageable credit card debt.

Final Thoughts

Debt forgiveness is possible, but it’s not a great option. While you can probably get a debt settlement offer from your credit card, it’s a tough road to get there and you could get sued while you try to get to that point. And if you do get a debt settlement offer, you’ll still have to pay at least some of what you owe, plus pay taxes on the settled amount as if it was income. 

For many people with major credit card debt, there are much better alternatives to debt forgiveness. If you’re facing credit card debt you can’t pay, talk to a nonprofit credit counselor who can help advise you on your next steps.

Frequently Asked Questions

Is credit card debt forgiveness taxable?

Yes, credit card debt forgiveness is taxable. You’ll receive a 1099-C “Cancellation of Debt” form for the amount of the debt that was forgiven, and it’s taxed the same as income.

Is credit card debt forgiveness a scam?

Credit card debt forgiveness is real, though there are scams out there. Be wary of debt settlement companies that make grand promises such as settling all of your debt for pennies on the dollar or immediately stopping collection calls using a new government debt relief program. These are all warning signs you’re dealing with a debt forgiveness scam.

How long can credit card debt be chased?

You can owe credit card debt for the rest of your life — and after you die, your estate must settle credit card debts before your heirs can inherit any assets. But states have set statutes of limitations on lawsuits for credit card debt, usually 3 to 6 years.

How can I settle credit card debt without ruining my credit?

The best way to settle credit card debt without ruining your credit is to work with the credit card company’s hardship program. In these debt relief programs, the credit card issuer can offer you payment options that can keep your account current and protect your credit rating, usually with reduced payments and interest rates.

How long before credit card debt is uncollectible?

Credit card debt is subject to collection activity indefinitely, but you’re protected from lawsuits after the statute of limitations has passed. The length of the statute of limitations depends on your state but is generally 3 to 6 years.

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About Jessica Merritt

A long-time points and miles student, Jessica is the former Personal Finance Managing Editor at U.S. News and World Report and is passionate about helping consumers fund their travels for as little cash as possible.

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